Investment and Finance

Liabilities are everything that a business owes its creditors. Examples include: accounts payable and notes payable.

Common stock is money paid by investors in order to own a piece of the company.

Retained Earnings are the cumulative total of all earnings, net of dividends, that have been retained and reinvested in the business since its inception.

The income statement is the profit and loss statement of a business. It shows the performance of a business over a period of time such as a month or quarter or year. The income statement is preferable prepared in comparative form to show changes from the preceding year. Extraordinary gains and losses of material amount should be shown separately. Also for public companies earnings per share should be presented on the income statement. The basic accounting formula is Sales Revenues minus Expenses = Income or Loss.

The Statement of Retained Earnings reconciles the net income earned during a given period and any cash dividends paid with the change in retained earnings between the start and end of that period. The basic accounting equation is Beginning Balance, plus Net Income or Loss for the period, minus Dividends declared = Ending balance. The statement of Retained Earnings is frequently combined with the income statement.

Par value is a per-share value arbitrarily assigned to an issue of common stock for accounting and financial statement purposes. Par Value is the face or nominal value of a security. A dollar amount is assigned to a share of common stock by the corporation's charter. Many corporations do not assign a par value to new issues. For preferred shares or bonds, par value has importance because it signifies the dollar value on which the dividend/interest is figured and the amount to be repaid upon redemption. Preferred dividends are usually expressed as a percentage of the stock's par value. The interest on bonds is expressed as a percentage of the bond's par value.

Paid-in capital in excess of par as it relates to financial statements is the amount of proceeds in excess of par value received from the original sale of common stock.

A stockholder's report is an annual report required of publically held corporations that summarizes and documents the company's financial activities during the past year for stockholders.

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