Financial Statements Glossary

Financial Statements

Financial statements are formal records summarizing a company’s financial activities and position. They include the balance sheet, income statement, cash flow statement, and statement of changes in equity. These reports help stakeholders assess performance, compliance, and financial health.

Balance Sheet

A balance sheet presents a company’s assets, liabilities, and equity at a specific date. It shows what a business owns and owes, providing insight into liquidity, solvency, and financial stability. It is a core financial statement used by investors and regulators.

Income Statement

The income statement reports a company’s revenues, expenses, and profits over a specific period. It highlights operational performance and profitability. Also known as the profit and loss statement, it helps management and stakeholders evaluate business efficiency.

Cash Flow Statement

A cash flow statement shows the inflow and outflow of cash from operating, investing, and financing activities. It helps businesses assess liquidity and cash management, ensuring the company can meet short-term obligations and fund future growth.

Statement of Changes in Equity

This statement explains changes in owner’s equity over a reporting period. It includes capital contributions, retained earnings, dividends, and profits or losses. It helps stakeholders understand how equity has evolved over time.

Assets

Assets are economic resources controlled by a business that provide future benefits. They include current assets like cash and receivables and non-current assets such as property and equipment. Assets are reported on the balance sheet.

Liabilities

Liabilities represent financial obligations a business owes to external parties. These include loans, payables, and accrued expenses. Liabilities are classified as current or non-current and play a key role in assessing financial risk.

Equity

Equity represents the residual interest in a business after deducting liabilities from assets. It includes share capital, retained earnings, and reserves. Equity reflects the owners’ stake and long-term financial strength of a company.

Current Assets

Current assets are assets expected to be converted into cash within one year. Examples include cash, inventory, and accounts receivable. They indicate short-term liquidity and are critical for working capital management.

Non-Current Assets

Non-current assets are long-term assets used in business operations, such as buildings, equipment, and intangible assets. They are not intended for resale and are reported at depreciated or amortized values.

Current Liabilities

Current liabilities are obligations due within one year, including accounts payable, short-term loans, and accrued expenses. Managing current liabilities effectively ensures smooth cash flow and financial stability.

Non-Current Liabilities

Non-current liabilities are long-term obligations payable beyond one year, such as long-term loans and lease liabilities. They reflect a company’s long-term financial commitments.

Revenue

Revenue is income generated from a company’s primary business activities. It is recognized according to accounting standards and reported on the income statement. Accurate revenue reporting ensures transparency and compliance.

Expenses

Expenses are costs incurred to generate revenue, such as salaries, rent, and utilities. They are recorded in the income statement and directly impact profitability.

Gross Profit

Gross profit is calculated as revenue minus cost of goods sold. It reflects how efficiently a company produces goods or delivers services before operating expenses.

Net Profit

Net profit is the final profit after deducting all expenses, taxes, and interest from revenue. It indicates overall business profitability and is a key performance metric.

Cost of Goods Sold (COGS)

COGS represents direct costs attributable to production or service delivery. It includes materials, labor, and overheads and is deducted from revenue to calculate gross profit.

Operating Expenses

Operating expenses are indirect costs required to run a business, such as administration, marketing, and office expenses. They affect operating income.

Operating Income

Operating income is profit generated from core business operations, excluding non-operating income and expenses. It reflects operational efficiency.

Other Income

Other income includes earnings not generated from primary operations, such as interest income or asset disposal gains.

Depreciation

Depreciation allocates the cost of tangible assets over their useful life. It reflects asset wear and tear and reduces asset value on the balance sheet.

Amortization

Amortization spreads the cost of intangible assets over their useful life. It ensures expenses are matched with economic benefits.

Accrued Expenses

Accrued expenses are costs incurred but not yet paid or recorded. Recognizing them ensures accurate reporting under accrual accounting.

Prepaid Expenses

Prepaid expenses are payments made in advance for future benefits, such as rent or insurance. They are recorded as assets initially.

Accounts Receivable

Accounts receivable represent amounts owed by customers for goods or services provided on credit. They are reported as current assets.

Accounts Payable

Accounts payable represent amounts owed to suppliers for goods or services received on credit. They are short-term liabilities.

Inventory

Inventory includes goods held for sale or production. Accurate inventory valuation ensures correct profit reporting.

Retained Earnings

Retained earnings are accumulated profits reinvested in the business rather than distributed as dividends.

Dividends

Dividends are distributions of profits to shareholders. They reduce retained earnings and equity.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and highly liquid investments. They represent immediate liquidity.

Working Capital

Working capital is the difference between current assets and current liabilities. It measures short-term financial health.

Liquidity

Liquidity refers to a company’s ability to meet short-term obligations using current assets.

Solvency

Solvency measures a company’s ability to meet long-term obligations and sustain operations.

Financial Position

Financial position reflects a company’s overall financial health at a given time, shown primarily through the balance sheet.

Accounting Period

An accounting period is the time frame for which financial statements are prepared, such as monthly, quarterly, or annually.

Accrual Accounting

Accrual accounting records income and expenses when they are earned or incurred, not when cash changes hands.

Cash Basis Accounting

Cash basis accounting records transactions only when cash is received or paid, offering simplicity but less accuracy.

Fair Value

Fair value represents the estimated market value of an asset or liability at the reporting date.

Historical Cost

Historical cost records assets at their original purchase value, regardless of market changes.

Materiality

Materiality refers to the significance of financial information that could influence decision-making.

Notes to Financial Statements

Notes provide additional details and explanations supporting the figures in financial statements.

Audit Report

An audit report expresses an auditor’s opinion on the accuracy and fairness of financial statements.

Going Concern

The going concern assumption assumes the business will continue operations in the foreseeable future.

Matching Principle

The matching principle requires expenses to be recorded in the same period as related revenues.

Consistency Principle

This principle requires consistent accounting methods across periods for comparability.

Prudence Concept

The prudence concept ensures cautious recognition of income and expenses to avoid overstating profits.

Comparative Financial Statements

Comparative statements show financial data for multiple periods to analyze trends and performance.

Common-Size Financial Statements

Common-size statements express financial items as percentages, improving comparability.

Segment Reporting

Segment reporting breaks financial data into business or geographical segments.

Consolidated Financial Statements

Consolidated statements combine parent and subsidiary financial results into one report.

Earnings Before Interest and Tax (EBIT)

EBIT measures operating profitability before financing and tax costs.

Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA)

EBITDA assesses operating performance without accounting for non-cash and financing items.

Gross Margin

Gross margin shows gross profit as a percentage of revenue.

Net Margin

Net margin measures net profit relative to revenue.

Return on Assets (ROA)

ROA evaluates how efficiently assets generate profit.

Return on Equity (ROE)

ROE measures profitability relative to shareholders’ equity.

Debt-to-Equity Ratio

This ratio assesses financial leverage by comparing debt to equity.

Current Ratio

The current ratio measures short-term liquidity using current assets and liabilities.

Quick Ratio

The quick ratio evaluates liquidity excluding inventory.

Cash Flow from Operating Activities

This reflects cash generated from core business operations.

Cash Flow from Investing Activities

This shows cash used for or generated from asset investments.

Cash Flow from Financing Activities

This reflects cash related to loans, equity, and dividends.

Financial Reporting

Financial reporting is the process of preparing and presenting financial statements.

IFRS Compliance

IFRS compliance ensures financial statements meet international accounting standards.

Regulatory Compliance

Regulatory compliance ensures adherence to UAE laws and reporting requirements.

Month-End Closing

Month-end closing finalizes financial records for monthly reporting.

Year-End Closing

Year-end closing prepares financial statements for audits and compliance.

Adjusting Entries

Adjusting entries ensure accurate reporting at period-end.

Trial Balance

A trial balance checks equality of debits and credits.

General Ledger

The general ledger records all financial transactions.

Journal Entries

Journal entries record individual accounting transactions.

Internal Controls

Internal controls protect assets and ensure accurate reporting.

Audit Trail

An audit trail tracks transactions from origin to reporting.

Financial Analysis

Financial analysis evaluates performance using financial statements.

Management Reporting

Management reporting provides internal financial insights for decision-making.

Forecast Financial Statements

Forecast statements project future financial performance.

Budgeted Financial Statements

Budgeted statements outline expected financial results.

Pro Forma Financial Statements

Pro forma statements show hypothetical financial scenarios.

Interim Financial Statements

Interim statements cover periods shorter than a full year.

Restated Financial Statements

Restated statements correct errors from previous reports.

Disclosure

Disclosure ensures all relevant financial information is revealed.

Transparency

Transparency promotes clear and honest financial reporting.

Financial Accuracy

Financial accuracy ensures reliable and error-free statements.

Outsourced Financial Reporting

Outsourced reporting delegates financial statement preparation to experts.

Accounting Outsourcing

Accounting outsourcing provides professional financial services at reduced cost.

UAE Financial Regulations

UAE financial regulations govern business reporting and compliance.

VAT Disclosure

VAT disclosure reports tax-related figures accurately.

Statutory Financial Statements

Statutory statements are legally required financial reports.

Financial Governance

Financial governance ensures ethical and compliant reporting.

Financial Controls

Financial controls safeguard data integrity and accuracy.

Financial Health

Financial health reflects profitability, liquidity, and stability.

Business Valuation

Financial statements support accurate business valuation.

Investor Reporting

Investor reporting communicates financial performance to stakeholders.

Creditworthiness

Creditworthiness reflects a company’s ability to repay debt.

Risk Disclosure

Risk disclosure highlights potential financial risks.

Sustainability Reporting

Sustainability reporting includes long-term financial impact considerations.

Integrated Reporting

Integrated reporting combines financial and non-financial data.

Financial Integrity

Financial integrity ensures ethical accounting practices.

Decision-Making

Financial statements support informed business decisions.

Financial Statement Outsourcing Services

Financial statement outsourcing services provide expert preparation, compliance, and reporting support, helping UAE businesses reduce costs, improve accuracy, and meet regulatory requirements efficiently.