| A | B |
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| Capital stock | The account that represents the total amount of investment in the corporation by its stockholders. |
| Stockholders’ equity | The value of the stockholders’ claims to the corporation. |
| Retained earnings | A corporation’s accumulated net income that is not distributed to stockholders. |
| Comparability | Accounting characteristic that allows the financial information to be compared from one period to another period or between two businesses. |
| Reliability | A characteristic requiring that accounting information be reasonably free of bias and error. |
| Relevance | An accounting characteristic requiring that all information that would affect the decisions of financial statement users be disclosed in the financial reports. |
| Full disclosure | Accounting principle requiring a financial report to include enough information to be complete. |
| Materiality | An accounting guideline stating that information considered important should be included in financial reports. |
| Net sales | The amount of sales for the period less any sales discounts returns and allowances. |
| Net purchases | The total cost of all merchandise purchased during a period less any purchases discounts returns and allowances. |
| Gross profit on sales | the amount of profit made during the fiscal period before expenses are deducted. |
| Operating expenses | The cash spent or assets consumed to earn revenue for a business—does not include federal income tax expense. |
| Selling expenses | expenses a business incurs to sell or market its merchandise or services. |
| Administrative expenses | Costs related to the management of a business. |
| Operating income | The excess of gross profit over operating expenses—taxable income. |
| Vertical analysis | A method of analysis that expresses financial statement items as percentages of a base amount. |
| Statement of retained earnings | A financial statement that reports the changes in the retained earnings account during the period. |
| Horizontal analysis | the comparison of the same items on financial statement for two or more accounting periods or dates. |
| Base period | A period that is used for comparison in financial statement analysis—usually one year. |
