Ch 3: Business Financing And Accounting Rules Flashcards
What is business financing?
basically businesses need money to carry out their activities, the amount needed is dependant on the size and type of business. Financial resources can be obtained through bank loans, issuance of stock, bonds, selling or pledging accounts receivable, creation of security interests in movable property, use of commercial papers etc.
What is equity financing?
possible when having new investors that want to become owners of a company and they pay for it, downside is that ownership interest of original owner is diluted.
What is debt financing?
resumes at borrowing money that imposes the payment of interest and the repayment of the loan on time in order to maintain a good business and financial situation. Can be short term, medium term or long term according to when money needs to be repaid.
What are the 2 types of bonds and how can they be secured.
Ones that are issues nominally aka a particular persons name appears on the bond, registered form bonds.
ones that can pass from one person to another without any formality thus the bearer of the bond owns it, bearer form bond.
bonds can also be secured goods aka land buildings machinery being offered as collateral so company pays debts. Theres also unsecured for which collateral is not pledged. Bonds can exist in electronic format or in hard format.
What are accounts receivable?
used by small companies to short term finance their company. They are the amounts of money owed to the company that are not yet paid to it by persons or other business entities that are beneficiaries of goods or services provided by the company.
What are the 2 ways in which accounts receivable can be received?
-Using accounts receivable as collateral to get a bank loan, however bank will not match with exact value, also company usually has to notify public that it will do that avoiding that other creditors could provide loans for the already pledged accounts recevable.
-to sell the account receivables to bank for cash, thus the people who have to pay will be notified that they gotta pay the bank.
What are security interest?
can also be used as short term finance, usually movable property of company is used as collateral to secure a bank loan.
What are factoring/forfeiting?
financing way, refers to transaction in which a bank guarantees a promissory note issues by buyer, used in international sale of goods when buyer and seller do not know each other.
What are acceptances?
short term financing, its a promise made by the drawee to say that payment will be honoured at maturity.
What are the 2 kinds of commercial papers financing?
of 2 kinds, promissory note and bill of exchange.
What is a promissory note?
written dated and signed payment between 2 parties containing an unconditional promise by a maker to pay a specified sum of money to a payee on demand at specific date
What is a bill of exchange?
written, dated and signed payment instrument between 3 parties containing unconditional order by a drawe that directs a drawer to pay a definite sum of money to a payee on demand or at specific future date.
What are accounting rules where were they made by whom what year. What are the 2 methods to keep uniformity in bookkeeping?
they differ from country to country but here are a few rules (the international accounting standards board works on harmonising accounting around the world. Some history on accounting: begins with Italy in 1494, Luca pacioli was the first person to publish a double entry/ bookkeeping work. Same happened in Northern Europe in the 17th and 18th century. In 1673 in france an ordinance was given forcing merchants to follow orderly record keeping norms. Later in 19th century legislation was created to protect shareholders in corporations. Also some other stuff said here is ways to keep uniformity in accounting which is by using same od to record value of unsold goods aka the method uniformity. There is also uniformity over time which is just that the accountants are supposed to use the same method every year but if changed needs to be justified.
What are dispositive requirements?
regulatory requirement imposed by the government; means that c company needs to take or refrain from taking an action based on its financial circumstances such as for example, they cannot give shareholders dividends unless they have more than that amount.
What are disclosures requirements?
obligates the managers of a company to report periodically to its owners or to their representatives. These reports enable shareholders and owners of the company to take decisions regarding it also it should divulged to the gov, employees, potential investors. A common rule regarding this is the issuance of an annual report regarding the financial situation of the company.
