Credit Terms

Question 1

ABS

Answer 1

Asset-backed security

Question 2

Asset-backed security

Answer 2

A debit security collateralized by assets. Created from the securitization of any loans other than mortgage loans.

Question 3

Accelerated depreciation

Answer 3

A group of methods for achieving periodic reductions in the book value of fixed assets that make larger reductions in the early periods and progressively smaller reductions in the later periods. The offsetting entry is the depreciation expense.

Question 4

Acceleration

Answer 4

Making demand for payment in full for debt that has not yet matured. Usually, a remedy provided in a loan document for the lender to use in the event of default by the borrower.

Question 5

Acceleration clause

Answer 5

A provision in a loan document stating that the entire amount of unpaid indebtedness owed to the lender may become immediately due and payable if the borrower defaults.

Question 6

Accounts payable

Answer 6

A category of liabilities that represent funds due to the creditor. Sometimes called: Payables, accounts payable trade, due to trade, trade payables.

Question 7

Accounts receivable

Answer 7

An asset account that reflects amounts due from private persons or organizations for goods and services furnished.

Question 8

Accrual accounting

Answer 8

A method of accounting whereby economic activities rather than cash flow of a financial events are considered because of 2 complimentary principles which together determine the point at which expenses and revenues are recognized. According to revenue recognition principal, revenues are rerealized and earned, whether or not they are received cash. Jointly according to the matching principle incurred expenses are matched to related recognized revenues whether or not such expenses are actually paid in cash. A cruel accounting is required by US Generally Accepted Accounting Principles (GAAP).

Question 9

Accrued interest

Answer 9

Interest that has been earned but not yet paid

Question 10

Accumulated depreciation

Answer 10

The total of the periodic reductions for depreciation in fixed assets. Also called allowance for depreciation.

Question 11

Advanced rate

Answer 11

Is a provision sometimes used in lines of credit as a sublimit on the maximum amount that can be borrowed. Typically an advanced formula limits the amount that can be borrowed under a line of credit to the lesser of the amount of the line or some percent of accounts receivable collateral.

Question 12

Affirmative covenant

Answer 12

Is a provision in the loan documents that requires the borrower to do something in the future. For example a requirement for the borrower to provide annual audited financial statements to the bank during the term of the loan..

Question 13

Aging schedule

Answer 13

Is a report listing a borrower’s accounts receivable or payable balances by customer or supplier detailing the current status of the balances owed or owing

Question 14

Allowance for doubtful accounts

Answer 14

A reserve for accounts receivable that may not be collectable. The allowance is always shown as a reduction from gross receivables used to calculate net receivables. An example of a contra asset account.

Question 15

Allowances

Answer 15

Reductions to gross sales that occur when customers are given partial credit for sold goods that the buyer is not satisfied with

Question 16

Amortization

Answer 16

The process of making regular periodic decreases in the book or carrying value of an asset. Also liquidation of alone or security by means of periodic reductions. The principal amount of loans is amortized by the periodic payment of a fraction of the principle.

Question 17

Audited statements

Answer 17

The most reliable type of financial statements. The audit is based on information submitted by the client, and the CPA does not verify all of the information. Limits on the scope of the audit and on the CPA’s responsibility are described in the opinion letter that accompanies the audited statements

Question 18

Balloon payment

Answer 18

Is a contractually required loan payment almost always the final payment which is larger than the other contractually required periodic loan payments. It results from the fact that required periodic loan payments are too small to fully amortized the loan balance by the maturity date.

Question 19

Borrowing base

Answer 19

Is a collateral base agreed to by bank and borrower used to limit the amount of funds available to the borrower. A borrowing base specifies the maximum amount which can be borrowed in terms of collateral type eligibility and advanced rates

Question 20

Capital expenditures

Answer 20

Expenditures resulting in the acquisition of or addition to fixed assets. Is expenditures made for the purpose of acquiring capital assets. Is also known as CAPEX or CAPS.

Question 21

Capital expenditures

Answer 21

Expenditures resulting in the acquisition of or addition to fixed assets. Is expenditures made for the purpose of acquiring capital assets. Is also known as CAPEX or CAPS.

Question 22

Capitalized lease

Answer 22

Is lease obligations that must be capitalized under GAAP; Is the unpaid future lease payments due under the terms of the least must be shown as a liability on the firm’s balance sheet. As a general rule this requirement applies to most equipment and buildings leased by a business and used in the conduct of the business.

Question 23

Cash basis accounting

Answer 23

Cash basis is a method of accounting whereby cash flow of financial events is considered. The method recognizes revenues when cash is received and recognizes expenses when cashes paid out. In cash accounting revenues and expenses are also called cash receipts and cash payments or dispersments respectively.