business finance and fabm2 1st q

Finance

the field that deals with allocation of scarce monetary resources.

Financial Management

Involves handling an organization’s funds: operational, investment, and financing decisions.

Public Finance

Manages government resources and expenditures

Personal Finance

Individual budgeting, savings planning, retirement and insurance products

Corporate Finance

Management of a firm’s financial activities to maximize shareholder value

Managerial Accounting

it provides the financial data that help internal users in making future-oriented decisions

Depository Institutions

accept deposits (e.g., banks, credit unions, thrift banks)

Nondepository Institutions

offer financial services without accepting deposits (e.g., insurance companies, mutual funds, pension funds)

Financial Instruments

is a legal agreement between parties involving monetary value

Financial Markets

Where buyers and sellers exchange financial instruments

Money Market

Short-term instruments (e.g., treasury bills, commercial papers)

Capital Market

Long-term instruments (e.g., stocks, bonds)

Primary Market

Sale of new securities

Secondary Market

Resale of existing securities

Bonds

represents a debt. The issuer owes the bondholder and pays interest

Term Bond

matures on a single date

Serial Bond

multiple maturity dates

Secured Bond

backed by collateral

Debenture Bond

unsecured, reputation-based

Convertible Bond

can be converted into stock

Callable Bond

can be redeemed early by issuer

Stocks

represents ownership in a corporation

Common Stock

Voting rights, variable dividends

Preferred Stock

No voting rights, fixed dividends, priority in liquidation

Direct Flow

From savers directly to users of funds

Through Financial Institutions

Intermediaries collect from savers and lend to borrowers.

INTERNATIONAL ACCOUNTING STANDARDS

standards set on how financial transactions should be recorded and reflected in financial statements.

NTERNATIONAL FINANCIAL REPORTING STANDARDS

was established in order to have common standards that will be followed by organizations across international boundaries.

Relevance

can make a difference in the owner’s decision-making process

Faithful Representation

should accurate show everything that occurred in the business.

Verifiability

There are supporting documents

Timeliness

Information should be available to the decision-makers at the right time to influence their decisions.

Economic Entity

The transactions carried out by the business is separate from the owner.

Accrual Basis of Accounting

Revenue is recorded when earned and expenses are recorded when it happens regardless of when cash is received or paid.

Going Concern

the company will continue operating indefinitely until the foreseeable future, and that company closure is not imminent

Monetary Unit Concept

transactions are express in a monetary unit of measure

Time Period

transactions are summarized and recorded at regular time intervals.

Cost Principle

We record transactions based on how much was it when the transaction happened that time.

Full Disclosure Principle

All needed information should be included so the users of the financial information can make informed decisions.

Matching Principle

Expenses related to revenue should be recorded at the same period the revenue was recognized.

Revenue Recognition Principle

Revenue should be recognized when goods are sold or services are rendered, regardless of cash receipt

Materiality

It refers to the impact of an omission or misstatement of information in a company’s financial reports on the users of the financial information

Conservatism

Between two acceptable alternatives in an accounting challenge, the alternative that will result in a lesser income or resource is chosen.

Objectivity

Recording and reporting process should be free from bias. Record transactions exactly as it happened.

Stockholders

is a person who bought shares of stocks of a publicly traded corporation.

Stakeholders

may look at company financial statements to assess or gain insights on the firm’s financial performance and outlook before deciding to invest.

Internal Stakeholders

directly involved in the management or operation of the business.

External Stakeholders

who is not directly involved in the business but, in one way or another, has a stake in how the business is managed or how it is performed.

Income

These are increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

Expenses

These are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity other than those relating to distributions to equity participants.

Operating Income

Income derived from operations

Non-Operating Income

This includes gains and losses from activities unrelated to the core business

Depreciation

reflects the cost of assets that were used in operations.

Amortization

used for the cost of intangible assets

INCOME STATEMENT

Presents the results of the entity’s operations and financial performance through reporting of the entity’s revenues and expenses.

STATEMENT OF COMPREHENSIVE INCOME

Presents the entity’s net income, alongside the effects of other comprehensive income leading to comprehensive income.

FUNCTION OF EXPENSE METHOD

Classifies expenses according to their function as cost of goods sold.

NATURE OF EXPENSE METHOD

Expenses are aggregated according to their nature and not by function.

Statements of Changes in Equity

Presents the changes in the equity of the owner due to investments, additional contributions, net income or loss, and personal withdrawals

Sole Proprietorship

A business owned and operated by one individual who has full control and assumes all risks and profits.

Partnership

A business jointly owned by two or more individuals who share responsibilities, profits, and liabilities.

Corporation

A legal entity separate from its owners, with rights and responsibilities like an individual.

Statements of Financial Position

Presents the entity’s assets, liabilities, and capital as of the period

Current Assets

assets that can be sold or converted into cash easily

Fixed Assets

a type of asset that the firm does not expect to sell or otherwise convert to cash within a year or the current period

Current Liability

a financial obligation of a firm that is due within one year or less

Long-term Liability

a financial obligation of a firm that is due more than one yea

Shareholder’s Equity

the difference in the value of all assets and the value of all liabilities

Statements of Cash Flows

The financial statement prepared by a company which includes all details on the sources and uses of funds.

Operating Activities

money generated from the regular activities of the firm such as production, selling of goods, or provision of services to customers.

Investing Activities

the change resulting from investments made, including money spent on plant and equipment.

Financing Activities

changes due to the activities such as raising capital or repayment of debt—adding loans, debt restructuring, deferment of payments, and issuance of new stocks

Sales Forecast

It is the process of estimating the volume of sales.