TessMore Finance Blog

In a common notion, a bank account title represents the account owners of a bank account. However, in many cases, the legal owners and the bank account title can be different. A bank account title has several uses and it is important for the account holders. It has several legal and compliance uses as well. Let us discuss what is a bank account title, the types of account titles, and their importance. What is a Bank Account Title? A bank account title is a unique name assigned to a bank account. It represents the bank account owner(s). It can be the same as the name of the bank account owner but it may be different in many cases as well. In most cases, the bank account title represents the bank account ownership. For individual accounts, the normal practice is to enlist account holder names as account titles. However, the practice is different for corporate and trust bank accounts. For example, the owner of a small business Rebecca flowers may set its business name “Rebecca Flowe

The accounting treatment for the issuance of new shares depends on the market value and the form of consideration received. Commonly, companies issue new common stocks to raise additional capital from the market. Companies without a trading stock value can also issue new shares to specific investors. Let us discuss the accounting treatment of issuance of new shares with different examples. How to Account for Issuance of New Shares? A company may issue new shares at any time after approval of shares allocation from the SEC. Many quoted companies get approvals for their List A, B, or C class shares at once and issue these shares whenever they need. Non-quoted companies can also issue new shares in exchange for cash or any other asset from new investors. The accounting treatment remains the same for types of companies. New stocks issued should be recorded on their settlement date at fair market value. The fair value is usually the cash received by the company against issued shares.

Capital assets are any significant investments held by an individual or a business. As long as these assets are held by the owners, they are not subject to any taxes. Capital assets owe taxes with capital gains. The tax rates are significantly lower than ordinary income tax rates. However, taxpayers must be mindful of certain conditions to take full advantage of capital gains tax rates. Let us discuss what are capital assets and how are they subject to taxes. What is a Capital Asset? For individuals, a capital asset is any significant piece of property such as a house, car, or business. It can also be in the form of an investment such as in an IRA, stocks, bonds, or even collectibles. From a business perspective, a capital asset is any asset held by a business for more than one year. These are also called long-term or fixed assets. Capital assets of a business held for more than one year should not be held for sale. Generally, we can define a capital asset as an asset held by an

The bank capital is the sum of resources a bank can use against insolvency risks. Its assets include share capital, retained earnings, and loans issued. The bank capital to asset ratio is an important measure to understand the financial stability of the bank. Let us discuss what is the bank capital to asset ratio, how it is calculated, and what are its important components. Bank Capital to Asset Ratio The bank capital to asset ratio is also called the capital adequacy ratio of capital to risk-weighted asset ratio of a bank. The bank capital to asset ratio is the measure of total capital held by a bank against its assets. It measures the ability of a bank to protect its solvency. It denotes the ability of a bank to pay its liabilities using its capital and assets. Since banks provide crucial economic support to an economy in any country, their financial stability is critical. Regulatory authorities and central banks set certain requirements for commercial banks to maintain their fi

Capital assets are the backbone of a business. These assets provide financial strength and opportunities to generate revenues. Capital asset management is critical for any business. It helps a business stay competitive and reduce its asset maintenance costs. That in turn can improve operational efficiency and profits of the business. Let us discuss some key aspects of capital asset management. Capital Asset – Definition A capital asset refers to an asset of a business that has a useful life of over one year and that is not held for sale by the business. Capital assets held by a business help in generating profits. However, these assets may or may not be directly involved in profit-generating activities. Common examples of capital assets include: Property, Plant, and Equipment Vehicles such as trucks, vans, cars, etc. Manufacturing or production machinery Office equipment such as computers, printers, scanners, etc. Classification of assets into capital and current assets de

Generally, marketable securities are classified as current assets in the balance sheet of the business. The reason is that these are the financial instruments that can be converted into cash on short notice. These securities are highly liquid and mature in less than a year. Further, there is no massive impact on the selling/buying prices of short notice. Hence, marketable securities are classified as current assets. Companies use these securities to earn additional returns on cash resources. That’s because cash in the bank accounts gets depreciated due to inflation. However, if the business has invested in the bonds with the maturity of more than one year, it will not be classified as a current asset. So, irrespective of the type and nature of the marketable security, the maturity analysis, and business intention are more important in classifying the assets as current or non-current. So, if marketable security is held to maturity (and the maturity date is more than one year), it ca

The Capital Assets Pricing Model (CAPM): The CAPM shows how the base-required return from stated security relies upon its risk. Security whose profits are profoundly connected with variances in the market is said to have a significant level of systematic risk. It does not put a lot of risk-reducing potential on the investor’s portfolio. Thus, generally, a high return is expected. On the other hand, a security with a low relationship with the market (low systematic threat) is significant as a threat minimizer. Thus its necessary return will be lower. The proportion of the systematic risk of security comparative with that of the market portfolio is alluded to as its beta factor. In practice, industries such as construction are far more volatile than others, such as food retailing, and would have correspondingly higher betas. The CAPM shows the direct connection between the risk premium of the security and the risk premium of the market portfolio. The risk premium of share = market

Credit Policy – Definition: A credit policy is a legal policy prepared by the organization tailored to the better management of credits issued to customers. A complete set of guidelines that forms a structure of the credited amount provided to the customers is a credit policy. It also contains the terms and conditions on which the company allows its customers to receive the credit.  Management of the companies must establish a fair credit policy for their organization. For accounts receivable, the company’s credit policy will be influenced by several factors, and they are: ● Demand for products ● Competitors terms ● Risk of irrecoverable debts ● Financing costs ● Costs of credit control Why have a Credit Policy? A lenient credit strategy might drive in extra clients, however, at an unbalanced expansion in cost. A firm should build up an arrangement for credit terms given to its clients. In a perfect world, the firm would need to acquire cash with each request conveyed. It m

Days sales outstanding, also known as DSO, is a period that customers take to pay their invoices to the company. Successful companies always keep their day’s sales outstanding low. The lower the DSO, the better it is for the company.  It is the main goal; of the companies to keep their DSO low so that they can recover their accounts receivables .  High days sales outstanding means that a company takes more time to collect the credit from its customers. So, a high DSO is not a good symbol for a company. As it means there is a long time between the sale made and the payment received, it might lead to cash flow problems.  The seven top-notch strategies to reduce DSO and improve the accounts receivables are as follows: 1.  Prepare Effective Days Sales Outstanding Targets to Achieve: An organization should prepare proper DSO targets and strategies that they need to achieve.  There are many strategies used to make DSO targets achievable and effective. While preparing the DSO targets,

Purchasing a car with cash can be suspicious activity as it can be challenging to track the source of the transaction. On the other hand, payment with a credit card can be tracked easily, increasing confidence in a specific transaction. It’s important to note that there is nothing wrong with the cash payment to buy the car. However, paying a significant amount with cash creates certain risks that can create a suspicious situation. Further, the following risks are associated with the cash payments of the significant amount like in the case of purchasing a car. Risk of a fake currency. The money might have been sourced from illegal/criminal activities. Risk of money laundering and layering. There is an inherent risk of fake currency associated with large cash payments. Dealers feel anxiety and unease while counting the massive quantity of cash, which can lead to financial losses. Further, the fake notes have been designed with much accuracy that can deceive anyone. In addition to

Definition: Average Total Assets can be defined as the average amount of assets that are recorded on the Balance Sheet of the company, at the end of two given financial years. This can either include both, the current year, as well as the preceding year. Alternatively, it can also constitute two different time periods across which a company wishes to calculate the Average Total Assets. Average Total Assets are an indication of the total wealth that is possessed by the company, and how it changes across two different timelines. Average Total Assets is used in conjunction with other metrics, like Total Sales, to calculate how these projections change with the course of time. Average Total Assets directly indicate the financial standing of the company. It is preferred to be used in place of Total Assets because it helps companies to determine a more reasonable and accurate analysis regarding the actual financial standing of the company. Explanation of Average Total Assets The basic

Gering ratios are helpful metrics in the assessment of the business debt. These ratios highlight if the financing structure of the business is stable and leverage remains under control. Again, it’s an excellent tool for lenders to assess if the business/financial risk aligns with the risk appetite. Further, the price setting of the loan and other terms are also dependent on the same. Detailed understanding The main aspects of the business include profitability, liquidity, activity, and gearing. All of these aspects are important and dependent on each other. A good business manager has the competence to manage all of these aspects and ensure the efficient run of the business. Gearing is about the financing structure of the business. Mainly, there are two components of the financing structure; equity & debt. If the proportion of the debt is higher, the business is considered to have more risk. On the other hand, if equity is higher, the business is considered more stable. Another