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Financial Accounting for Lawyers (Mundstock) > BA's Terminology > Flashcards

BA's Terminology Flashcards

(139 cards)

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1
Q

ARM

A

An adjustable-rate home mortgage loan

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2
Q

Adjustable-Rate Loan

A

Loans, particularly credit card and home-mortgage loans, frequently provide for variable interest. Under such a loan, the interest rate is adjusted periodically to reflect general market conditions. In most cases, the rate provided is some general indicator of the rate of interest in the economy, such as the rate on new borrowings by the US Treasury, plus additional, specified percentage points that adjust for the riskiness of the borrower.

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3
Q

FV

A

Future Value of money after specified period of investment according to rate and compound period.

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4
Q

PV

A

Present Value of original investment.

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5
Q

Debt Instruments

A

A debt instrument (e.g., bonds or annuities) proves the holder cash payments at one or more specified futuretimes. Thus, the basic time value analysis can be appliedreadily to give a present value to these instruments.

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6
Q

Bond

A

Generally, any long-term debt instrument. Technically, long-term secured debt. A bond represents the obligations of a borrower under a long-term borrowing. The borrower usually is a corporation or a government. The lender gives the borrower money (usually through investment banker agents). The borrower issues the bond to the lender (usually through investment banker agents). There is an underlying contract that controls the key details, particularly what the borrower is required to do in consideration for the borrowed funds. Interest is specified. A schedule of payments is provided. Another popular payment schedule is level payments – say,monthly or quarterly. Frequently, the loan documents require the borrower to maintain certain assets or a certain amount of assets in order to reduce the risk of nonpayment.

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7
Q

Maturity

A

With a debt instrument, the day that the final payment is due. One common payment schedule in bonds is interest only (e.g., quarterly) with all of the principal due at some specified future date, i.e. the end of the borrowing, which also is called the “maturity” of the debt.

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8
Q

Default

A

If the borrower fails to fulfill an obligation, say, by nonpayment when specified or by failing to maintain required assets, this is referred to as “default.” maintain required assets, this is referred to as “default.” Frequently, the contract provides sanctions for default, such as acceleration of all required payments or an increase in future interest payments. The lender can sell its rights. A buyer of the bond steps into the shoes of the initial lender, with the same rights.

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9
Q

PMT

A

Payment

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10
Q

Net Lease

A

A lease that requires the lessee to provide the repairs, maintenance, taxes, and the like with respect to the leased property.

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11
Q

Loan v. Net Lease

A

The fundamental financial difference between a loan and a (net) lease is that, in the lease, the financer receives the leased property, and not just cash, at the end of the lease term. A lessor bears the risk with regard to the value of the leased property at lease end (usually with some adjustment for excess usage, damage, and the like), while a lender does not.

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12
Q

Residual Value

A

The value of leased property at the end of the lease term.

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13
Q

Annuity

A

A type of financial instrument that is readily valued with a present value calculation is a simple annuity. Anannuity pays a fixed amount per year (or other time period) for a fixed number of years (or other time period). *NOTE: It is important that the annuity can be emulated by a savings account that bears a 10% annual yield. The similarity between the two financial transactions means that buyers and sellers of annuities should compare them to bank accounts and price annuities so that they are no better or worse (for either party) than bank accounts. Thus, if the discounted present value analysis values a bank account correctly, the analysis should value the simple annuity correctly.

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14
Q

DIY Annuity

A

An annuity where much more principal is amortized each year in the later years of a level-payment loan. Moreover, the change in the amount amortized from year to year increases in the later years.

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15
Q

Amortization

A

As to loans, the agreed-upon payment of principle. Generally, depreciation (recovery of investment) of intangibles. More precisely, amortization is the allocation of costs over periods, while depreciation is an allowance for a loss in value.

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16
Q

Asset Account

A

An account that relates to a resource of the business.

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17
Q

Attest

A

The CPA giving an opinion that a business’s financial statements meet the applicable standard of acceptability after conducting an audit.

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18
Q

Audit

A

The process whereby an outside CPA firm investigates a reporting business’s records, confirms that the business’s financial statements conform to such records and do not violate GAAP, and attests thereto.

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19
Q

Balance

A

(N) The amount in an account at an instant in time taking into account all adjustments for all transactions that effected the account since its creation. (Adj.) The total amount in the asset accounts equaling the sum of the total amount in the liability accounts plus the total amount in the equity accounts.

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20
Q

Balance Sheet / Statement of Financial Position

A

A presentation of a business’s account balances at an instant in time – with the asset accounts on the left- hand side and the liability accounts and the equity accounts on the right-hand side.

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21
Q

Balloon

A

A large payment at the end of a loan.

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22
Q

Black-Scholes

A

A model for evaluating risk in investments.

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23
Q

Book Value

A

The value as reflected on the books, which usually is historical cost.

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24
Q

Call Option

A

An option that gives the holder the right, but not the obligation, to buy the property that is the subject of the option from the writer of the option.

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25
Capital Account
s to a partner in a partnership, the portion of the partnership's total equity allocable to the partner.
26
Capital Surplus
In a corporation, the portion of paid-in capital that is not stated capital.
27
Capitalization
In finance, the process of reducing a stream of future cash flows to a present value. In financial accounting, the process of treating a current expenditure as asset-related so as to be deferred.
28
Capitalization Rate
In finance, the discount rate used in capitalization.
29
Cash Flows Statement
A financial statement that shows a business's transactions involving cash or the equivalent without reflecting any sort of accrual. The cash flows statement is divided in three parts: operating activities, investing activities, and financing activities.
30
Channel Stuffing
Delivering an excess amount of goods to customers (distributors in the delivery channel) so as to artificially increase revenues.
31
Class of Stock
A collection of shares of stock of a corporation that have the same rights, particularly in voting and to distributions.
32
Closing
The bookkeeping at the end of a period that is required so that revenue and expense for the period are properly accrued and appear on the income statement.
33
Closing Inventory
The book value of an inventory at the end of a period.
34
Collateralized Debt Obligation
An equity interest in an entity that owns a pool of obligations.
35
Future/Commodities Futures Contract
A contract whereunder one person (the party who is short) is required to sell a fixed amount of a commodity at a fixed price on a future fixed date to another person (the party who is long) who is obligated to so buy.
36
Compounding
The process whereby accrued interest earns interest.
37
Compounding Period
The regular period over which interest previously earned is taken into account so as to begin earning interest itself under compounding.
38
Comptroller/CFO
The officer responsible for a business's finances, including accounting.
39
Consolidated Financial Statements
Financial statements for a group of related businesses that treat the businesses as if they are one entity.
40
Cost Accounting
A type of accounting other than financial accounting that allocates costs among products or services so as to measure their profitability.
41
Credit
In financial accounting, an increase in a liability account or in an equity account or a decrease in an asset account.
42
Credit Default Swap
A complicated forward contract where one party is required to make payments if the defaults in a reference pool of home mortgage loans exceed a specified level.
43
Credit Rating Agency
A business that evaluates debt obligations and reports to the markets as the riskiness thereof.
44
Current
An asset or liability with an expected remaining life of one year or less at the end of the relevant accounting period.
45
Debenture
A debt instrument reflecting a long-term unsecured borrowing.
46
Debit
In financial accounting, an increase in an asset account or a decrease in a liability account or in an equity account.
47
Default
When a borrower violates a covenant in the borrowing so that all amounts owing become immediately due and payable.
48
Deferral
In financial accounting, booking the income statement consequences of a transaction after cash changes hands.
49
Deferred Interest
Interest to be paid after it accrues.
50
Derivative
A contract whose value derives from something outside the contract.
51
Discounting
The process of reducing a stream of future cash flows to a present value.
52
Discount Rate
The rate of return used to adjust cash flows for the time value of money.
53
Dividend
A distribution by a corporation to a shareholder with respect to her stock, usually out of profits.
54
Double-Entry Bookkeeping
The bookkeeping underlying GAAP, which reflects every transaction with exactly two adjustments to accounts.
55
Earnings Per Share
The amount of earnings of a corporation attributable to one share of common stock.
56
Common Stock
Corporate stock that is not preferred stock.
57
Economic/Full Accrual Accounting
Accounting that reflects market values of assets and liabilities -- marked-to-market accounting.
58
Economic Accrual
Booking a transaction based on market values.
59
Economic Depreciation
Depreciation based on market values.
60
Yield/Effective Interest
A rate of return that reflects compounding.
61
Efficient Capital Markets Hypothesis
The thesis that the market price of publicly-traded securities reflects all available information.
62
Equity
The ownership interest in a business that has the residual claim to the business's assets after all debts are paid.
63
Equity Account
An account that reflects some portion of the equity owners' (proprietor's, partners', or shareholders') interest in the business.
64
Equity Finance
The acquisition of business capital from the equity owners (proprietor, partners, or shareholders), including out of retained earnings.
65
Expenditure
An amount associated with an outlay of cash.
66
Expense
(N) An item that reduces revenues in the process of determining profit. (V) To treat an accrual or expenditure as an expense.
67
Financial Instrument
A legal instrument controlling a financial (monetary) transaction.
68
Forward Contract
A contract that requires the purchase and sale of a commodity on a fixed date in the future (forward).
69
Gross Profit
Sales amounts less the expense resulting from the allowance for estimated losses and less cost of goods sold.
70
Gross Revenue
Revenue with no adjustment for any costs or expenses.
71
Hedge
A derivative entered into to reduce risk with regard to some asset or liability.
72
Hedge Fund
A business entity that makes investments on behalf of its owners that focuses on using derivatives as a key factor in the fund's profit. Because of the risk, only wealthy investors are permitted.
73
Historical Cost
The original amount paid for an asset adjusted for accumulated book (estimated) depreciation or amortization.
74
Holder
In the case of an option, the party with the choice (i) in the case of a call option, whether to buy or not, or (ii) in the case of a put option, whether to sell or not. The counterparty is the writer.
75
Improvement
An expenditure associated with an asset (already owned) that is capitalized.
76
Income Statement / Statement of Operations
A presentation of how a business did over a time period measured by how much the equity of the business changed over the period (ignoring transactions with equity owners, like corporate dividends).
77
Inflation
The decline in buying power of a currency.
78
Internal Rate of Return
The yield on an investment determined on the assumption that all monies outside the investment can be discounted by using the same discount rate as is earned on the investment.
79
Inventory
(N) The goods that a business holds to sell to customers. (V) To treat an expenditure as an inventory cost rather than as an expense.
80
Investment Bank
A financial institution that assists business customers in transactions such as issuing securities, mergers, and acquisitions.
81
Journal
The record that a business keeps of transactions. The transactions in the journal effect the accounts kept on the ledger.
82
Ledger
The location of all of a business's accounts.
83
Legal Capital
Under state corporation laws, the minimum amount of equity that a corporation is allowed.
84
Level Rent
Rent that is the same per month or other period over the term of the lease.
85
Leverage
Borrowing.
86
Liability Account
A record of the amount that a business owes to a creditor or creditors.
87
Long Position
In the case of a futures contract, the party committed to sell the underlying property. Generally, an investor who stands to benefit from some property going up in value.
88
Loss
Generally, the amount, if any, by which expenses for a period exceed revenues. Negative profit. In the case of the sale of a non-inventory asset, the amount by which the net book value exceeds the sale price.
89
Market Capitalization
The market value of all of the outstanding stock of a corporation.
90
Matching
The Generally Accepted Accounting Principle that provides that related items of revenue and expense should be booked in the same period.
91
Mortgage-Back Securities
Equity interests in a fund that owns almost entirely home loans and related mortgage interests.
92
Mortgage Servicer
A bank that collects and polices mortgage loans on behalf of the economic owners.
93
Multiple
The mathematical inverse of the discount rate.
94
Mutual Fund
A business entity whose equity is purchased by public investors that invests in government debt and/or debt and equity and/or derivatives of businesses.
95
Net Present Value
The present value of a stream of future cash flows discounted using one interest rate.
96
Nominal Interest
Stated interest.
97
Net Revenue
Revenue reduced by an allowance for estimated returns but no other expenses.
98
Notes
Legal instruments representing short-term borrowings.
99
Option
A two-party contract that gives one party, the holder, either, (i) in the case of a call option, the right, but not the obligation, to buy property from or, (ii) in the case of a put option, the right, but not the obligation, to sell property to the writer of the option.
100
Option Adustable-Rate Mortgage
n adjustable-rate mortgage that allows the borrower, at its option, to make monthly payments that are less than the accrued interest.
101
Paid-In Captial
The amounts paid by shareholders to the corporation for their shares at the time that the shares are initially issued.
102
Par Value
The minimum amount that a corporation can issue stock for when so provided in applicable corporations law and the articles of incorporation.
103
Partnership Interest
The ownership interest that a partner has in her partnership.
104
Payable
An amount owing on an open account not reduced to a debt instrument.
105
Periodic Inventory
An inventory accounting method that determines cost of goods sold periodically rather than on a sale-by-sale basis.
106
Perpetual Inventory
An inventory method that determines cost of goods sold by keeping track of the cost of the actual goods sold.
107
Perpetuity
A theoretical financial instrument that provides periodic payments, usually level, forever.
108
Preferred Stock
Corporate stock that has rights to distributions (ordinary or liquidating) prior to some other stock.
109
Prepaid Interest
Interest paid prior to accrual.
110
Present Value
What future dollar amounts are worth at an earlier date taking the time value of money into account.
111
Price-Earning Ratio
The price of corporation's common stock divided by the earnings per share.
112
Principal
The initial amount borrowed (or the stated amount thereof), decreased for payments thereof, and increased for any additional borrowings (including accrued-but-unpaid interest).
113
Profit
Revenues reduced by expenses.
114
Profit Sharing
A form of incentive compensation that provides the covered employee with additional compensation based on the profits of the employing business.
115
Proprietorship
A business operated by an individual without the use of a legal entity.
116
Put Option
An option that gives the holder the right, but not the obligation, to sell the property that is the subject of the option from the writer of the option.
117
Realization
An event that demonstrates value.
118
Receivable/Trade Receivable
An amount owed on an open account not reduced to a debt instrument.
119
Recognition
The time when an item or revenue or expense impacts the income statement.
120
Reserve
Generally, amounts put aside -- held in reserve -- to deal with a future need. In accounting, a contra account to an asset account or a liability account that reflects currently the expected (negative) impact of future events. Examples include the allowance for estimated losses, accumulated depreciation, and liabilities for litigation.
121
Retained Earnings
Under the assumption that distributions to equity owners are allocated to earnings before reducing paid-in capital, the total amount of the business's earnings since inception reduced by the total amount of such distributions so allocated.
122
Revenue
The gross amounts that form the basis for a business's earnings, including business receipts, gains, interest, dividends, rents, royalties and the like.
123
Robosigning
Mortgage servicers signing foreclosure documents without determining the accuracy thereof.
124
Sales/Sales Revenue
Net revenues reduced by cost of goods sold.
125
Securitize
To package so that interests therein can be sold as securities.
126
Security
An investment the value of which depends on the performance of people other than the investor.
127
Share
The equity (stock) of a corporation is divided into shares, sometimes of different classes. Each share of a class represents an undivided piece of the total interest of that class.
128
Short Position
In the case of a futures contract, the party committed to buy the underlying property. Generally, an investor who stands to benefit from some property going down in value.
129
Short Sale
The sale of borrowed property. In real estate, the sale of property subject to mortgage indebtedness.
130
Simple Interest
Interest determined without compounding.
131
Stated Capital
The amount received by a corporation on issuance of stock so designated. In the case of par value shares, the total par value is the stated capital. Historically, the stated capital was the legal capital, but that is not true under modern corporate statutes.
132
Stated Interest
The interest rate stated in a debt instrument, which rate does not necessarily reflect compounding.
133
Statement of Shareholders' Equity
The financial statement the explains the change in shareholders' equity during the year from profit and loss, dividends, share issuance, share buy-backs, and any other transaction that impact's the reporting corporation's book equity.
134
Swap
In general, an exchange of one property for another. In financial engineering, a derivative under which the two parties agree to exchange a series of future payments determined using two different external measures, such as a the future prices of different commodities.
135
Term Structure of Interest
The finance observation that under economic accounting the interest earned on a fixed-stated-rate debt instrument varies over the instrument's term, with the rate decreasing as maturity approaches.
136
Time Value of Money
A principal of finance that the real value of a payment depends upon when it is to be made.
137
Tranche
A class of equity interests (mortgage-backed securities) in an entity that holds mortgage loans. The different tranches of an entity have different level of risk.
138
Variable-Rate Interst
In a lending, when the rate of interest specified changes from time to time under the loan instrument.
139
Writer
The party to an option that is conditionally obligated to buy or sell the underlying property. The counterparty is the holder.

Financial Accounting for Lawyers (Mundstock) (4 decks)

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