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Federal Reserve Bank
The Central Bank is also called the
Financial institutions that provide services such as accepting deposits, giving business and auto loans, mortgage lending and basic investment products
Individuals purchase bonds from a business
When borrowers and lenders are matched through financial intermediaries
the process of indirect finance whereby financial intermediaries link lender savers and borrower spenders
Business that specialize in borrowing funds from people who have saved and lending to people who want to borrow
situation when one party doesn't know enough about the other party to make accurate decisions. This creates two kinds of problems:
This happens before the transaction
the risk that one party to a transaction will engage in behavior that is undesirable from the other party's point of view
Larger scale and lower management costs
people can pool funds in an intermediary, reducing costs, risks (pension funds, investment companies, and government-sponsored financial institutions)
amounts owed; the legal claims against a business or household by non-owners; the sources of funds for financial intermediaries
Accounts receivable, what others owe to you
statements of assets and liabilities
fractional reserve banking
a banking system that keeps only a fraction of funds on hand and lends out the remainder
the money multiplier falls
As the Reserve Ratio goes up
The FDIC stands for
Federal Deposit Insurance Corporation
The FDIC is a government insurance that
covers money that you have on a deposit in a bank.
The FDIC has up to how much in each bank?
lost a single cent on insured funds
Since the FDIC started in 1934, no depositor has
property that is pledged to a lender to guarantee payment in the event that the borrower is unable to make debt payments **this type of debt is secured debt**
possibility that borrower will not meet the scheduled repayments and default on their loan
defined benefit plan
a pension plan where the benefits paid at retirement are specified.
defined contribution plan
a pension plan where the contributions of the employer and the employee are specified and the benefits depend on the performance of the assets in the plan.
Savings and Loan Associations (S&Ls) and Mutual Savings Banks
Federal Savings and Loan Insurance Corporation
Government agency that provided deposit insurance for savings and loan associations (replaced by the Federal Deposit)
represents a promise to distribute cash flows at some future time
when funds flowing through the intermediated markets are shifted to flowing through the financial (securities) markets.
an institution acts as a service for both those who have extra money to save or lend and channels it to those who wish to invest or borrow.
shifts in flow of funds from investors directly purchasing traded securities to indirectly purchasing traded securities through financial intermediaries such as mutual funds.
interest rate risk
the risk that a change in interest rates may affect the net worth of a financial intermediary because of a mismatch in the maturity of its assets and liabilities.
lesser developed country (LDC)
refers to developing countries whose economies and financial systems are still considered immature.
money market deposit account (MMDA)
Deposits with limitied checking account privileges that typically pay an interest rate comparable to Treasury bills or other money market instruments.
money market mutual fund
a fund that pools money from small savers to purchase short-term government and corporate securities
Producing and using information about a borrower or issuer after a financial contract's origination.
mutual fund family
a group of mutual funds owned and managed by the same management company.
Mutual savings bank
State-chartered financial institutions operated by trustees for the benefit of depositors.
nondepository financial intermediary
a financial intermediary that does not issue deposits.
nontraded financial contract
A financial claim or contract that cannot be traded in a secondary market but is instead held to maturity by its original investor or lender.
an interest bearing checking account.
Holding financial instruments
nontraded corporate bonds that do not have to be registered with the SEC...
the regulation that imposed ceilings on deposit interest rates. Regulations Q was effectively dismantled in the early 1980s.
savings and loan associations (S&Ls)
Depository institutions that are substantially restricted to investing in home-related assets such as mortgages..
Savings and loans associations, mutual savings banks, and credit unions are referred to as the thrift institutions.
Financial claims or contracts that are traded in a secondary market such as stocks traded on the NYSE.
costs, such as commissions and the bid-asked spread, of buying and selling securities.
record expenses in the period that the related revanue is recognized
the life of an enterprise can be divided into artificial time periods
Historical Cost Principle
the origional transaction value upon acquisition
concerns the relative size of an item and its effect on decisions
criteria usually satisfied at point of sale
Going concern assumption
the entity will continue indefinitley
monetary unit consumption
a common denomenator is the dollar
economic entity assumption
the enterprise is seperate from its owner and other entities
full disclosure principle
all information that could be divided into artificial time periods
1 prepayments and deferrals
3 catagories of adjusting entries
prepayments and deferrals
pre payment is made prior to expense being incurred
origion dr property and equipt cr cash/accts pay
dr exp cr liab
bad debt, warrenties, other reserves
total liabilities/shareholders equity
debt to equity ratio
times interest earned
provisions of sarbanes oxley
Creation of an Oversight Board
ASU No 2014-09
Changes the way that revenue is recognized. Goes into effect on Dec 15 public-2016 private-2017
When do companies recognize revenue?
Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.
Requirements for a contract (5)
Can be implied or contractual
must be both:
Journal Entries for % of completion
J/e to record cost
dr construction in process
Dr accouts recievable
J/E to record billings
J/E to record cash reciepts
J/E ro record revenue/GP
dr construction in process (asset)
dr cost of construction
J/E to record expected loss
Net Income/Net Sales
Net Sales/Total Assets
Total Assets/Shareholders Equity
Net Income/Shareholders Equity
Current Assets/Current Liabilities
(Current Assets-Inventory)/Current Liabilities
Quick Ration (Asset Test)
avg collection period
365/receivables turnover ratio
Times Interest Earned
Earnings before Interest and Tax/Interest Expense
% Completion categories
Record Actual/Estimated Returns:
J/E for Actual Sales Returns
short term, highly liquid investments w/original maturities of 3 months or less
reconsile for timing differences between bank and book
adjusted bank balance/book balance
cash restricted for some purpose (usually contractual by 3rd party)
banks often require a cash transaction with a loan, will require the borrower to maintain a specific balance in a low interest account, some % of the committed amount.
Sales returns J/E estimate
Sales Returns J/E Actual
Actual Returns if estimate is Correct:
bad debt I/s v B/S
I/S- result of estimating bad debt as a % of net credit sales (J/E)
trade v cash discount
trade- lower prices without lower list price