Bluff Numbers Day Three

This balance indicates the value of the owner’s investment a company has on its books at the beginning of the statement period. beginning capital balance

This balance indicates the value of the owner’s investment a company has on its book at the end of the statement period. This amount needs to be compared with the owner’s equity balance on the balance sheet. ending capital balance

A statement that portrays how much the owner invested (contributed or put in), how much he withdrew (took out), and how the net income or net loss of the business increased or decreased the value of the owner’s overall investment (or worth) in the business for a period of time. statement of changes in owner’s equity

Beginning capital balance + Investments + Net Income (or – Net Loss) – Withdrawals = Ending Capital Balance statement of changes in owner’s equity equation

What an entity (a business or other enterprise) owns. asset

A statement that lists the assets, liabilities, and owner’s equity. It displays a company’s collateral and liquidity. balance sheet

Assets = Liabilities + Owner’s Equity balance sheet equation

Assets held by a company but pledged to a lender to secure a loan; in cases where the company doesn’t honor its debt, the lender can take possession of collateralized assets. collateral

What an entity owes. liability/liabilities

The value of an owner’s investment in her company. owner’s equity

Accounts that have been brought to a $0 balance at the end of an accounting period. closed accounts

Entries made in the journal at fiscal year end and then posted to the ledger that bring the account to a $0 balance and transfer net income or net loss and withdrawals to the capital account. closing entries

The process of bringing a $0 balance to all temporary accounts by crediting debit balances and debiting credit balances and transferring those balances to the capital account. closing the books

When a journal entry has more than one debit or more than one credit. compound entry

Assets, liabilities, and capital. They are not closed at the end of the fiscal year. The balances are carried forward to the beginning of the next fiscal year. permanent accounts

A list of permanent accounts that carry balances over to the next fiscal year. The post-closing trial balance verifies that the general ledger is still in balance after closing entries have been posted. post-closing trial balance

The revenue, expense, and withdrawals accounts. They accumulate financial data for one fiscal year. temporary accounts

Each account on the same financial statement is compared to itself for various years and analyzed based on trends observed, as well as compared to industry averages. This analysis is broad. horizontal analysis

Net Income ÷ Sales (or Revenue) = Return on Sales The return on sales ratio compares how much a company kept (net income) out of how much the company earned (revenue). return on sales ratio (or net income margin)

Compares each section of a statement in terms of parts and wholes. For example, the whole revenue section of the income statement is 100%. Each line item on the income statement is compared with total revenue to see where revenue is coming from and where it is being spent. A comparison with industry averages is also informative. vertical analysis

A long-term loan from the Small Business Administration. 504 loan

An investor who uses her own money for startup capital for a business, usually in exchange for a share of ownership. angel investors

A loan secured by a company’s assets. asset-based loans

A loan from a bank, usually at a fixed interest rate and for a predetermined period of time. bank term loans

Financial organizations that provide services to underserved areas, including investment capital, credit unions, and personal loans. CDFIs (Community Development Financial Institutions)

An investor buys a piece of equipment that a business needs, and then leases it to the business equipment leasing

A loan from the federal government for developing startup businesses. federal government venture capital

The first time a business sells stock (a share in the company) to the public. initial public offering

Investment capital from firms that specialize in business investment, usually for a very large amount of money. institutional venture capital

A very small loan to an entrepreneur who, because of a lack of assets or a credit history, would not ordinarily be able to get one. microloans

A guarantee by an investor of repayment of a bank loan to a business that would not otherwise be able to get a loan. private loan guarantees

A loan to a business in which the lender gets a percentage of future sales. royalty financing

The Small Business Administration guarantees up to 80% of a bank loan to a business that would not otherwise be able to get a loan. SBA-guaranteed loans

Money needed for the daily operations of the business, such as purchasing supplies. It is generally repaid in less than one year. short-term financing

An agreement in which an underwriter will use all efforts to sell as much of an issue as possible to the public. best efforts underwriting

Securities representing part ownership in a corporation, providing voting rights, and entitling the holder to a share of the company’s success through dividends and/or capital appreciation. Common stock

A portion of a company’s profits that is paid out to its shareholders. Dividends

A securities firm that helps corporations sell securities to the public. Investment bank

Capital stock that provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock. Preferred stock

A document that must be filed with the federal Securities and Exchange Commission (SEC) and made available to potential investors before stock can be sold Prospectus

A model in economics that determines the price and quantity of a product or service sold supply and demand

An investment bank or syndicate of investment banks that attempts to sell securities for an issuing company in the primary market. underwriting

A feature available for most bonds and preferred stocks that gives the issuer the ability to buy the security back from investors before the scheduled date of maturity. A surcharge might be assessed to the issuer if the security is repurchased. callable

Interest upon interest, where accrued interest is added to the principal sum, and the whole treated as new principal, for the calculation of the interest for the next period. compound interest

The stated percentage rate of interest on a bond, which is usually paid out twice a year. Coupon rate

The percentage paid out from a stock dividend or interest payments made on a bond, stated in terms of the current market price of the security. Current yield

Unsecured bonds that are only issued by creditworthy firms Debenture bonds

A situation that occurs when the price of a bond is lower than its par value. This is because the bond is paying at an interest rate lower than what is presently being paid by similarly rated bonds. discount

The specified final amount that an issuer promises to pay to the owner of a bond at the date of maturity. Also called par value. Face value

Securities whose nominal (or current dollar) yield is fixed or determined with certainty at the time of purchase, typically debt securities. fixed income securities

The date on which an issuer of a bond promises to repay the full amount borrowed. Maturity date

A bond that is secured by a guarantee of real property. Mortgage bonds

A situation that occurs when the value of a bond exceeds its principal amount premium

The sale of new securities, typically bonds or preferred stock, directly to a group of investors or institutional investors, such as banks, pension funds, or insurance companies. Private placement

Preferred securities and bonds that receive higher priority for payment than common stock when a company is liquidated. Senior securities

Municipal, corporate, or treasury bonds that pay no annual interest over the life of the bond, are offered at a deep discount to par value, and are redeemed at full value upon maturity. The investor’s return on investment comes when redeeming the bond at its face value. zero-coupon bonds