If a company has a cash surplus, it can invest the money in various projects or activities. In most cases, the goal is to increase the returns shareholders get from these projects. Sometimes, though, companies may also invest that money in their own shares. Treasury stock is a common concept in accounting. Treasury stock can be a part of various financial statements, including cash flow statements. Before discussing its impacts on the report, it is crucial to understand what treasury stock is. What is Treasury Stock?Treasury stock refers to the shares a company buys back from its shareholders. These shares become a part of the company’s internal reserves. Sometimes, they may also fall into the “retired” category and are no longer available for trading. Companies may also use other names to present these shares. For example, repurchased, reacquired, retired, buyback stock, etc., are common names for treasury stock. A company buys back its stock to reduce the number of its outstanding shares. This process can increase the company’s earnings per share (EPS) and improve financial performance. By doing so, the company can increase its share price in the market, allowing shareholders to make capital gains. However, companies may also buy back their shares for other reasons. What is the accounting for Treasury Stock?Treasury stock is a contra-equity account. Essentially, it means that it appears in the equity section of the balance sheet but has a negative effect. It does not increase equity, unlike other components that go under that heading. However, accounting standards require companies to present this stock separately on the balance sheet. This accounting treatment for treasury stock applies if the company intends to keep it for a future issue. The above method for accounting for treasury stock also causes a profit or loss when reissuing the shares. These amounts become a part of the income statement. Companies may also retire these shares, meaning they are no longer available for issuing. In this case, companies use the constructive retirement method for accounting. Essentially, it involves reversing the journal entries for these shares. What is the relationship between Treasury Stock and the Cash Flow Statement?The above accounting treatment for treasury stock only discussed the impact on the balance sheet and income statement. However, the repurchase of stock also impacts the cash flow statement. The link between the two is obvious. When a company repays to reacquire treasury stock, it must happen through cash. This payment to shareholders for the repurchases impacts the cash flow statement. Under the cash flow statement, the repurchase of shares may appear as a financing or investing activity. In most cases, it is the former. This transaction is an outflow of cash resources. Therefore, it reduces the net cash flows from those activities. In the cash flow statement, treasury stock appears as follows.
If a company treats it as an investing activity, it can use the same presentation above under that section. ConclusionTreasury stocks are shares reacquired by a company from its shareholders. There are several reasons why companies reinvest in their own shares. Usually, this transaction impacts the balance sheet, the income statement, and the cash flow statement. With the cash flow statement, the repurchase of shares is a cash outflow that may appear under financing or investing activities. Article Source Here: Treasury Stock and Cash Flow Statement
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Fundraising is one of the most important aspects of running a successful business. In the startup world, series E, F and G fundings are the most sought-after investment rounds that help companies grow and scale their operations. Understanding how series E, F, and G fundings work is vital to help entrepreneurs raise capital and scale their businesses. It can be confusing to know the difference between each type of funding. Series E, F, and G are all equity investments that provide capital for a company’s growth and expansion. Definition for each type of fundingHere is how each type of funding works This type of financing allows companies to scale their operations and have access to larger sums of money than would otherwise be available in earlier funding rounds. Series E usually takes place right after or right before the company’s IPO - this means the investors are confident in the company’s future. This makes investors willing to take greater risks with their money and invest larger amounts, in exchange for a percentage of the company’s equity. Series F is a later stage of venture capital funding that allows companies to raise even more money than series E. The trade-off for this is that the company gives up a larger percentage of the equity to the investors. This type of funding is usually done by venture capital firms that are looking to invest in companies with a proven track record of success. Also, this type of funding often comes with additional perks such as advisory services, access to networks, and resources. After this round, the company is usually taken public on a stock exchange or they can go even further and do a series G. This type of funding allows companies to raise large amounts of money to scale their operations and growth even further. Most start-ups don’t have the opportunity to do a series G, but if they are successful enough to reach this stage, it can be extremely beneficial for the company. The trade-off is that investors usually require an even larger percentage of equity in exchange for their investment. At this point, the company has typically gone public and the investors are taking on a larger risk in exchange for their investment. ConclusionOverall, each type of funding is important and can help companies grow and scale their operations. By understanding how series E, F, and G fundings work, entrepreneurs can raise capital efficiently and strategically to achieve success. Article Source Here: Series E, F, and G Fundings: Definition, Meaning, Examples, Requirements Most assets have a physical existence and help companies in their operations. These fall under tangible assets and are the most common elements of the balance sheet. However, some assets may also be intangible and not have a physical existence. Nonetheless, they are still resources that companies can use for their operations or have gained through those operations. Sometimes, companies may also record fictitious assets, similar to intangible assets. However, some characteristics set them apart. Therefore, it is crucial to define and understand fictitious assets in detail. What are Fictitious Assets?Fictitious assets are intangible assets that do not have a physical existence. However, unlike intangible assets, these assets also don’t come with a realizable value. In accounting, it is the value that a company gets from selling its assets. Therefore, companies cannot sell fictitious assets. Usually, these include expenses companies want to spread over a specific period. Although accounting standards classify them as such, fictitious assets are expenses or losses. Unlike other items of the same kind, these assets do not reduce profits in the income statement. Instead, they appear in the balance sheet as an asset. Most companies classify them as intangible assets due to their non-physical nature. However, their non-realizable value sets them apart from other resources in that category. What are the characteristics of Fictitious Assets?Fictitious assets have specific characteristics that separate them from intangible and other assets. These characteristics are as below.
While all characteristics define fictitious assets, the first two are more critical than others. The first feature is what sets these assets from other intangible ones. The second further separates fictitious and other intangible assets. What are examples of Fictitious Assets?As stated above, fictitious assets usually include expenses and losses that companies spread over several periods. Some of these include the following. Discount on the issue of sharesA discount on the issue of shares is a reduction in the price at which shares get issued to investors. Companies also offer these to existing shareholders as a reward for their loyalty. Preliminary expensesPreliminary expenses are expenses incurred by a company before commencing operations. These expenses are also known as pre-operating expenses or start-up costs. Marketing expensesMarketing expenditure helps promote a company’s products or services. It includes costs associated with advertising, public relations, market research, sales promotions, and other similar activities. Underwriting commissionAn underwriting commission is a fee paid to an underwriter for the services provided for issuing securities. The commission is a percentage of securities issued and depends on market conditions. ConclusionFictitious assets are expenses or losses that companies treat as an asset on the balance sheet. Since the impact of these items spreads over several periods, accounting standards require this treatment. Usually, fictitious assets fall under intangible assets, although both differ in various aspects. Examples of these assets include the ones listed above. Originally Published Here: Fictitious Assets: Definition, Characteristics, Examples, vs Intangible Assets Most assets depreciate as they near the end of their useful life. While companies account for it using depreciation, they have other costs associated with them as well. Specifically, the more a company uses an asset, the more it becomes prone to wear and tear. However, that does not imply the end of the asset's life. Companies can still benefit from their existing assets by performing regular maintenance. On top of that, it may also be crucial to repair them sometimes in case of a breakdown. These expenses fall under repair and maintenance. What is Repair and Maintenance Expense?As the name suggests, this expense includes two prominent aspects, repairs, and maintenance. However, there is no standard definition of what this expense is. Repair and maintenance expense refers to the cost incurred by a company to repair, maintain or improve its assets. As stated above, almost every long-term tangible resource requires these costs at some point. Companies incur repair and maintenance expenses for several reasons. Some of these include the following.
Some examples of repair and maintenance expenses are as follows.
What is the accounting for Repair and Maintenance Expenses?The accounting for repair and maintenance expenses involves recording the cost in the financial statements in the same period. Usually, these expenses get recorded in the income statement as an operating expense. For most companies, it appears under a line item, "Repair and maintenance expense". However, companies may also reclassify them if needed. Repair and maintenance expense is different from capital expenditures. Those include expenses incurred to acquire or improve long-term assets. Accounting standards require capitalizing capital expenditures and recording them in the balance sheet. However, repair and maintenance expense is a revenue expenditure. Therefore, it gets recorded as an expense in the same period the company incurs it. What is the journal entry for Repair and Maintenance Expense?The journal entry for repair and maintenance expenses is straightforward. It requires a debit to the repair and maintenance account. However, the credit side may include some accounts based on how the company chooses to settle them. For most companies, repair and maintenance expenses are common and get paid through cash. Nonetheless, a typical journal entry for repair and maintenance expenses looks as follows.
Companies may also have specific accounts for each repair or maintenance activity. However, they get presented under the same line item in the income statement. ExampleA company, Green Co., performs regular maintenance for its vehicles after three months. After each period, the company incurs $3,000 for this expense, which it pays in cash. Green Co. records the transaction as follows.
ConclusionRepair and maintenance expense is a revenue expenditure that companies incur regularly. It includes the cost of repairing, maintaining, or improving assets. However, companies must ensure any expenses classified as repair and maintenance do not fall under capital expenditure. The accounting for these expenses is straightforward, as stated above. Originally Published Here: Repair and Maintenance Expenses: Definition, Example, Journal Entry, Accounting Treatment Raising capital for a business venture can be a daunting task, but with the right strategy and resources, it can be made much easier. There are certain stages of funding that a business typically goes through before going IPO (Initial Public Offering). These stages are known as Series A, B, C, and D Fundings. Understanding the differences between Series A, B, C, and D Funding is important for any business looking to raise capital. Each stage of funding brings its risks and rewards, so it’s crucial to know what they are before pursuing investment. Definition of each type of fundingHere are the definitions of each type of funding Series A FundingTypically, Series A fundings raise between $2 million and $15 million based on industry valuations. To ensure long-term success and profitability, it is essential to create a clear business plan for this stage of growth. In Series A funding, investors are looking for companies that not only have great ideas but also have a strong plan to turn those ideas into a successful and profitable business. Series B FundingSeries B funding is designed to help businesses take the next step and expand their reach beyond the development stage. By investing in startups, investors can help them achieve this goal. Companies that went through Series A funding are not only equipped with sizable user bases but also have demonstrated to their investors their capability of growth and prosperity. In simple words, series B fundings are usually for businesses that have reached a level of significant growth and are now looking for more capital to expand their operations. Series C FundingSeries C funding is for businesses that have already established in their respective markets and are looking for additional capital to take their business to the next level. This could be anything from creating new products, entering new markets, or acquiring smaller companies. It’s also a good option if you need more capital to invest in research and development. Most investors in this stage are looking for companies with a proven track record and sustainable growth. Series D FundingSeries D funding is typically used to take a company public or to help it expand into new markets. Investors in this stage are usually interested in companies that have a strong foothold in their industry and are looking for ways to grow even larger. This type of funding is often used to finance a company’s expansion plans, such as opening new locations or increasing production. It can also be used to help a company go public through an IPO. IPOs can be a risky proposition, so it’s important to have a clear understanding of the business and the market before pursuing this option. ConclusionSeries A, B, C, and D Funding are essential for any business looking to raise capital. Each stage of funding comes with its risks and rewards, so it’s important to understand the differences between them before pursuing any type of investment. It is also important to have a clear business plan in place that demonstrates long-term viability and profitability. Post Source Here: Series A, B, C, and D Fundings: Definition, Meaning, Examples, Requirements Companies use various techniques to retain their customers. Usually, it involves offering them the best quality products for a reasonable amount. Sometimes, though, customers may not like the items sold to them by their suppliers. Companies also offer purchase returns as a part of their policies to ensure customer retention in the future. The accounting for purchase returns is straightforward. However, it is not as easy as reversing the original purchase journal entry. On top of that, the process may also require additional disclosures in the financial statements. Before discussing those, it is crucial to understand what purchase returns are. What are Purchase Returns?Purchase returns refer to the process of returning goods to a supplier for a refund or credit. This process is a crucial aspect of a company’s operations. Usually, companies offer purchase returns to ensure customer satisfaction and maintain a positive relationship with suppliers. However, they may come with specific terms, for example, coverage period, delivery charges, etc. There are several reasons why customers may return goods, some of which include the following:
Usually, companies that accept returns issue a credit note in exchange for the goods received. This credit note acts as the supporting document for the accounting for this process. What is the accounting for Purchase Returns?The accounting for purchase returns involves making adjustments to the accounts related to the original purchase transaction. It implies debiting the supplier account to whom a company owes money for credit purchases. However, companies can only do so when they receive a credit note from the supplier, as mentioned above. When a company returns goods to a supplier, it must also record the transaction as a purchase return. It is a separate account that falls under a contra-expense account. At the end of every financial period, companies report their purchases and decrease the value of returns from them. Usually, this account only impacts the income statement. What is the journal entry for Purchase Returns?The journal entry for purchase returns involves debiting the supplier account while crediting purchase returns. This entry looks as follows.
However, the above journal entry is for when companies still haven't paid the original payable amount. If a company has settled the transaction, it must record a receivable from the supplier. Once again, the supporting document for this journal entry will be the credit note. The accounting entry to record it is as follows.
ExampleA company, Red Co., purchased goods worth $10,000 from its supplier Blue Co. The company received an invoice for this transaction and recorded it as follows.
A few days later, Red Co. inspected some goods received for that order and found damages. The company returned $3,000 worth of goods to Blue Co., for which it also received a credit note. Red Co. recorded the transaction as follows.
ConclusionPurchase returns occur when a company returns goods received from a supplier. However, they must also get a credit note from the supplier to record it. This step is crucial in accounting for purchase returns. Companies may return goods to their suppliers for several reasons. However, the contract between both parties must allow it. Article Source Here: Purchase Returns: Definition, Accounting Treatment, Journal Entry, Example, Meaning Companies and organizations use assets to meet their objectives. In most cases, the company and its management control how they use those assets. However, it may not be the case every time. Some organizations may also have restrictions exposed to their funds from various sources. Usually, it is more common for nonprofit organizations to receive restricted funds. Usually, these funds fall under temporarily restricted net assets. It is a common practice among nonprofits to receive and account for these funds. Therefore, it is crucial to understand what temporarily restricted net assets are. What are Temporarily Restricted Net Assets?Temporarily restricted net assets include funds that an organization sets aside for a specific purpose. Usually, donors impose stipulations on how the organization uses these assets. These funds can only get used for the purpose outlined by those stipulations. Therefore, the organization cannot use them for other purposes without the donors’ consent. An example of temporarily restricted net assets is donations to a nonprofit organization for a particular program. Usually, these donations fall under restricted funds. The organization must use these funds to support that specific program. It cannot use them for any other purpose unless donors approve of the usage. Sometimes, organizations may record pledges for future donations as temporarily restricted net assets. How do Temporarily Restricted Net Assets work?Organizations receive donations for various purposes. When donors specify a specific use for these donations, the funds get recorded as temporarily restricted net assets. The organization must track these funds separately and use them only for the intended purpose. Once the specific objective is met, the funds get reclassified as unrestricted net assets. They appear separately on the financial statements as well. Being unrestricted means the organization can use the funds for any purpose. This reclassification process helps ensure that the organization is using the funds by the donor's wishes. It also helps promote transparency and accountability. However, organizations should have clear policies and procedures to manage these funds effectively. Why are Temporarily Restricted Net Assets important?Temporarily restricted net assets are crucial to an organization's financial management. These assets ensure that donations get used for the specific purpose for which they were intended. It also helps to demonstrate accountability and transparency to donors, as specified above. Furthermore, it helps build trust between the organization and its donors. It also helps with more donations in the future. Temporarily restricted net assets also help match funds from other sources, such as grants. For example, a foundation may donate to an organization with the stipulation that the organization must raise matching funds from other sources. These matching funds get recorded as temporarily restricted net assets and can only be used to fund the objective. ConclusionTemporarily restricted net assets are crucial to ensure that donations get used for a specific purpose. As stated above, this purpose comes from donors. Temporarily restricted net assets also help demonstrate accountability and transparency to donors. However, it requires organizations to have policies that support the use of these funds. Article Source Here: Temporarily Restricted Net Assets Free float is an important concept for investors to understand, as it can have a significant impact on the price of a stock. Free float refers to the number of shares that are available to be bought and sold in the public markets without restriction or limitations. It is the main force behind any company's market capitalization, which is the total market value of all outstanding shares. Free float is an important indicator of a company's potential for growth. Companies with large free float tend to have higher share prices because more people are trading the stock, leading to increased market demand. What is Free FloatEvery company that is publicly traded has a certain amount of shares available in the public market. These are known as free float or public float, and they represent the number of shares that can be bought and sold by the general public. Free float is an important factor for investors who want to know how much liquidity there is in stock, as well as what potential price movements the company may experience. The more free float that a company has, the easier it is to buy and sell shares of its stock. It also means that price movements for the stock could be more substantial than if there were fewer free-float shares available. Therefore, understanding the free float is an important part of making informed investment decisions and researching potential investments. It can provide insight into the trading activity and potential price movements for a given stock. How Free Float WorksAs described earlier, the free float of a company is the number of shares that are available to the public for trading in the secondary market. This number can change depending on factors such as insider trading, share buybacks, and other corporate activities. When it comes to analyzing free float, investors need to consider both the total number of shares and the percentage of those shares that are publicly available for trading. The higher the percentage of free float, the more influence it has on the trading activity and price movements of a given stock. To better understand how free float works, investors should consider both the total number of shares and the percentage of those shares that are publicly available for trading. This will help them make informed decisions about potential investments. Additionally, an understanding of free float can provide insight into the trading activity and price movements of a given stock, which can be beneficial in making informed investing decisions. How to Calculate Free FloatThe formula for calculating free float is Outstanding Shares - Restricted Shares - Closely Held Shares = Free Float Outstanding Shares: Outstanding shares are the total number of shares outstanding. Restricted Shares: The number of shares that are not available for trading due to insider ownership or other corporate activities. Closely Held Shares: The percentage of shares held by shareholders who have a large stake in the company and may not be willing to trade them. By subtracting the restricted shares and closely held shares from the outstanding shares, investors can calculate the free float of a company. This number can then be used to evaluate the trading activity and potential price movements for a given stock. ConclusionFree float is an important metric that investors should consider when researching potential investments. It provides insight into the amount of liquidity in the stock, as well as potential price movements. By understanding how free float works investors can make more informed decisions about their investments. Post Source Here: Free Float Shares: Definition, Meaning, Calculation, Formula, vs Outstanding Shares Technical indicators are mathematical calculations based on the price, volume, or open interest of a security or index. They are used to help traders and investors analyze the behavior of securities in order to make informed investment decisions. Technical indicators are commonly used in technical analysis, which is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. There are many different technical indicators, each with its own specific calculation and interpretation. Relative Strength Index (RSI) is a technical indicator that measures whether a security is overbought or oversold by comparing the magnitude of its recent gains to the magnitude of its recent losses. Reference [1] examined the use of the RSI indicator for trading cryptocurrencies. It pointed out, The authors examined the strategies designed by the creator of the indicator, J. Welles Wilder, and the well-known RSI interpreter Andrew Cardwell. Automated trading systems were built for each of the applications. The research results allowed for the selection of an RSI-based strategy that was characterized by good results for all the examined indexes. The study indicated the rather low effectiveness of the basic, popular applications of RSI. The authors developed a new strategy, which is a modification of Cardwell’s strategy. The strategy was developed on the basis of the available literature and research conducted in the article. The selected sub-optimal application of the RSI indicator allowed the achievement of above-average results, including in the time after the end of the study. The developed strategy can compete with the most effective strategies widely used on the market. In short, the fast, frequently used RSI indicator was ineffective in trading cryptocurrencies. This is due to the loss caused by the short signals. The slower RSI indicator was more effective. However, it still lost money last year due to changing market conditions. This article highlights the importance of performing statistical analysis instead of relying on common, but untested knowledge, and developing a robust trading system that can adapt itself to changing market conditions. Let us know what you think in the comments below or in the discussion forum. References [1] Marek Zatwarnicki, Krzysztof Zatwarnicki, and Piotr Stolarski, Effectiveness of the Relative Strength Index Signals in Timing the Cryptocurrency Market, Sensors 2023, 23, 1664 Originally Published Here: Relative Strength Index Indicator for Trading Cryptocurrencies Inflation is the increase in the price of goods or services in a country. Usually, governments or economists measure it as a rate of change in specific items over time. This rate is increasing steadily, causing many investors to suffer a loss on their investments. Investors can still manage or mitigate this risk through instruments. One of the instruments used in this regard is an inflation swap. It has specific tax and accounting treatments. Before discussing those, it is crucial to understand what an inflation swap is. What is an Inflation Swap?An inflation swap is a type of derivative instrument that allows parties to hedge against changes in the rate of inflation. It can also serve as a speculation tool against the same rate. Usually, investors, companies, and other organizations use it as a tool to manage inflation risk. Essentially, an inflation swap is similar to other swap derivatives. However, it depends on an inflation index. In an inflation swap, one party agrees to pay a fixed rate of return to the other. In contrast, the other party pays a rate tied to an inflation index. The most common among them is the Consumer Price Index (CPI). The payment made by the fixed rate payer is usually a part of the contract, agreed upon by both parties. However, the obligation of the inflation rate payer comes based on the inflation index at the end of the contract. What is the accounting treatment for Inflation Swap?The accounting treatment for an inflation swap depends on the terms of the contract. Usually, accounting standards require companies to treat inflation swaps as derivatives. Based on this accounting treatment, these instruments are subject to mark-to-market accounting. It means that the value of the contract gets evaluated at the end of each reporting period to reflect changes in the market value of the underlying inflation index. Companies must record inflation swaps on the balance sheet at their fair value. At the end of each accounting period, they must evaluate this value. Any fluctuations to this value go into the profit or loss statement. On top of that, any income or expense associated with the underlying contract also becomes a part of the income statement as income or expense. What is the tax treatment for Inflation Swap?A notional principal contract (NPC) is any financial instrument where one party pays the other an amount based on a specified index. These payments occur after regular intervals. Based on this definition, an inflation swap falls under a notional principal contract. This contract has two types, periodic and non-periodic, simplifying the tax treatment for inflation swaps. With periodic payment NPCs, the payments occur at an interval of one year or less. With these contracts, the accounting for the derivative is irrelevant. The taxpayer must recognize the ratable daily portion of the periodic payment for the tax year. If these payments are non-periodic, the rules are the same. However, the taxpayer recognizes the non-periodic payment section on a ratable daily basis. ConclusionAn inflation swap is a derivative that investors use to manage inflation risk. The payments in this swap occur based on an inflation index. When accounting for inflation swaps, companies must recognize them at fair value and evaluate that value each year. The tax treatment for inflation swap falls under the definition of a notional principal contract. Article Source Here: Inflation Swap: Definition, Explanation, Accounting and Tax Treatment |
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