Banking awareness important financial terms
Cash flow
Cash flow is the movement of money into and out of a business, project or financial product. It is a revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of the three activities- financing, operations or investing. Cash outflows result from expenses or investments in business as in personal finance, cash flow are essential for solvency. They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business or a person expects to take in and to spend.
Credit
Credit is a contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company. In a journal entry recording, it signifies an increase in assets. With cash basis accounting, credits are recorded when income is received. With accrual basis accounting, credits are recorded and recognized when income is earned.
Cost of goods sold
Cost of goods sold (COGS) is an accounting term to describe the direct expenses related to producing a good or service. For goods, COGS is primarily composed of the cost of the raw materials that physically constitute the item. But cost of goods sold does not include indirect expenses, such as utilities, office supplies, or items not associated with the production of a specific good or service.
Debit
Debit is an accounting entry which results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in your bank account.
Debentures
Debentures are bonds that are not secured by specific property or collateral. Instead, they are backed by the full faith and credit of the issuer, and bondholders have a general claim on assets that are not pledged to other debt. If Company XYZ is exceptionally creditworthy (let's say it has significant cash flow and has never defaulted on any of its other debt), then placing liens on Rs.100 million of assets (called encumbering the assets) may not be necessary to attract investors. Company XYZ could issue debentures instead. Holders of the Company XYZ debentures would have a claim to the assets not otherwise pledged to other bondholders. So, if Company XYZ had Rs.300 million of assets, but Rs.100 million were pledged in a previous bond issue, then the holders of the debentures could lay claim to the other Rs.200 million of assets in the occurrence of default.
Depreciation
It is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. Depreciation indicates how much of an asset’s value has been used up. Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn.
For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. There are two ways to distribute cash to shareholders: share repurchases or dividends. Many corporations retain a portion of their earnings and pay the remainder as a dividend.A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholder equity section in the company's balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends.Dividends are usually paid in the form of cash, store credits (common among retail consumers' cooperatives) and shares in the company (either newly created shares or existing shares bought in the market.) Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder.
Earnings per share
The portion of a company's profit allocated to each outstanding share of common stock. .
Calculated as: When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.
