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What is an Accounting Convention?
An accounting convention is an established an agreed-upon method of documenting specific items on a company’s books. The most widely-used accounting conventions are part of the Generally Accepted Accounting Principals (GAAP), which is the only accounting methodology accepted for quarterly 10-Q filings with the SEC in the United States, and has also become the basis for regulatory accounting practices in other countries. Continue reading...
What is a Convertible Bond?
A convertible bond, also known as convertible debt, is debt that can be converted to equity (in the form of common stock) at the discretion of the bondholder. There are typically windows that an investor can choose to convert the bond to equity, which an investor may choose to do if they have confidence the company will continue to perform well. Because a convertible bond has the option to convert to stock, it typically offers a lower interest rate since the conversion capability itself has value. Continue reading...
What is Dividend Adjusted Return?
An accurate historical return calculation for an investment should be done with the dividends in mind, such as assuming all dividends were reinvested, which is the most common way they are used. Accurate historical information concerning prices and return should take the stock splits, dividends, and so-on into account. In a lesser-known context, dividend adjustment means a payment of accrued but yet-unpaid dividend amounts to the bearer of convertible preferred stock at the time that he or she converts them to shares of common stock. Continue reading...
What is Convertible Preferred Stock?
A convertible preferred stock is one that gives the owner the option to convert shares to common stock, usually by a predetermined date. The shareholder usually has control over when to convert the shares, but in some cases there are provisions that allow the company to force conversion. An investor may choose to do this conversion if they believe the company has high upside potential, and they want common stock exposure which would allow them to participate more in market gains. Continue reading...
What is Diluted Earnings Per Share?
If all the convertible securities a company had issued were converted at once to common stock, the stock would be diluted; Diluted EPS reveals by how much. Companies will sometimes entice investors to buy bonds or preferred stock by giving them an option to convert them into shares of common stock. If a bond is converted, shareholders equity increases on the balance sheet and liabilities go down, since a debt liability is being retired. Continue reading...
What are Fully Diluted Shares?
Fully Diluted Shares are a calculation used to show how much the existing shares of common stock could potentially be diluted if all the convertible securities and employee stock options, were exercised. Fully Diluted Shares is a calculation used to show the potential number of shares that could hypothetically be called into existence instantaneously by the holders of convertible securities, warrants, employee stock options and so forth. Continue reading...
What is currency convertibility?
Currencies may work fine in a particular country or region, but it may happen that certain currencies are not convertible into other currencies or gold. Sometimes this is by choice, such as was formerly the case with closed economies like the People’s Republic of China, Soviet Russia, Cuba, and others. Most currencies are convertible into other currencies. Banks, at least the central banks of countries, tend to have reserves of most foreign currencies with their citizens do business. Continue reading...
What is Dividend Enhanced Convertible Stock (DECS)?
This is a type of automatically convertible security that comes in the form of preferred stock shares, which function basically like bonds, that experience a mandatory conversion to common stock at some point. The dividend enhancement is a higher yield payout than other share classes are offered, to compensate the investor for the lack of control he or she has, since the shares will be converted at a predetermined time by the company. Mandatory convertible shares will offer a higher yield than their counterparts, but it will only last as long as the issuing company has determined. Continue reading...
What is a Preferred Stock?
Preferred stock are dividend-paying equity shares issued by corporations, which pays a dividend with a higher priority than common stock, but lacks the voting rights that come with common stock. Preferred stock is very similar to a bond, because it will often be issued to raise capital for projects, and dividends (or interest) are expected to be paid regularly by the issuing company, but it still experiences the appreciation (and depreciation) of equity shares. Continue reading...
What are Accounting Policies?
Accounting policies are the internal controls of a company which stipulate the methods by which the books will be kept. Accounting policies are the agreed-upon accounting methods, conventions, and practices of an accounting cycle. A business must establish guidelines and training to ensure that accounts are kept in ways that satisfy their needs for documentation, security, liquidity, management, and the observation of applicable laws. Continue reading...
What is Accounts Payable for Accounting?
Accounts Payable is part of the Current Liabilities section of a company’s books. Accounts Payable are the short-term expenses and debts that a company must pay out in the near future. These might include utility bills and regular expenses, debt service, and bills to regular suppliers and vendors. The amounts that appear in the Payables, as they are also called, have not been paid out yet, but are scheduled to be paid within the current quarter, generally. Continue reading...
What is Accounts Receivable for Accounting?
Also simply called Receivables, the Accounts Receivable line on a General Ledger will contain the amounts owed to the company which are due to be received in the near future. If a company offers financing for the items it sells, or it has regular payments coming in for things such as rent, leases, monthly subscription or membership fees, and so on, they will have substantial numbers in their accounts receivable. Continue reading...
What is Cash and Cash Equivalents?
Cash and cash equivalents are negotiable instruments which have a stable value and are highly liquid. Cash and Cash Equivalents is a phrase used often in the financial world. Generally money market accounts are the most used cash equivalent. They are invested in currency, and their goal is to preserve the value of the the investor’s dollars. Money market accounts are basically completely liquid, and investors can even write checks and make ATM withdrawals from their money market accounts. Continue reading...
Do I Have to Pay Taxes on My Bitcoins?
The IRS currently requires that bitcoin and other cryptocurrencies be reported as personal property and capital assets. The IRS has published guidance that, yes, you do have to report gains/losses/income in the form of bitcoin and other “convertible virtual currencies.” Generally, the IRS treats bitcoin as property, instructing taxpayers to follow the existing IRS guidelines for personal property taxation. You can claim them as a capital asset, allowing you to treat them as stocks, essentially, with the ability to only pay long-term capital gains taxes on them if you hold them for a while. You can get paid in bitcoin by your employer, but employers must still withhold the usual amount of taxes, and you must report your bitcoin income the same way you would your regular income. Continue reading...
What is the FCC?
The Federal Communications Commission is a bipartisan regulatory body that oversees interstate communications media, grants licenses to entities which plan to use the bands available, and to some extent regulates the content of these communications in the public interest. Communications media, including radio, satellite, cable, telephone, and others, are overseen and regulated by the FCC. They help to standardize measures and regulate the commercial activity of the entities which seek to use these media, including licensing and content regulation. Continue reading...
What is Account Reconcilement?
Account reconcilement is the act of comparing and affirming multiple records of the same financial information. To “reconcile the books” is to compare different records of the same accounts to ensure that they match up. One might reconcile all the different record-keeping for the same account, such as copies of checks and receipts, to be sure that they add up to the balance and ledger shown on a bank account statement. It could be that the recipient of a check has not yet cashed it, and it is important to keep all records “synced” with one another. Continue reading...
What is a Cash Conversion Cycle?
A business with a fast ‘cash conversion cycle’ can efficiently use funds and resources to fulfill the different needs of the business and to generate more business. In the simplest terms, the ‘cash conversion cycle’ is an accounting and efficiency model which measures how fast a retailer can disburse cash to suppliers and then receive cash from customers. To be more descriptive, the business would use cash from Receivables, to get Inventory (and cover Payables), sell that Inventory, and Receive cash again. Continue reading...
What is Account History?
Account history is a term especially useful for investment accounts, where transactions beyond a current month or year’s records are useful for reference. Most people are familiar with the transaction history that is available for the current month, quarter, or year on an individual’s savings, checking, and credit card accounts. These are often called “activity ledgers” or something similar. Account history that reaches further back might be more useful for investment accounts, where the current value of investments, and their cost basis, will depend heavily on account history from potentially years in the past. This sort of query can be made easily with online investment account viewing software from a broker or custodian company. Continue reading...
What is Cash Collateral?
Cash collateral is liquid cash and cash equivalents designated as collateral for loans and debts of various sorts. One frequently used example of cash collateral is cash used in short selling of securities in a brokerage account. While securities equal to significantly more than the required cash margin can be substituted for cash, the most cost-effective and least risky way to maintain margin requirements is with cash and cash equivalents. Continue reading...
What is currency exchange?
Currencies can be exchanged for other currencies, and there are more reasons to do this than most people realize. People are familiar with the currency exchange in the context of tourists stopping by a currency exchange kiosk so that they can buy trinkets at the local tourist traps, but the Foreign Exchange (Forex) market, where currencies are traded, is the largest market in the world by far. Currencies are exchanged for each other on a massive scale on the international Forex market. Thousands of banks connect through electronic trading systems which are part of the interbank forex market. Millions of smaller-scale traders and individuals also engage in Forex trading, either over-the-counter or on regulated international exchanges. Continue reading...