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What is the Accounting Cycle?
The Accounting Cycle includes all of the documentation that is collected and all of the controls and systems in place to ensure accurate accounting. The Accounting Cycle begins with the point of sale, with documentation for the transaction (invoice or receipt) and the internal expenses and inventory. There are conventions, controls and systems in place to account for and control the flow of information in a company at each stage of the process to ensure that accounts are as accurate as possible. The Accounting Cycle may refer to the length of time between trial balances, such as monthly, quarterly, or annually. 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 are Accounting Controls?
Internal control systems and procedures can ensure the accuracy and reliability of financial accounts at a business. Accounting controls are meant to ensure that the numbers being put onto the books are accurate. Internal controls are the practices that employees are trained to do, and may be audited on, which general involve some oversight or double-checking to filter out mistakes. This not only prevents mistakes, but also malfeasance, embezzlement and fraud. Accounting done wrong can result in criminal penalties, bankruptcy, and tax problems. Continue reading...
What is an Alternative Trading System (ATS)?
An ATS is a platform separate from an exchange where securities are traded. ATSs provide marketplaces for buyers and sellers to transact in securities, much like a stock exchange. However, they are not available to the entire investment public, and they do not necessarily provide public information on the best prices available to traders within their system. They also do not set rules governing the conduct of subscribers and they perform no self-regulation, while exchanges perform all of these functions. Continue reading...
How is Ripple Different Than Bitcoin and Ethereum?
Ripple’s XRP has the third-largest market cap in the cryptocurrency world, but what gives it value? Ripple Lab’s intent was not to be a store of value or a currency, per se, like Bitcoin. Neither did it intend to be a platform for developers to explore the possibilities of blockchains, like Ethereum. Ripple was always focused on being a payment system, facilitating transfers between banks, currencies, and countries in a way that would not be possible without blockchains. Continue reading...
What is the Federal Reserve Bank?
The Federal Reserve banking system was created in 1913, the same year that income taxes were added to the US Constitution. 12 regional Fed banks were established, each of which plays a role in monitoring and implementing interventions to the flow of money in the economy. The Federal Reserve Bank is a 12-bank system in the United States that plays the role of the country’s central bank. Central banks in other countries are typically part of the government and print the actual currency, but in this case the Fed is independent of the actual US government, and the Treasury Department technically prints the money. Continue reading...
What is a momentum trading system?
Momentum trading usually involves long positions in a security that has been experiencing an uptrend and has a high volume of trading, and dropping positions that have lost momentum. Several systems exist to help take the emotion out of trading and to stick to a theory with rules. Momentum trading is such a system, and it can be automated with help from algorithm. Some indicators that can be used are Rate of Change and Relative Strength Index. Some would identify high momentum as steady price increases bolstered by high trading volume. Continue reading...
What is Accounts Receivable Subsidiary Ledger?
The Accounts Receivable Subsidiary Ledger will be a separate ledger from a company’s General Ledger, where all of the information pertaining to all Accounts Receivable will be reported. Receivables may have only a line-item on the General Ledger of a company, but may have an entire department dedicated to servicing the receivable accounts. Because there may be a large amount of information in just the Receivables sub-account, there is often a Subsidiary Ledger dedicated to the minutia of all the Accounts Receivable business. Continue reading...
What is the Difference Between a Blockchain and a Database?
Blockchains use distributed ledgers, which are decentralized and do not rely on centralized databases. Databases are the traditional way to store information and to keep it secure. When companies store information about their customers, or about the business itself, it is usually kept in a database connected to servers that handle requests for the information. The design for such a system tends to look like a wagon wheel: a central hub with numerous spokes connecting it to the outer wheel. Layers of security are heaped onto centralized servers and permit access to various levels of information is given to specific users. Continue reading...
What are International Equity Funds?
International equity funds hold stocks of corporations based outside of the United States. International equity funds invest mostly in the stock of overseas companies. People purchase shares of such funds as a means of globally diversifying their portfolio. There is some degree of currency risk involved in international investments, which may necessitate a currency hedging strategy if an investor is heavily invested across the globe. Continue reading...
What are Fibonacci Extensions?
In Fibonacci line analysis, chartists attempt to predict how far a trend will go in a single direction, despite some minor pullbacks that do not break the overall, stronger trend (behavior known as retracements). Trends can be upward or downward and still experience this phenomenon. Fibonacci extensions are estimations of the next high after an initial push and retracement, using Fibonacci sequences as guidelines. Some investors believe that, like many naturally occurring systems in nature, mark... Continue reading...
What is a Leveraged Buyout?
A leveraged buyout occurs when members of management use outside borrowed capital to buy a controlling share in the company. Often times, the assets of the company being acquired are used as collateral for the borrowed capital. The purpose of leveraged buyouts is to acquire another company without having to commit a lot of working capital up front. In a typical leveraged buyout, you may see a ratio of 90% debt financing to 10% equity used to acquire the company. Continue reading...
What is a Bank Reconciliation Statement?
It is a useful practice to compare the balance reported by the bank and your internal accounting, in the form of a Bank Reconciliation Statement. Bank Reconciliation is the useful practice of comparing the records of the bank and a business's internal accounting for a specific accounting period. Many businesses produce Bank Reconciliation Statements (BRS) on a monthly basis. There may be pending transactions that have not settled yet, such as outstanding checks to vendors, which have shown up on the business’s books but are not represented in the bank account balance. It can be important to identify which transactions have shown up on the bank’s ledger and which ones have not. Continue reading...
What is Minority Interest?
Minority interest is a portion of a company’s stock that is not owned by the parent company, and refers to a type of ownership that generally cannot exert influence over a company’s business decisions. If an outside investor or another company has a less than 50% stake in a company via shares, then they are said to have a minority interest. From an accounting standpoint, only the dividends of a minority interest are counted on a company’s books. If they exert influence over the decision-making, then a percentage of the income may also need to be included. Continue reading...
What Does Ripple Do?
Ripple does several things, serving as a protocol for decentralized currency exchange and transfers of value, primarily focused on the financial service industry. Ripple’s defining characteristic is probably its interface for inter-ledger payments and settlements, meaning the ledgers of other blockchains and the database systems of banks can be seamlessly integrated to offer validation and record-keeping with a reliability and speed that was heretofore unheard-of. Ripple cuts out as many middlemen as possible and dramatically reduces the transaction costs and time required for cross-border money transfers, while also significantly reducing some of the risks inherent to international trade, like counter-party risk. Continue reading...
What is a currency certificate?
A currency certificate is also called a foreign exchange (Forex) certificate (FEC), and it validates that the bearer is entitled to a certain amount of foreign currency upon the redemption of the certificate, or that a certain amount of foreign currency was exchanged for it. This is not to be confused with a certificate of currency, which is proof that some types of insurance are currently in effect. Currency certificates have been historically used in countries with closed or controlled economies, such as the Soviet Union, Cuba, and China. Continue reading...
What is a Foreign Portfolio Investment (FPI)?
When foreigners purchase shares of domestic companies that represent less than 10% of the voting shares in the companies, and the investments are not those of company expansion or market penetration, but rather to add diversification to the foreigners’ investment portfolios, it is known as Foreign Portfolio Investment (FPI). FPI is the passive investing that foreigners do in a domestic market. It is separate from investments that companies might make into joint ventures or purchase facilities or acquire controlling interest in a domestic company — all of those are active investing and are usually called Foreign Direct Investment (FDI). FPI can be done by individuals or institutional investors. Institutional investors might run a mutual fund or pension fund in another country. Continue reading...
What is IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes)?
IRS Link to Publication — Found Here Owning multiple properties and receiving rent or lease income from those which are not personally used is a common way to increase wealth. Some individuals also own a vacation home which they use some of the time and rent out the rest of the year. Both of these sources of income addressed in Publication 527. Publication 527 describes how to report income from residential property, as well as how to depreciate it, what forms are needed for different situations, and categorizes different types of arrangements where individuals might own or rent only part of a property or only for certain times of the year, as well as not-for-profit rental. Continue reading...
What is currency substitution?
Currency Substitution can be an official or ad hoc occurrence in a country whose commerce is partially, or fully, conducted using the currency of another country. Some currencies which are pegged to another currency at a fixed rate (especially at whole integers) are domestically exchanged in the same manner that the local currency is. Many countries have completely adopted the currency of another country, and do not have a central bank of their own. Continue reading...
What is a foreign institutional investor?
Institutional investors are corporations, banks, pension funds, mutual funds, and other forms of pooled capital which act as one entity to engage in securities transactions in the best interest of the constituents or company that they represent. Foreign Institutional Investors are those whose company is based in another country. Investments made on behalf of foreign companies, foreign financial institutions, and foreign funds (such as the foreign equivalent of hedge funds, mutual funds, and pension funds) are foreign institutional investments. There are usually reporting requirements for both the foreign government for the county in which the interests are held and for the domestic government of the institutional investor. Continue reading...