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so I request specially to finance students to kindly go through it I confident that will sure help us:
What is the difference between Bad Debts and Doubtful Debts? Bad debts and doubtful debts are terms used to refer to money that has been owed to a business, by its customers who have obtained the goods and services prior to paying a price. A bad debt is referred to as an amount that most certainly will not be receive d by the business. Once a bad debt is identified, it will be removed from the accounts receivable account with a credit entry and will be debited to the bad debts expense account. A doubtful debt, as its name suggests, is an accounts receivable that the business is not sure whether it will receive. The accounting entry will require a debit to be made in the provision for loss account and a credit entry to be made in the provision for doubtful debts account.
The similarities between the provision for doubtful debts and bad debts accounts are that they are in line with the accounting principles of showing the true and correct view of the business, in its accounting books. Maintaining bad debts and doubtful debts accounts are also important for credit control.
What is the difference between Certificate of Deposit (CD) and Commercial Paper?
Certificates of deposit and commercial papers are both instruments used in the money market for different financial purposes. A certificate of deposit (CD) is a document issued by the bank to an investor who chooses to deposit his funds in the bank for a specific amount of time. Once the money has been deposited
the depositor cannot withdraw the funds before maturity without incurring a penalty for early withdrawal. Commercial paper is used a substitute for a bank loan and is a short term money market instrument which matures within a period of 270 days. The main difference between the two forms of instruments is the time period of maturity of the two. While a CD is usually for a longer term, a promissory note is for a shorter period.
Securities refer to a broader set of financial assets such as bank notes, bonds, stocks, futures, forwards, options, swaps, etc. These securities are divided into different types depending on their distinguishing characteristics. Debt securities such as bonds, debentures, and bank notes are used as forms of obtaining credit and entitle the holder of the debt security (the lender) to receive principal and interest payments. Stocks and shares are equity securities and represent an ownership interest in the firms assets. The shareholder of the company can trade his shares on the stock exchange at any time. The return to the shareholder of tying up funds in shares is the income from dividends or capital gains in selling the share at a higher price than what it was bought for. Derivatives such as futures, forward, and options are the third type of security, and represent a contract or agreement made between two parties, to perform a specific action or fulfill a promise at a future date. For example, a futures contract is a promise to buy or sell an asset a future date at an agreed upon price. Securities vs Stocks The similarities between stocks and securities are that they both represent financial instruments. However, a stock is only one form of security belonging to the equity class of all securities. A typical investor would want to create an investment portfolio containing assets from all security classes, in order to reduce his risk by spreading out his investments, and not putting his eggs in one basket. This clearly shows how stocks are different from securities as investing solely in the stock market is riskier than investing in a broader set of securities. If the investor wishes to invest only in shares, it would be advisable to spread the investment to a number of industries that may not be affected by the same economic or industrial influences.
The basic EPS will always be higher than a diluted EPS, since, in calculations, the diluted EPS will result in more outstanding shares, but will use the same net income used in the basic EPS calculation. An investor may not be willing to purchase shares that have a significant difference between their basic EPS and diluted EPS, due the potential negative effect that dilutions in the number of shares may have on the price of the share.
Weighted Average Cost of Capital (WACC) is based upon the proportion of debt and equity in the total capital of a company. WACC = Re X E/V + Rd X (1- corporate tax rate) X D/V Where D/V is the ratio of companys debt to total value (debt + equity) E/V is the ratio of companys equity to companys total (equity +debt)
Expenses vs Liabilities;
Liabilities are those for which the benefit is obtained in the present, and the obligation is to be met in the future, whereas expenses are those, which are incurred currently, and payments too are made during the current period. Liabilities are recorded under the balance sheet, and expenses are recorded in the income statement as it reduces the company profitability. A company needs to make sure both liabilities and expenses are controlled so that it can manage to pay its debts for the liabilities in an event of bankruptcy, and the company does not face reduced profitability as for the latter.
calculated at a fixed interval of time to assess the companys performance where as market value is calculated only in cases of acquisitions and mergers.
calculations of the company go awry and the return on investments are not as high as company has planned and they fall below the rate of interest that it needs to pay to its creditors. What is the difference between Operating Leverage and Financial Leverage? While financial leverage is more important in the case of huge business houses, it is operating leverage that is crucial for small business units. Fixed cost of production is more important for small companies while it is not so important for large production houses. It is financial leverage that makes all the difference in the debt equity ratio of a big company. The combined effect of both the leverages is given by the following formula. Degree of combined leverage = Degree of operating leverage X degree of operating leverage