Friday, May 31, 2024
Thursday, May 30, 2024
The Emotional Bank Account
Day 110 of The X Proactive Test (Year 1): The Emotional Bank Account: Stephen Covey, the author of The 7 Habits of Highly Effective Families®, defines an emotional bank account as one's relationship with another.
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Wednesday, May 29, 2024
Tuesday, May 28, 2024
The Quadrant II Paradigm
Day 108 of The X Proactive Test (Year 1): The Quadrant II Paradigm: The key to effective management of self, or of others through delegation, is not in any technique or tool or extrinsic factor.
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Monday, May 27, 2024
Sunday, May 26, 2024
Saturday, May 25, 2024
Two kinds of Delegation
Day 105 of The X Proactive Test (Year 1): Two kinds of Delegation: There are basically two kinds of delegation: "gofer delegation" and "stewardship delegation." Gofer delegation means "Go for this, go for that, do this, do that, and tell me when it's done."
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Friday, May 24, 2024
Thursday, May 23, 2024
Delegation: Increasing Production and Production Capability
Day 103 of The X Proactive Test (Year 1): Delegation: Increasing Production and Production Capability: We accomplish all that we do through delegation -- either to time or to other people. If we delegate to time, we think efficiency.
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Wednesday, May 22, 2024
Accounting: The Language of Business - Vol. 2 (Intermediate: Part 146)
- Whoever loves money never has enough (Ecclesiastes 5:10) ...
Short-Term Operating Assets: Cash and Receivables (Part k)
by
Charles Lamson
Securitizations
The term securitization refers to a financing technique that involves taking many separate, and often times diverse, financial assets and combining them into a single pool or bundle. Investors then purchase interest in the pool of assets rather than buying an individual asset or group of assets. Securitization allows a company to engage in a collateral borrowing arrangement with a large number of lenders by issuing debt obligations or equity shares rather than attempting to sell each asset. Securitization also allows a company to obtain financing at a lower cost of borrowing. The pooling of many individual assets diversifies the default risk from each individual asset, thereby enhancing an investor's ability to predict the investment's future cash flows, lowering risk, and thereby lowering the required rate of return. These benefits are possible because a company can select high quality assets to collateralize the notes or equity shares. For example, a major telecommunications company can bundle the cell phone accounts of subscribers with the highest credit rating to use as collateral for a series of notes payable. The investors purchasing the notes can rely on the collection of the cell phone receivables to pay interest and cover the note principal at maturity. Rather than attempting to sell the receivables to a single factor [Factoring accounts receivable, also known as invoice factoring, is a financial practice where a company sells its unpaid invoices to a third-party financial institution, called a factor, for cash. The factor then collects payment from the customer, and the company receives immediate funding without waiting for payment or taking on more debt (highradius.com).], the company has effectively sold the receivables to multiple investors, lowering the cost and the concentration of risk. A company can also bundle diverse types of receivables into the securitization transaction. For example, the credit affiliate of an automobile manufacturer can bundle auto loans and lease receivables as security for a note payable.  Securitization can also have drawbacks. Potential investors do not always have detailed knowledge on the original borrowers or their risk of default. Therefore, a company may have to offer the securities at a lower price. Even when a company can securitize its receivables, there is still the risk of non-collection. For example, securitization of mortgage receivables from borrowers with poor credit histories and higher risks of default led to the subprime mortgage crisis of 2007-2010. Exhibit 9.7 summarizes ways in which a company can use accounts receivable to provide financing. .jpg)  *GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., P. 463* end |
Tuesday, May 21, 2024
Advances of the Fourth Generation
Day 101 of The X Proactive Test (Year 1): Advances of the Fourth Generation: The Fourth Generation of Productivity shifts the focus from simply doing tasks to achieving meaningful results and building strong relationships. It’s about effectiveness, not just efficiency.
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Monday, May 20, 2024
Sunday, May 19, 2024
Saturday, May 18, 2024
Training Vlog: Day 185 of Year 3 of Operation Great Reset - Build Back B...
Friday, May 17, 2024
Moving Into Quadrant II
Day 97 of The X Proactive Test (Year 1): Moving Into Quadrant II: Moving into Quadrant II in Stephen Covey's time management matrix means focusing on tasks that are important but not urgent.
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Training Vlog: Day 184 of Year 3 of Operation Great Reset - Build Back B...
Thursday, May 16, 2024
Accounting: The Language of Business - Vol. 2 (Intermediate: Part 145)
- "Money should be handled in such a way that is defensible against any accusation"
Short-Term Operating Assets: Cash and Receivables (Part J)
by
Charles Lamson
Factoring Accounts receivable
Factoring accounts receivable occurs when a company sells its accounts receivable to a third party, known as a factor, at a discount. In most factoring arrangements, customers are instructed to pay the factor directly. The factoring company discounts or reduces the amount remitted due to the risk of bad debts and the cost of collection. Accounting for a factoring transaction depends on whether the arrangement qualifies as a sale and whether the sale includes conditions guaranteeing collection of the receivables. Sales versus Secured Borrowing. When a company factors its receivables, it must first determine whether the transaction meets the requirements to record the transaction as a sale. Companies must meet all of the following conditions in order to record the transaction as a sale (The specific conditions are presented in paragraph 5 of FASB ASC 860-10-40—Transfers and Servicing - Overall - Derecognition.):
 In general, these conditions, summarized in Exhibit 9.5, ensure that the seller does not retain any control of the receivables. EXHIBIT 9.5 Sales versus Secured Borrowing %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(6)%20(2)%20(1).jpg) If the company determines that the factoring arrangement is a sale, it derecognizes the receivables (i.e, the company removes the receivables from the balance sheet). If the transaction does not qualify as a sale, the company treats it as a secured borrowing by using the same accounting as if the company had pledged or had assigned the receivables, which we discussed in Part 144. If a transaction meets the conditions to be recorded as a sale, the accounting depends on whether the receivables are sold with or without a recourse provision guaranteeing that they will be collected in the factoring contract. Factoring without Recourse. If the receivables are transferred without a guarantee of collection, the factor assumes the risk of uncollectible accounts and absorbs any credit losses. The customers now pay the buyer or factor. When the seller does not guarantee collectibility, the receivables are transferred without recourse. When factoring receivables without recourse, the seller company no longer retains any of the risks or rewards of the receivable. When the sale of accounts receivable is made without recourse, the selling company removes the accounts receivable from its books and records the related gain or loss on the transaction as shown in Example 9.10. The gain or loss is the difference between the proceeds on the sale and the face amount of the receivables factored adjusted for any hold back. A hold back is an amount of cash that the buyer does not remit to the seller but instead retains as additional security. The seller recognizes the amount of the hold back as a type of receivable on its books. After the receivables are fully collected, the buyer returns the holdback amount to the seller.  %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(6)%20(3)%20(2)%20(2).jpg) Factoring with Recourse. When a seller transfers receivables with recourse, the seller guarantees that all or part of the receivables transferred will be collected. The selling company assumes the risk of uncollectibility and resulting credit losses. The seller separately recognizes any liability created by the guarantee by recording a recourse liability along with an additional estimated loss for possible losses due to the guarantee. The seller estimates the amount of the recourse liability as the amount that the buying company is not expected to collect. Example 9.11 provides an example of accounting for a factoring with recourse.  %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(6)%20(3)%20(2)%20(3)%20(3)%20(1).jpg)  Factoring Accounts Receivable: International Financial Reporting Standards (IFRS). IFRS differs from U.S. GAAP by determining whether a factoring arrangement is a sale based on the transfer of contractual rights to the cash flows [IFRS Requirements for derecognition of financial assets are in Section 3.2 of IASB, International Financial Reporting Standards 9, “Financial Instruments” (London, UK: International Accounting Standards Board, 2014, Revised)]. When a company transfers the contractual rights to receive the cash flows from the receivables, it assesses whether it has also transferred all the risks and rewards of ownership. If it has, then the transfer is a sale. If the seller retains substantial risks and rewards of owning the receivable, he still may have a sale, but only if he meets three conditions. A company retaining the contractual rights to receive the cash flows must meet three conditions for the transfer to be considered a sale:
Exhibit 9.6 provides a flowchart of the sale versus secured borrowing decision under IFRS. Observe that under U.S. GAAP, isolating the receivables and giving up effective control over the receivables are both required for a sale as Illustrated in Exhibit 9.5. However, under IFRS, receivables do not have to be isolated and companies do not have to give up effective control as long as they pay out any cash collected on a timely basis to the factor. %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(6)%20(3)%20(2)%20(3)%20(5)%20(2)%20(1)%20(1).jpg) Although U.S. GAAP and IFRS use somewhat different criteria in determining whether the transfer is a sale, both standards often arrive at the same conclusion.  At December 31, 2016, Fiat Chrysler Automobiles N.V., a European car manufacturer and IFRS reporter, had transferred without records and derecognized €6,573 million of receivables. Fiat Chrysler indicates that even though some transactions may be legally viewed as a sale of receivables, it does not substantially transfer the risks and rewards associated with the receivables because of the significant loss guarantees and its continuing exposure. As such, these transactions do not meet the conditions required to record these transactions as sales. The carrying amount of Fiat Chrysler's transferred receivables not derecognized and the related liabilities total €410 million (Fiat Chrysler Automobiles N.V.'s 2016 financial statements). *GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 460-463* end |
Training Vlog: Day 183 of Year 3 of Operation Great Reset - Build Back B...
Wednesday, May 15, 2024
Quadrant II
Day 95 of The X Proactive Test (Year 1): Quadrant II: In The 7 Habits of Highly Effective People, Quadrant 2 is for tasks that are important but not urgent. These tasks are aligned with long-term goals and can greatly benefit your life.
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Tuesday, May 14, 2024
Monday, May 13, 2024
Training Vlog: Day 181 of Year 3 of Operation Great Reset - Build Back B...
Sunday, May 12, 2024
Put First Things First
Day 92 of The X Proactive Test (Year 1): Habit 3: Put First Things First -- Principles of Personal Management: In The 7 Habits of Highly Effective People, Stephen Covey describes Habit 3, "Put First Things First", as the practical application of Habits 1 and 2.
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Saturday, May 11, 2024
Organizational Mission Statements
Day 91 of The X Proactive Test (Year 1): Organizational Mission Statements: An organizational mission statement, also known as a mission statement, is a brief statement that explains an organization's goals, values, and objectives, and how it will achieve them.
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Friday, May 10, 2024
Family Mission Statements:
Day 90 of The X Proactive Test (Year 1): Family Mission Statements: A family mission statement should outline your family's goals, expectations, values, and beliefs, and how you plan to live a good life together.
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Thursday, May 9, 2024
Identifying Roles and Goals
Day 89 of The X Proactive Test (Year 1): Identifying Roles and Goals: We each have a number of different roles in our lives -- different areas or capacities in which we have responsibility. For example, as an individual, a husband, a father, a teacher, or a businessman.
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Accounting: The Language of Business - Vol. 2 (Intermediate: Part 144)
- "A false balance is an abomination to the Lord, but a just weight is his delight"
Short-Term Operating Assets: Cash and Receivables (Part I)
by
Charles Lamson
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Financing with Accounts Receivable
In managing short-term operating assets, firms can secure immediate cash from accounts receivable rather than waiting for a customer to remit payment. In the next several parts, we address three alternative techniques—pledging or assigning accounts receivable, factoring accounts receivable, and securitization. A company uses its receivables as collateral for a lending arrangement by pledging or assigning the receivables. Factoring involves selling the receivables to a third party at a discount. Securitization involves bundling together and selling an interest in many separate receivables. Pledging and Assigning Accounts Receivable Pledging and assigning receivables are both forms of collateralized borrowing. When a firm pledges accounts receivable, the receivables are collateral for a financing arrangement. When the company assigns accounts receivable, specifically designated receivables are collateral for the loan, but the company must use the receipts on collection of the receivables to repay the debt. These borrowing arrangements are often called asset-based lending. Any type of loan backed by assets can be called an asset-based loan. However, asset-based lending is typically used to describe a borrowing arrangement when the collateral is inventory, accounts receivable, or equipment. When pledging and assigning, the accounts receivable remain on the balance sheet. If the receivables are used as collateral for a short-term loan, they continue to be classified as current assets on the balance sheet. If the liability is long term, then the receivables pledged or assigned are reclassified as noncurrent assets on the balance sheet. Footnotes to the financial statements indicate the contingent liability related to the transfer of the accounts receivable rights to others. Financial statement users should consider the potential adverse effects on liquidity from a default on the debt relating to the receivables pledged or assigned to third parties. Example 9.9 illustrates accounting for assigned accounts receivable.  %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(1).jpg) %20(3)%20(1)%20(1)%20(5)%20(2)%20(1)%20(3)%20(3)%20(1)%20(2)%20(1)%20(2)%20(2)%20(2)%20(3)%20(4)%20(3)%20(3)%20(1)%20(1)%20(2)%20(1)%20(2)%20(2)%20(4)%20(1).jpg) *GORDON,RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 458-459* end |
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Measurement Methods by Charles Lamson There are two major measurement methods: counting and judging. While counting is preferre...
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Product Life Cycles by Charles Lamson Marketers theorize that just as humans pass through stages in life from infancy to death,...
