FINANCE Financial Instruments are tools that help a business’

daily operations and eventually make it grow while

- Is the art and science of managing money
- Is the study of how individuals or businesses
evaluate investment opportunities.
- Has a main goal of maximizing profit
Financial Institution
• Acts as intermediary two parties (depositor and
borrower)
• Helps in funding important government projects
and extend advisory services to help in nation
building.
• It can be Bank or Non-Bank
BANK
• Thrift Bank
it is a deposit-taking financial institutions that
also extend credit to the consumer market.
Financial Markets are the platform where the financial
instruments are offered, bought and sold.
MONEY MARKET/ SHORT-TERM DEBT
- Commonly matures within a year (1-12 months)
a. Treasury Bills
- Issued by Government/Treasury
- Matures within 1 year
- Default-Free (No-risk)
b. Commercial Papers
- Issued by companies
- Maturity is about 9 months
- Low risk in a good credit standing company
c. Money Market Funds
- Issued by banks or mutual fund companies

• Commercial Bank - No specific maturity date (but still within one

year)
are mainly deposit-taking financial institutions
- Low risk
that extend credit to the retail and consumer market.
• Universal Banks d. Consumer Credit, Credit Card Debt

It lends to multinational companies or - Issued by banks, credit unions or finance

companies. Their transaction is larger than commercial companies
banking - Maturity date varies
• Investment Banks - Default risk varies
Known to successfully raise funds for for big
corporations and governments.
LONG-TERM DEBTS
- Commonly matures more than a year
NON-BANK
a. Treasury Notes and Bonds
• LEASING COMPANIES
- Issued by government
are not banks and are not governed by central
banks. - Notes mature in two, five or ten years

• INVESTMENT COMPANIES - Bonds matures in ten years or more

regulated by SEC and perform similar functions - No default risk

as banks in the sense that they can provide funds by b. Federal Agency Debt
bond issuances
- Only for United States
• MUTUAL FUNDS
- Issued by federal agencies
collective investments or funds of small
investors polled together and managed to be able to - Up to 30 years of maturity
reach maximum returns.
- Low default risk
• INSURANCE COMPANIES
c. Municipal Bonds / Local Government Bonds
it provides guarantee of compensation for a
- Issued by local governments
specified circumstances
- Matures longer (up to 30 years)
• PRIVATE EQUITY
- More risky
funds managed by private investors and
managers and hence, owners are able to invest more d. Corporate Bonds
aggressively in financial markets.
- Issued by corporations
- Matures in 40 years
- More risky and rely on the financial soundness
of the company
STOCK
- Us a type of security that signifies ownership in a
corporation and represents a claim on a part of the
corporation’s assets and earnings.
Preferred Stock
- Issued by corporations in exchange for units of
ownership
- Has no maturity date
- Pays dividends when declared
- More risky than corporate bonds
- Has no voting rights
- Has preference over common stocks in asset
liquidation
- Fix dividend
Common Stock
Units of ownership in a public corporation
- Has no maturity date
- Pays dividend after preferred
- Volatile
- Entitled to vote on the selection
- Of directors and other important matters
- Preferred has preference over common in asset
liquidation
- Enjoys profits form the capital appreciation of
their stock
CHAPTER 2
FORMS OF BUSINESS ORGANIZATIONS
Sole of Single Proprietorship
- Is a business owned by one person
i. Life of the business is limited to the life of the
owner
ii. The business income is taxed as personal income
iii. The capital is limited to the wealth
Partnership
- Is a business organized by two or more owners
called partners
- Two Types
1. General Partnership
- All partners are involve in the business
operations and it is called general partner.
- Unlimited Liability. It means that the personal
assets of a general partner are liable to the
partnership’s obligations
2. Limited Partnership
- At least one general partner and the rest is
limited partner. Limited partners has restricted
interaction in business operations.
- Limited liability. It means that the asset of a
limited partner are not liable in the
partnership’s obligations
Corporation
- Is the most complicated form of business
organization
Articles of Incorporation
- is a document or charter that establishes the
existence of a corporation
TYPES OF BUSINESS
ACTIVITIES
a. Service
- Skills, expertise and consultancy
- No products or physical forms involve
b. Merchandising
- Buy and sell business
- Products are involve
c. Manufacturing
- Transforming Raw materials into products
INCOME STATEMENT
shows the performance of a business for a given
period of time.
BALANCE SHEET
Shows the financial position of the business as
of a particular date.
Accounts Receivable
- In accounting, this is considered as an asset
since there is a legal obligation for the customer
to pay the debt in the company assuming where
you’re working on.
Cash
- This includes negotiable instruments such as a
bank check or a postal money order used as a
medium of exchange.
Inventory
- It is a title used to represent the stock of goods
available for sale by the business
Building
- Structure used to house the office, store or
factory.
Accounts Payable
- This represents the company’s obligation to the
creditor for the purchase of goods or services
on credit
Land
- Owned and used by the business on which
building could be constructed.
Furniture and Fixtures
- Tables, chairs, curtains, lighting bulb, and wall
decors are example of this account
Notes Receivable
- the implied promise of payment is received in a
way other than oral.
Prepaid Expenses
- These are the costs paid for by the business in
advance. These represents future economic
benefits until the time these start to contribute
to the earning process.
Capital
- This title is used to record the original
and additional investments of the owner of the
business entity
Bad debts
- This is the amount owed to a creditor which is
not willing to take action to collect because of
the various reasons like debtor not having the
money to pay.
Office Equipment
- Air conditioner, filing cabinet, electric
fan and computer are examples of this type of
account title.
Accruals
- This title is as adjustments for : 1) revenues
that have been earned but are not yet recorded
in the accounts, and 2) expenses that have been
incurred but are not yet recorded in the
accounts.
Accumulated depreciation
- A contra asset or off-set account representing
expired cost of a non-current asset as a result of
usage and passage of time.