Forward and future contracts are used to reduce the risk of financial assets or speculation by investors or businesses.What is a Forward Contract?The contract is customized between two parties for an asset to be sold or bought on a future date at a specified date. Forward contracts are considered over-the-counter instruments. They do not trade on a centralized exchange and can be specially made to a specific commodity, amount, and delivery date. To avoid price instability, forward contracts can hold a particular price.What is a Future Contract?It is a standardized legal contract where something can be sold or bought at ... Read More

The majority of credit cards and debit cards share features and functionalities. Additionally, it is simple to get them mixed up. In a similar vein, comprehending a transaction involving debit and credit is not something that comes naturally to most individuals. How should one refer to money entering the bank account or money leaving the bank account? When should individuals utilize their own finances as opposed to borrowing money? Let's talk about how debit and credit transactions are different from one another.What are Debit Transactions?A debit transaction is a transaction that enables clients access to their cash, typically through the ... Read More

The Consumer Price Index (CPI) is a means through which inflation may be calculated. Because CPI is so closely tied to inflation, the two terms are interchangeable and cannot be distinguished from one another. Therefore, is there a distinction to be made between inflation and the Consumer Price Index? Due to the fact that CPI cannot exist in isolation from inflation, any differences between the two can at most be considered negligible.What is Inflation?In general terms, Inflation refers to an increase in the prices of various products and services. When inflation is strong, individuals have to pay a greater amount ... Read More

If you own a company, you must be familiar with the terms bonus depreciation and section 179 of the Internal Revenue Code. It is essential that the tax deductions associated with the purchase of an asset be spread out during the item's life. There are a couple of ways to collect your benefits up front instead of having to wait the entirety of the asset's life, and those are bonus depreciation and section 179. However, what exactly is the distinction between the two? Come along with me as we discuss the differences.What is Bonus Depreciation?A tax advantage is what is ... Read More

Annuity and Perpetuity are financial plans. It is used in financial markets. It is vital to know about Annuity and Perpetuity. Let’s dive deeper to get a broad spectrum of these concepts.What is Annuity?The word annuity is derived from the Latin word annus which means year. An annuity is a financial product. Annuities are the regular payments of fixed principle for a precise period of time. The time period followed is as per the terms and conditions in the agreement which the parties have called a deal.ExampleEmployer A and employee B have made a deal that states that B will ... Read More

For a business to continue running with granting credit, it must continuously monitor the accounts receivables so that there is no laxity in the process of credit collection. There are two traditional methods that are used to monitor accounts receivables. These areAverage Collection PeriodAging Schedule.As these methods have some limitations, analysts now use the collection experience matrix method to judge the accounts receivables efficiency of a firm.Average Collection Period (ACP)The Average Collection Period Formula (ACP) is –$$\mathrm{ACP \:= \:\frac{Debtors \:\times \:360}{Credit \: sales}}$$The average collection period calculated with this formula is compared with the real collection period of the firm ... Read More

The notable drawback of traditional methods of monitoring receivables is that they are dependent on aggregated data. Moreover, methods such as Average Collection Period (ACP) and aging schedule fail to relate outstanding accounts receivables of a certain period with the credit sales in that particular period of time.Therefore, two professionals can arrive at two different results when they aggregate sales and receivables data differently. How can this anomaly be resolved? The best way to remove such a problem is to use disaggregated data for analyzing collection experiences. The key here is to relate receivables to sales data in the same ... Read More

What is Discriminant Analysis?Apart from using a numerical scoring model, a firm may use discriminant analysis in credit scoring models.Discriminant analyses for credit scoring are divided into two sections. They are as follows −Simple Discriminant AnalysisMultiple Discriminant Analysis Models.Discriminant models are objective methods of finding the differences between good and bad customers. By applying discriminant analysis, the lending firms can discriminate good credit customers from the bad ones.Simple Discriminant Analysis ModelAs mentioned above, the simple discriminant analysis model is an objective method to separate the bad credit customers from the good ones. The lenders often look for a solid method ... Read More

Aging ScheduleThe aging schedule is a summarized list of accounts receivable broken down into different time periods that rank the receivables depending on days until due or past due. The aging schedule is generally divided into 30 days’ categories so that the current items are listed in the 0–30 days’ category, moderately overdue items are listed in the 31–60 days’ category and very overdue are listed in other categories.ExampleCustomerTotal DueCurrent due (under 30 Days)1-30 days past due31-60 days past due61-90 days past dueMore than 90 daysCompany ABC100, 00080, 00020, 000   Company XYZ70, 000  30, 00030, 00010, 000Company AXY25, 00020, 000 5000  Total195, 000100, 00020, ... Read More

What is Credit Analysis?Credit analysis is an important aspect of business organizations and lenders who offer loans or goods and services on credit. Credit analysis reveals the nature of the customers and shows the potential customer who would be either good or bad in repaying the credited amount. The findings of credit analysis are indicated via a credit report.A credit analysis report is a very important tool for lenders to grant credit to prospective borrowers. By the contents included in the report, the lenders can offer loans to the best potential borrowers.A borrower who has a good repayment record is ... Read More