GROUP 1

Members:
Alyanna Jem G. Zuniga
Veil Mollenido
Jeremy Cabreros
Aimee Lobo
Shiela Lapiz
Robin Mariano
Cedric Tunguia
What is equity?
 The word ‘equity’ is used in several financial compound
terms. For example, ROE, which stands for return on equity,
compares a firm’s net profit directly to the value of its
equities.
 Equity is also what a shareholder owns in a corporation,
entitling him or her to part of that entity’s profits (dividends)
and a measure of control (shareholder voting rights).
 Equity is the ownership of any asset after any liabilities
associated with the asset are cleared. For example, if you own
a car worth $25,000, but you owe $10,000 on that vehicle,
the car represents $15,000 equity.
Note Receivable
 Notes receivable is a balance sheet item, that records the value of
promissory notes that a business is owed and should receive payment for.
A written promissory note gives the holder, or bearer, the right to
receive the amount outlined in the legal agreement. Promissory notes
are a written promise to pay cash to another party on or before a
specified future date.

 If the note receivable is due within a year, then it is treated as a current

asset on the balance sheet. If it is not due until a date that is more than
one year in the future, then it is treated as a non-current asset on the
balance sheet.

 Often, a business will allow customers to convert their overdue

accounts (the business’ accounts receivable) into notes receivable. By
doing so, the debtor typically benefits by having more time to pay.
Loan Receivable
 A loan receivable is the amount of money owed from a
debtor to a creditor (typically a bank or credit union). It is
recorded as a “loan receivable” in the creditor’s books.
 Loans receivable is an account in the general ledger of a
lender, containing the current balance of all loans owed to it
by borrowers. This is the primary asset account of a lender.
FINANCIAL ASSET
 Financial asset can be defined as an investment asset whose
value is derived from a contractual claim of what they
represent. These are liquid assets as the economic resources
or ownership can be converted into something of value such
as cash. These are also referred to as financial instruments or
securities. They are widely used to finance real estate and
ownership of tangible assets.

 These are basically legal claims and these legal contracts are
subject to future cash at a predefined maturity value and
predetermined time frame.
Example of Financial Asset
 Certificate of Deposit (CD
 Bonds
 Stocks
 Cash or Cash Equivalent
 Bank Deposits
 Loans & Receivables
 Derivatives
FINANCIAL LIABILITIES
 Liabilities are obligations of the company; they are amounts owed to creditors
for a past transaction and they usually have the word "payable" in their account
title. Along with owner's equity, liabilities can be thought of as a source of the
company's assets. They can also be thought of as a claim against a company's
assets. For example, a company's balance sheet reports assets of $100,000 and
Accounts Payable of $40,000 and owner's equity of $60,000. The source of the
company's assets are creditors/suppliers for $40,000 and the owners for
$60,000. The creditors/suppliers have a claim against the company's assets and
the owner can claim what remains after the Accounts Payable have been paid.

 Liabilities also include amounts received in advance for future services. Since
the amount received (recorded as the asset Cash) has not yet been earned, the
company defers the reporting of revenues and instead reports a liability such as
Unearned Revenues or Customer Deposits. (For a further discussion on
deferred revenues/prepayments see the Explanation of Adjusting Entries.)
EXAMPLE OF FINANCIAL LIABLITIES
 Notes Payable
 Accounts Payable
 Salaries Payable
 Wages Payable
 Interest Payable
 Other Accrued Expenses Payable
 Income Taxes Payable
 Customer Deposits
 Warranty Liability
 Lawsuits Payable
 Unearned Revenues
 Bonds Payable
NOTE PAYABLE
 Notes Payable is a general ledger liability account in which a
company records the face amounts of the promissory notes
that it has issued. The balance in Notes Payable represents the
amounts that remain to be paid.
 An example of a notes payable is a loan issued to a
company by a bank. Similar Terms. A note payable is also
known as a loan or a promissory note
Loans Payable
 A loan payable differs from accounts payable in that accounts payable do
not charge interest (unless payment is late), and are typically based on
goods or services acquired. A loan payable charges interest, and is
usually based on the earlier receipt of a certain sum of cash from a
lender.
 Loan payables need to be classified under current or non-current
liabilities depending on the maturity of loan re-payment. For example, if
a loan is to be repaid in 3 years' time, the liability would be recognized
under non-current liabilities. After 2 years, the liability will be re-
classified under current liabilities, when the loan is due to be settled
within one year.

 Where loan is to be repaid in several installments, the current and non-

current portions of the loan would need to be calculated using the loan
repayment schedule
Bonds Payable
 Bonds payable are a form of long term debt usually issued by
corporations, hospitals, and governments. The issuer of bonds
makes a formal promise/agreement to pay interest usually
every six months (semiannually) and to pay the principal or
maturity amount at a specified date some years in the future.
 An entity is more likely to incur a bonds payable obligation
when long-term interest rates are low, so that it can lock in a
low cost of funds for a prolonged period of time. Conversely,
this form of financing is less commonly used when interest
rates spike. Bonds are typically issued by larger corporations
and governments.
Residual Interest
 Residual interest is interest that may accrue on an interest
bearing account. Generally, it is an interest charge that
occurs in between statement disclosures. It may also be a
type of interest payment received by investors in a structured
credit investment product.
 Residual interest is interest that may occur on a standard
credit account. It is also a type of interest that investors may
receive when investing in structured credit products such as a
real estate mortgage investment conduit (REMIC).
Ordinary Share Capital
 Ordinary share capital is the sum of money raised by a
corporate from private and public sources through the issue
of its common shares. It is the capital that is received by the
owners of the company in exchange for shares. The ordinary
share capital has equity ownership in the company in
proportion to their holdings. Ordinary Shares Capital is one
of the major ways to finance various projects and purpose. It
is usually considered better than debt methods like loan etc.
Preference Share Capital
 money that a company has from selling preference shares.
Shareholders with these shares must be paid before those
with ordinary shares when a company is paying dividends or
if it goes bankrupt:
 Preference shares are shares in a company that are
owned by people who have the right to receive part of the
company's profits before the holders of ordinary shares are
paid. They also have the right to have their capital repaid if
the company fails and has to close
DEBT INSTRUMENT
 A debt instrument can be in paper or electronic form. Bonds,
debentures, leases, certificates, bills of exchange and promissory
notes are examples of debt instruments.
These instruments also give market participants the option to
transfer the ownership of debt obligation from one party to
another
 A debt instrument is a tool an entity can utilize to raise capital. It
is a documented, binding obligation that provides funds to an
entity in return for a promise from the entity to repay a lender or
investor in accordance with terms of a contract. Debt instrument
contracts include detailed provisions on the deal such as collateral
involved, the rate of interest, the schedule for interest payments,
and the timeframe to maturity if applicable.
Debt Instrument Example
 Debentures are not backed by any security. They are issued by the company to raise
medium and long term funds. They form the part of the capital structure of the
company, reflect on the balance sheet but are not clubbed with the share capital.
 Bonds on the other hands are issued generally by the government, central bank
or large companies are backed by a security. Bonds also ensure payment of fixed
interest rates to the lenders of the money. On maturity of the bond, the
principal amount is paid back. Bonds essentially work the way loans do
 A mortgage is a loan against a residential property. It is secured by an associated
property. In a case of failure of payment, the property can be seized and sold to
recover the loaned amount.

 Treasury bills are short-term debt instruments that mature within a year.
They can be redeemed only at maturity. They are sold at a discount if
sold before maturity.
Equity Instrument
 An equity instrument refers to a document which serves as a
legally applicable evidence of the ownership right in a firm,
like a share certificate. Equity instruments are, generally,
issued to company shareholders and are used to fund the
business. It is, however, not necessary that the issued equity
must return a dividend for it is based on profits and the
terms of business.
Categories of equity instrument
 Common stock is one of the equity instruments issued by a public company to raise funds from the
public. The shareholders have the privilege of being entitled to co-ownership of the company in
addition to having the right to vote at the shareholders meeting as per the proportion of shares.
Besides, they also have rights to take decision in important issues like raising capital to pay dividends
and merging business. Moreover, the shareholders can also apply for new shares when the company
has increased capital or issues a new allocation to the shareholders.
 Convertible debenture is another type of equity instrument which is similar to common bonds, the
only difference being that a convertible debenture can be converted into common stock during the
particular rates and prices mentioned in the prospectus. Convertible debentures are quite popular
for profitable returns from converted stock are higher than those form common bonds.
 Preferred stock, another equity instrument, involves shareholders’ participation as a business owner
as in common stock. The variation lies in that the preferred shareholders are entitled to receive
repayment of capital prior to the common shareholders.
 Depository receipt is an equity instrument which entitles the rights to reference common bonds,
ordinary debentures, and convertible debentures. Investors holding a depository receipt get benefits
as shareholders of listed companies in every respects, be it the voting rights or financial rights in the
listed companies.
 Transferable Subscription Rights (TSR) is an equity instrument issued by a company to all
shareholders in proporti8on numbers of shares already held by them. This instrument is used as
evidence in shares of the company. The existing shareholders can sell/transfer their rights to others
if they do not want to exercise their shares.
Financial Market
 Financial Market refers to a marketplace, where creation and
trading of financial assets, such as shares, debentures, bonds,
derivatives, currencies, etc. take place. It plays a crucial role
in allocating limited resources, in the country's economy.
 A financial market is a market where buyers and sellers trade
commodities, financial securities, foreign exchange, and
other freely exchangeable items (fungible items) and
derivatives of value at low transaction costs and at prices that
are determined by market forces.
Financial Institution
 financial institution is responsible for the supply of money to the
market through the transfer of funds from investors to the
companies in the form of loans, deposits, and investments. Large
financial institutions such as JP Morgan Chase, HSBC, Goldman
Sachs or Morgan Stanley can even control the flow of money in an
economy.

 The most common types of financial institutions include

commercial banks, investment banks, brokerage firms, insurance
companies, and asset management funds. Other types include
credit unions and finance firms. Financial institutions are regulated
to control the supply of money in the market and protect
consumers.
9 major financial institutions
 Central banks are the financial institutions responsible for the
oversight and management of all other banks. In the United States,
the central bank is the Federal Reserve Bank, which is responsible
for conducting monetary policy and supervision and regulation of
financial institutions.
 Retail and Commercial Banks Traditionally, retail banks
offered products to individual consumers while commercial banks
worked directly with businesses. Currently, the majority of large
banks offer deposit accounts, lending and limited financial advice
to both demographics.
Products offered at retail and commercial banks include checking
and savings accounts, certificates of deposit (CDs), personal and
mortgage loans, credit cards, and business banking accounts.
9 major financial institutions
 Internet Banks A newer entrant to the financial institution
market are internet banks, which work similarly to retail
banks. Internet banks offer the same products and services as
conventional banks, but they do so through online platforms
instead of brick and mortar locations.
 Credit Unions serve a specific demographic per their field of
membership, such as teachers or members of the military.
While products offered resemble retail bank offerings, credit
unions are owned by their members and operate for their
benefit.
9 major financial institutions
 Savings and Loan Associations Financial institutions that are
mutually held and provide no more than 20% of total lending to
businesses fall under the category of savings and loan associations.
Individual consumers use savings and loan associations for deposit
accounts, personal loans, and mortgage lending
 Investment Banks and Companies Investment banks do not take
deposits; instead, they help individuals, businesses and
governments raise capital through the issuance of securities.
Investment companies, more commonly known as mutual fund
companies, pool funds from individual and institutional investors
to provide them access to the broader securities market.
9 major financial institutions
 Brokerage Firms Brokerage firms assist individuals and
institutions in buying and selling securities among available
investors. Customers of brokerage firms can place trades of
stocks, bonds, mutual funds, exchange-traded funds (ETFs),
and some alternative investments.
 Insurance Companies Financial institutions that help
individuals transfer risk of loss are known as insurance
companies. Individuals and businesses use insurance
companies to protect against financial loss due to death,
disability, accidents, property damage, and other
misfortunes.
9 major financial institutions
 Mortgage Companies Financial institutions that originate or
fund mortgage loans are mortgage companies. While most
mortgage companies serve the individual consumer market,
some specialize in lending options for commercial real estate
only.
 Race to a Trillion Dollar Valuation In 2018, Apple Inc. and
Amazon became the first two companies to cross the trillion
dollar valuation threshold briefly. In 2019, more companies
are gradually inching towards the milestone
Financial Instruments
 Financial instruments are assets that can be traded, or they
can also be seen as packages of capital that may be traded.
Most types of financial instruments provide efficient flow and
transfer of capital all throughout the world's investors. These
assets can be cash, a contractual right to deliver or receive
cash or another type of financial instrument, or evidence of
one's ownership of an entity.
Types of Financial Instruments
 Cash instruments are those whose value is determined
directly by the markets. They can be securities, which are
readily transferable and loans and deposits, where both
borrower and lender have to agree on a transfer.

 Derivative instruments are those which derive their value

from the value and characteristics of one or more underlying
entities such as an asset, index, or interest rate. They can be
exchange-traded derivatives and over-the-counter (OTC)
derivatives.