Tag Archives: finance terms

Subsidization

Subsidies are very helpful as they help to ease the costs of things to consumers, employees, and regular civilians. Some governments subsidize bus fares, employers subsidize the cost of food for their employees, toll operators subsidize the cost of toll fares, and private firms may subsidize the costs associated with running local sports leagues. Subsidization saves those who are benefiting from it a lot of money over time. To underscore the importance of subsidization, think of train fares being $10 per ride to anywhere. The average person may not be able to afford this. So the government may choose to subsidize the costs, paying let’s say $4 per ride. That means commuters would end up paying only $6 out of pocket per ride.

Another example is of a company subsidizing their employees lunch money. Some companies have deals with food places where the employees present a voucher which allows them to pay only a portion of the cost of what they buy. The company foots the rest of the bill. The amount that the vouchers cover varies from company to company. In any case, the benefits of subsidization are appreciated by many of those whom it benefits.



Cash In Hand – Accounting Terminology

Cash In Hand refers to the amount of money that one has in ones possessions at any given point in time. That means it is referring to any money you may have in your pocket, in your drawer, under the mattress, as long as it is liquid and in your possession. Cash in hand is a part of your Current Assets. So if someone came to borrow a dollar from you and you took it out of your purse or wallet, that money was a part of your cash in hand.



Discriminating Income

Discriminating Income is the amount of a consumer’s income that is spent after essentials like food, utilities, and housing and any other prior commitments have been covered. In short, it is the money that is left behind after all the necessary bills and obligations have been taken care of.

Money Market

The global financial market that facilitates short-term borrowing and lending is known as the Money Market . It provides money for short time periods that are borrowed or lend so as to give the borrower instant cash. The money market is a sector of the capital market where short-term items like as Treasury bills (T-bills), commercial paper and bankers’ acceptances are bought and sold, providing short-term liquid funding for the global financial system.

A money market consists mainly of financial institutions and dealers in money or credit who wish to either borrow or lend. Those who participate in it borrow and lend money for short periods of time, usually up to a period of one year and one month. The money market trades in short term financial instruments commonly called “paper”. This is in contrast with the capital market that offers longer-term funding, which is supplied by bonds and equity.

Profit Sharing Plans

The term Profit Sharing is one that speaks for itself. In its simplest terms it means the sharing of profits amongst individuals or entities to whom the business belongs. Profit Sharing is based upon the premise that once a profit is made in a business venture, it will be shared up in accordance with the percentage holdings, or stake, that each person has in the entity. This can be in any ratio depending on the number of individuals involved and their level of input. A Profit Sharing Plan would outline who gets what amount of the profit that was made.

An example of how Profit Sharing can be applied is as follows: The Mill Mex Mills is owned by 3 partners namely Joe, Moe, and Loe. The company had a startup capital of 1 million dollars. Joe invested $400,000, Moe invested $500,000, and Loe invested $100,000. The ratio of ownership would then be 4:5:1, with Moe having the largest share followed by Joe and then Loe. This means that if Mill Mex Mills makes a profit of $2,000,000:

Joe would get – ($2,000,000 x 4)/10 = $800,000
Moe would get – ($2,000,000 x 5)/10 = $1,000,000
Low would get – ($2,000,000 x 1)/10 = $200,000

So the profit would be shared according to their level of controlling interest in the company.

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Solvency and Insolvency

Two factors that can decide the future of an entity are solvency and insolvency. Solvency refers to the ability of a company or business to pay its debts with cash that it has available. This means that if a company has debts of, for example, one million dollars and has available cash of two million dollars, then the company is said to be solvent because it’s cash to debt ratio is positive. This means that it can take care of its debt obligations without going bankrupt.

When the cash to debt ratio of a company or business is negative, this makes the entity insolvent because it cannot pay its debts with available cash. Thus, insolvency refers to the inability of a company or business to pay its debts with cash that it has available. So, for example, if the entity has available cash of one million dollars and debt obligations totaling two million dollars, then the company is said to be insolvent. When a company is insolvent and at the same time unprofitable, it will lead to bankruptcy.

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