Accounting Principles

If everyone involved in the process of accounting followed their own system, or no system at all, there's be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.

If GAAP are not the principles used for preparing financial statements, then a business needs to make clear which other form of accounting they're used and are bound to avoid using titles in its financial statements that could mislead the person examining it. 

GAAP are the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.

GAAP are not cut and dried, however. They're guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.

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Profit and Loss

It might seem like a no-brainer to define just exactly what profit and loss are. But of course these have definitions like everything else.  Profit can be called different things, for a start. It's sometimes called net income or net earnings.  Businesses that sell products and services generate profit from the sales of those products or services and from controlling the attendant costs of running the business. Profit can also be referred to as Return on Investment, or ROI. While some definitions limit ROI to profit on investments in such securities as stocks or bonds, many companies use this term to refer to short-term and long-term business results. Profit is also sometimes called taxable income.

It's the job of the accounting and finance professionals to assess the profits and losses of a company. They have to know what created both and what the results of both sides of the business equation are. They determine what the net worth of a company is. Net worth is the resulting dollar amount from deducting a company's liabilities from its assets. In a privately held company, this is also called owner's equity, since anything that's left over after all the bills are paid, to put it simply, belongs to the owners. In a publicly held company, this profit is returned to the shareholders in the form of dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that's left over is profit. It's not derived from one element or another. Net worth is determined after all the liabilities are deducted from all the assets, including cash and property.

Showing a profit, or a positive figure on the balance sheet, is of course the aim of every business. It's what our economy and society are built on. It doesn't always work out that way. Economic trends and consumer behaviors change and it's not always possible to predict these and what income they'll have on a company's performance.

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What Type of Loan is That

Getting into real estate property is based off of the idea of money.  Your exchange of money will give you exactly what you want for a home.  Within each different type of loan that you decide to get will be different divisions on how you can pay off your home or office space.  If you know the terms and types of loans that are available to you, it will be easier to move your furniture into the right place. 

The first way that a loan will be divided is by the principal.  This is the amount that you will pay that the home is worth in total.  You will pay a percentage of this amount every month.  The second type of charge for the loan is an interest rate.  This will be a percentage that the lender you are working with will be able to keep because of their ability to loan you the money. 

Within each type of loan you will be able to get, there will be a division in how you pay both of these off.  It may mean that the interest rate or principle changes over a specific amount of time.  From here, you can add escrow to your account, which will be like a savings account for your loan and won't go towards paying off the house until you need the extra money. 

Within each type of these loans are different rules, regulations and ways to divide what you are going to be paying.  Different limitations for timing and the amount of money that you are able to pay are added into the loans.  If you want to make sure that you are getting the best deal, make sure that you understand how each part of the loan will work together. 

The main consideration that you will need to keep with your loan is how you will be paying off your home and where your money will go.  Each different part of the loan will be an investment that will show your ownership of the home later on.  By determining your needs, individual situation and what you believe will work best; you will have the ability to find the best possible loan.

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Top Ten Terms for Loans

Everyone knows that you should never sign on the dotted line without reading the contract.  This same term applies to loans.  Signing a loan without knowing the terms and what everything means can be detrimental to your finances, credit and future investments.  Before you sign on the dotted line, make sure that you know these terms and how they will apply to you. 

1.  Interest rate.  The interest rate is the percentage of your loan that is added on every month.  The percentage will vary according to the economy and will make a difference in your payments. 

2.  Fixed Rate.  A fixed rate will be an interest rate that stays at the same percentage throughout the entire period of your loan. 

3.  Variable Rate.  A variable rate will change according to the economy and the charts that are stating what the rates should be for interest.  A variable rate usually changes every year and adjusts according to a specific given range of percentages. 

4.  Principal.  The principal is what you will be paying on your actual house.  Whatever you pay on your principal is what you will see in the end as your investment. 

5.  Escrow.  This is similar to a savings account of your loan.  Whatever you put in escrow will accumulate without paying directly into the loan.  At the end of the term you can use it to finish paying off the loan or to invest in another loan. 

6.  Title.  A title will be what you get to your home after it is officially yours, stating that the property belongs to you. 

7.  Deed.  A deed will most often be used as a title for a commercial area.  Instead of giving ownership it shows that the property is leased to the one who is using it as a business. 

8.  Home Equity.  This is a loan or line of credit that you can get for your home.  It will finance up to eight percent of your other loan and get paid back later.  This helps if you want to consolidate loans or invest more into the property. 

9.  Appraisal.  After an inspection of the home is made, an appraisal will be made.  This will be an estimated value of what the home is worth. 

10.  Equity.  This will be the actual amount of the property that you own.  Most likely, it is what is being paid off of your principal amount. 

Once you know some of these basic terms, you will be able to expand on your knowledge and find the exact loan that will fit your needs.  These basic definitions will help you in making the right decision for the type of loan that you want.

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To Buy or To Lease

Buying and selling means more than finding a real estate agent to do the work that is needed.  There is also the need to make sure that you know what you want or need when you are moving with the investment.  No matter what the market, there are always different moves that you can make in order to get the right person moved in to your property. 

Leasing is one of the several ways that you can move into a real estate investment.  If you are having difficulty selling your home or property, then you can consider leasing as an option instead of selling it. If you decide to use the lease option for the property, then it means that you will become the landlord for a period of at least one year.  The tenant will have a contract that is signed for this amount of time that says to take care of the property and pay rent.  After the time period is up, the tenant will have the option of buying the property from you. 

If you are considering buying a home, this is a good first step to get into.  You will have lower payments, will be able to build your credit, and will have the option of trying out the property before you buy it.  If you are selling the property, it can also be beneficial, as it allows you to demand a higher price and move into a better market when it is time to sell.  Usually, by the time you are ready to sell, you will be able to offer a price that is ten to twenty percent higher than it would have been a year before. 

If the market isn't right, you can't sell your home, and the right options don't seem to be walking through the door, then leasing is a second option that you can consider.  By leasing the property, you will have the ability to profit on either side of the fence.

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