Company Accounts, Insolvency, and Financing
The Account
The account represents the evolution and situation of the assets and liabilities, and the income and expenditure of a company. The splits in debit and credit, and the difference between them, is the account balance.
Accounting Books
Employers are required to keep proper accounts that allow for tracing all chronological operations. Employers must keep a book of inventories and annual accounts, and a ledger book. The ledger is a major book that companies must keep. Companies are not required to submit binding books in the trade register.
Solutions to the Crisis: Insolvency Proceedings
This is a procedure to reorganize the management of an insolvent company so it can return to viability, and creditors can recover their debts. It is called a voluntary proceeding when the application is lodged by the insolvent company. It is called a required proceeding if the application is lodged by a creditor, which must be based on facts demonstrating a violation of the company’s obligations.
Stages of the Competition
- Assessment of the situation: Managers determine, in about two months, the entire property and rights of the company intended to satisfy the creditors. Administrators finally issue a report on the solution to the problem.
- The solution of the process:
- a) Agreement with creditors: An agreement is entered into with creditors to reduce the amount of debt and defer payments so that an insolvent employer has time to recover.
- b) The liquidation of the company: The resolution by liquidation occurs when it is not possible for the company to reach an agreement with creditors, or the agreement is not fulfilled, or if the company requests liquidation.
The Sources of Financing
- According to the ownership of resources:
- a) Own financing: The financial resources that are the property of the company. These resources are the capital provided by the partners and reserves (profits that are not distributed among the partners).
- b) External finance: Includes all financial resources that create a debt or obligation. These resources come from long and short-term creditors.
- According to the kind of permanence:
- a) Long-term financial resources: They are the members’ contributions.
- b) Short-term financial resources: They come from suppliers and loans.
- According to its origin:
- a) Internal financing: Is generated within the company through its own savings.
- b) External financing: All resources other than self-financing are external.
The Financial Structure of the Company
The combination of the different financial resources that the company has chosen.
Financial Assets
These are securities that constitute recognition of debt by the issuer, giving the holder the right to collect them.
Features
- Profitability: The yield obtained from the investor’s performance. When it is fixed income a priori, it is bonds, and if the performance depends on the company, like shares, it is equity.
- The risk of an asset depends on the evolution of the issuer’s guarantee to meet its debt at maturity. The risk will be lower the greater the security of restoring the borrowed amount.
- The degree of liquidity depends on the degree of ease to become cash. An asset will be more liquid the easier it is to turn it into money without significant costs.
The Stock Market
It is a niche market for buying and selling all types of securities. It has the function of channeling savings into investment. In the market, there is an offer made by companies and public organizations, and demand by those wishing to buy. There are two types of markets:
- Primary: Selling titles for the first time.
- Secondary: Existing assets are exchanged.