Chapter 6: Cash, Short-Term Investments, and Accounts and Notes Receivable

Rising loonie will drag down economy
http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20090529/Canadian_dollar_090529/20090529?hub=BritishColumbiaHome

summary:
This article mainly about how and why Canada’s currency raced higher versus the U.S. dollar affects Canada’s economy. Although the rising value of Canadian dollars is good for people spend holiday in the states, it may insert negative influence on nation’s manufacture and export. If the dollar continues to swell, there may be a massive $50-billion federal deficit in the coming up months. The last rise in Canadian dollars in 2007 is quite different for now because the last surge was caused mostly by the rising prices for oil and commodities, and this reduced the losses in Canada’s manufacture and export industries. However, the rise this time is because of the losing faith in the US dollar, which means the high export prices and low commodity prices can really affect Canada’s economy.

Connection:
This chapter is mainly about what can be done with excess cash on hand, and there is a small section about how the changes in purchasing power, which is the currency, can affect a company’s cash. With the rising value, Canadian manufacture is affected the most because American people may want lower prices commodities from other countries. Amid the economic crisis, most people are losing faith in the US dollar and stop hoarding it, as a result, the purchasing power for the US dollar drops tremendously, the face value for other dollars will not change, but it is affecting most countries economy if the US dollar drops.

Reflection:
Low commodity prices, high export prices and surging manufacturing costs could drive down corporate profits this year and further diminish Ottawa's tax base. This is because investors have started to unload the currency because of continuing signs that the worst of the global recession may have passed. Since it is a hard time for most manufacturing and export industries, government can have short-term investment on these industries to prevent the shortage of cash.

Chapter 5: Cash Flow Statement

DPS gets $169 million loan to aid cash flow

http://www.detnews.com/article/20090501/SCHOOLS/905010428/1006/rss01

Summary:

This article mainly about Detroit Public School in the United States says they need loan to assist with the district’s cash flow so that they can pay their employees and vendors. Financial manager Robert Bobb said they were seeking a four-month, multi-million loans to get through the financial crisis and the loan would be “a major boost to [their] cash-flow issues”. Besides, the Detroit Federation of Teachers union says that if Bobb pushed to restructure teacher compensation, they may strike this fall, even though it is illegal. Both sides of them need to work hard so that students are least affected. Now they are willing to work together to resolve the district’s $306 million budget deficit.

Connection:

This chapter is about cash flow, which could affect a company tremendously because cash flow is important for a company to pay its accounts receivable and meet other needs. Amid the economic crisis, most companies are facing the problems of inconsistent and unstable cash flow. This article reflects the importance of cash flow for a school by showing what will be the consequences if the need of cash flow is not met. Also, when the school is running out of cash, it ask the states for loan in order to get through it, which relating to the financing activities of it. Just like a company, the main cash outflow for a school is teachers’ wages. If employees are not paid, they might not be satisfied and work happily for the company. That is why cash flow is one the most important component of a healthy company.

reflection:

Cash flow reflects the performance of a company with a stable and consistent cash-to-cash cycle and it is related with a company’s policies and management. During the current economic recession, cash flow is particularly important for a company since most of a company’s daily activities involve cash. For DPS, it may have to face many more problems if there is not loan to aid its cash flow. Concerning to the importance of cash flow, a company should have proper policies and management of cash flow and pay attention to the long-term effect of cash-shortage.

Chapter 4: Revenue Recognition

UAL says first-quarter unit revenue to fall as much as 12 per cent

http://ca.news.yahoo.com/s/capress/090320/business/ual_outlook_1

Summary:
This article mainly about the United Airlines announced the revenue for the first quarter of 2009 would drop 11 percent to 12 percent and this might due to the economic recession. In addition, the shares of the United’s parent UAL Corp. fell 71 cents. Also, United also said it is on pace for $80 million in cash losses on fuel hedges, which will settle during the first quarter and would add 51 cents per gallon to its fuel expenses. Moreover, the bets that the oil prices would stay high were made during the summer of 2008, and these bets are now forcing United to post some $645 million in collateral for the first quarter, for paying off its losing fuel bets. Despite these negative effects, United are pleased with its cost-cutting effort, which smalls the cost increase.

Connection:
Chapter 4 is mainly about how and when revenue should be recognized. Normally the measurement of operating performance is divided into revenues and expenses, which come up with net income. For the United Airlines, its revenue drops. Meanwhile, the expenses are increases, which give rise to the tremendous drop in the net income. Instead of charging higher prices, United tried to control the costs. Also, the United Airlines recognizes revenue when air transportation is provided, and this is matched with the revenue recognition criteria, which requires the performance has been achieved when the revenue is recognized.

Reflection:
Because of the recession, most tourism industries are tremendously influenced, because tourism is the unnecessary luxury. As a result, airline services are also affected negatively. The United Airlines has a terrific drop in revenue. However, it tried to cut expenses to balance the income so that the company would have the least negative effect. Income shows the performance of a company, even though it might be not as good as expected, every company should strictly stick to the Revenue Recognition Criteria so that management could make the best decision. Also, instead of increasing revenue, trying to control the expenses are also a good way to increase net income.

Chapter 3

Bank of Montreal to raise up to $1.1 billion in common share issue

http://ca.news.yahoo.com/s/capress/081215/business/bmo_shares_1

Summary:
This article mainly about that Bank of Montreal decide to raise up to $1.1 billion in a common share offering, which means they will offer 33.3 million common shares at $30 per share. The capital will qualify as Tier 1 capital, and will be used for general corporate purposes. During the economic recession, all banks are affected and most of them are running out of cash because people withdraw their money to maintain their daily needs. In order to strengthen their capital ratio, banks will try different way to keep it up, and issuing more shares is one of the best ways. However, shares in the Toronto-based bank announced the equity issue was down $1.01 at $32.57.

Connection:
The connection to Chapter 3 is how issuing shares affect a company’s financial position and cash flow. This chapter is mainly about how the accounting cycle works. One of the most important step is the preparation of financial statements, and it includes balance sheet, income statement, cash flow statement and statement of retained earning. It is important that a company should be capable to earn money, but more significantly, a company should have enough cash for operating and investing. Bank of Montreal decided to issue more shares to exchange for more cash because it is a bank’s credit to give people back their money as long as they need, especially during the economic recession. For this reason, Bank of Montreal issued shares.

Reflection:
After reading this article, I realize the importance of cash flow for a company. In the accounting cycle, most of the steps is for the purpose of preparing the financial statement so that a company can operate properly accounting to it’s financial position, earnings and cash flow. For cash flow statement, there are three sections. The operating activities are one of the main cash inflow, and mostly investing activities cause cash outflow. When a company needs extra cash inflow, it is best through financing activities, and that is issuing shares or borrowing money. For a company as large as Bank of Montreal, money plays an extremely important role. For this reason, it is the best choice for it to issue more shares in case of need.

Financial Accounting 12 Chapter 2

Spanish banks face income hit, restructuring

link: http://ca.news.yahoo.com/s/reuters/081019/business/cbusiness_us_financial_spain_ordonez_1

Summary:

This article mainly about the income hit of the Spanish banks due to rising loan defaults, slowing business and higher financing costs. These important factors are likely to hurt Spanish bank income and lead to restructuring. In addition, with the global financial crisis, Spain’s banks face falling business and must accept credit growth will not return to past levels. Besides, smaller institutions and savings banks have higher real estate exposure and liquidity problems which have raised expectations of mergers. With prices growing up generally, the banks are not only facing problems of credit growth levels, but the challenge of higher financing costs.

Connection:

In the text book, we learned about business a transaction has inflow and outflow of money or goods. If the inflow or revenue is worth more than the outflow or expense in the exchange, the company has generated a profit or income from the transaction. On the other hand, if the inflow is less than the outflow, the company has experienced a loss. The major income for a bank is from credit growth. However, the finance problems from all over the world cause the decrease of people’s average income, and bands are also affected. For this reason, the inflow of a bank is decreasing. Moreover, as different financing costs are getting higher and higher, the expense of a bank increases, so the outflow of a bank is increasing. As a result, the difference between inflow and outflow is decreasing, so the profit is decreasing too.

Reflection:

After reading this article, I realize how global finance is connected. As the finance crisis occurs in the US, the whole world’s finance is affected negatively. Most companies are facing the problems that incomes decrease while expenses increase. Some companies even have to confront net loss. As a company, there should be preparation for different financial problems which may occur so that a company can overcome difficulties as quick as possible. Also, a company should be able to deal with different problems by well-organizing financial statements and preparing tactics for different situations.

Financial Accounting 12 Chapter 1

World shares dive after Lehman Brothers collapse, banks shore up markets
Link: http://afp.google.com/article/ALeqM5hC6o2mty-SrA4ILQ8wMZGjIjLEDw

Summary:
This article I read mainly about world shares price plummeted as Lehman Brother (the giant Wall Street investment bank) filed for bankruptcy. Investors were in near-panic mode because of the collapse at Lehman and the recent purchase of Merrill Lynch by the Bank of America. This effect gave rise to the consequence that shareholders kept selling their shares because they afraid a similar situation may happen in other corporation too. Besides, some people concerned about other banks’ exposure to Lehman Brothers in Europe. Most countries were trying to rescue their markets. After the purchase of Merrill Lynch, Merrill shares rose 0.006 percent while Bank of America fell 21 percent.


Connection:
The connection for me is that in a corporation such as Lehman Brother, the shares of it can be easily transferred to another investor; one investor can sell and another can buy the shares in a given company, usually without affecting the company itself significantly. For this reason, when there is some situation like the one happens to Lehman Brother, shareholders will be getting panicky and busy selling the shares even in a lower price. This causes the share prices drop tremendously. Also, finance is not a personal issue, because it connects the whole world and people from different areas. A financial decision may affect a lot of things around it.


Reflection:
I was shock when I read this news because I didn’t notice that a corporation can affect the world that much. Besides, i realize that before making any decision about buying shares and getting involved in a company, we should not only take the company’s financial statements into account, but also the ability of that company of solving financial problems in emergency. Also, I realize that financial problems concern to a lot of aspects in the world, and it is not a local issue. When making financial decision, we also have to be considering the whole world’s situation.