• Shockproof! Training
  • 1.866.237.7228
  • Non-Member

    Membership Check

    Please enter your email address and we will check to see if a membership exists for your organization.

    Check Cancel
  • Account
    • Sign in

      If you have an account, please enter your login information.

      Sign-in

      Find Enrollments

      To quickly access links to materials or Session Access instructions, enter the email address used when enrollment was performed.

      Click "Find Now" to begin search.

      Find Now

      Forgot your password?

      Please provide your email address and we'll email you a reminder.

      Send it to me!

      Subscribe

      Please provide the information below to receive our mailings.

      Subscribe!
      Account Options
      1. Sign In... enter the resource center
      2. Access Materials... find my enrollments
      3. Forgot password?... memories fade
      4. Subscribe... to receive our mailings
      5. Contact us... if you have any questions, just ask
      6. Create a User Account* requires membership
  • Sign-in
  • Home
  • Products
  • Learning Paths
  • Calendar
  • Pricing
  • Communications
  • Contact Us
  • Help
  • About Us
  • Membership Check
  • Account

Instructor Blog - Credit College - Credit Basics

  1. Home
  2. Communications
  3. Instructor Blog
  4. Credit College - Credit Basics

Session #1: Understanding Financial Statements and Business Organizations


  • admin

  • 6/9/2021 7:47:18 PM

  • 57

  • Credit College - Credit Basics
  • Copy / Share Link

Q: Why would Fresno Properties not have any cash?

A: That is a very good question with no obvious answer. Some companies, however, tend to zero out their cash balances at the end of the year by providing distributions or loans to owners. Driving cash balances down to zero seems extreme, but a company would only do so if it were assured of a continuous flow of cash receipts, which is the case for Fresno Properties.  Fresno Properties receives rental payments continuously throughout the year, with the majority bunched around the beginning of the month. So a zero cash balance at December 31 may be transformed to a substantial cash balance two weeks later.

Q: How do you determine whether a distribution from an LLC is a tax-free distribution vs. a distribution of the taxable share of profits?

A: A distribution is a deduction from the profits remaining in the business. Whether the amount of the distributions was just for income tax payment is another issue. An LLC may not claim a member's salary as a tax-deductible expense. Therefore, distributions are the common vehicle for providing members with the cash they need to pay their tax obligation on the LLC''s taxable income, as well as cash for compensation.

For example, if the member's effective personal income tax rate is 20%, then any amount of distributions that exceeds 20% of the LLC's taxable income is compensation for the member.

Please keep in mind that distributions received by members of an LLC are not reported as taxable income on the members’ Form 1040. Distributions are tax-free cash income to the member.  Distributions can be taxable to the member only if they exceed the member's "basis" in the LLC, which is roughly his or her initial investment increased by his or her share of profit retained in the company over time. If distributions exceed a member's "basis", the amount in excess of the “basis” is taxed as a long-term capital gain.

Q  Are preliminary site costs similar to a down payment?

A:  Preliminary site costs are not the equivalent of a down payment. In this case, preliminary site costs represent the cost of property surveys, plot layouts, soil tests, grading, etc. that are necessary in preparing the site for subsequent construction.

Preliminary site costs are an asset to the company, essentially long-term work in process. Just as work in progress is recorded as an asset along with raw materials on a manufacturing company’s balance sheet, preliminary site costs are recorded as an asset on a developer’s balance sheet. This asset represents expenses incurred to prepare a site for development, such as fees paid to survey teams and engineers. All preliminary site costs go into the final cost and value of an income producing property that is then used to produce revenue or sold.

Course overview: Understanding Financial Statements and Business Organizations

Categories
  • Commercial Real Estate(33)
    • Commercial Real Estate(32)
    • Questions: Commercial Real Estate - Hands On(1)
  • Contractors(52)
    • Understanding and Analyzing Contractor Financial Statements: Part I of II(32)
    • Understanding and Analyzing Contractor Financial Statements: Part II of II(20)
  • Covenants(11)
    • Complex Loan Structuring(1)
    • Covenant Testing(1)
    • Covenant Use in Controlling Cash Outflows(5)
    • Financial Gap Ratio(1)
    • Financing Gap revisited(1)
    • The Financing Gap Ratio - defined(1)
    • UCA cash flow and debt service coverage?(1)
  • Credit College - Accounting Essentials(107)
    • Session #1: Financial Statement Structure and Composition(39)
    • Session #2: Double Entry Accounting, the Accounting Equation, and Debits and Credits(24)
    • Session #3: Critical Accounting Principles and Assumptions and More Debits and Credits(23)
    • Session #4: Recording Transactions and Creating the Balance Sheet and Income Statement(21)
  • Credit College - Cash Flow(14)
    • Session #1: UCA Cash Flow Statement, Traditional "Cash Flow," and EBITDA(8)
    • Session #2: Cash Impact Analysis, Borrowing Causes Revisited, and Management Assessment(2)
    • Session #3: FASB 95 Statement of Cash Flows Conversion to UCA Cash Flow Statement(1)
    • Session #4: Cash Flow Proxies, Debt Capacity, and the UCA Cash Flow Statement(3)
  • Credit College - Commercial Business(208)
    • Session #1: Analytical Decision Tree and the Credit Write-Up(29)
    • Session #2: Financial Statement Review and Ratio Analysis(43)
    • Session #3: Cash Flow Analysis and Borrowing Causes(34)
    • Session #4: Management Assessment, Projected Cash Flow, and the First Way Out(20)
    • Session #5: Guarantor Analysis and the Second Way Out(30)
    • Session #6: Non-Financial Red Flags and Performance Implications(13)
    • Session #7: Identifying and Mitigating Repayment Risks(21)
    • Session #8: The Credit Write-Up Again(18)
  • Credit College - Commercial Real Estate(218)
    • Session #1: The Credit Write-Up and the CRE Analytical Process(28)
    • Session #2: Ratios, Borrower Cash Flow, and the First Way Out(33)
    • Session #3: Guarantor Analysis, Global Cash Flow, and the Second Way Out(40)
    • Session #4: The Appraisal Report and Approaches to Market Value(9)
    • Session #5: The Income Capitalization Approach and the Cap Rate(24)
    • Session #6: Underwriting Standards. Actual vs. Stabilized NOI, and Breakeven Analysis(54)
    • Session #7: Management Assessment, Competitive Forces, and Projected Performance(16)
    • Session #8: Repayment Risks, Covenants, and the Credit Write-Up Revisited(14)
  • Credit College - Credit Basics(93)
    • General(1)
    • Session #1: Understanding Financial Statements and Business Organizations(34)
    • Session #2: Personal Qualities and Competitive Advantages(8)
    • Session #3: Critical Ratios and The First Necessary Condition for Business Success(28)
    • Session #4: Non-Financial Red Flags, Cash Flow and Second Necessary Condition for Business Success(22)
  • Credit College - Taxes(213)
    • Analysis Using Business Tax Returns(1)
    • Converting business income tax returns into accrual financial statements(1)
    • Employee Retention Credit (ERC)(1)
    • Session #1: Business Income Tax Returns(21)
    • Session #2: The Section 179 Deduction(29)
    • Session #3: Understanding Schedules K-1(19)
    • Session #4: Personal Income Tax Returns and Cash Flow(14)
    • Session #5: Schedule M-1 and the Accrual Income Statement(25)
    • Session #6: Business Income Tax Returns and Ratio Analysis(58)
    • Session #7: Business Income Tax Returns and Cash Flow Analysis(23)
    • Session #8: Cash Based Income Tax Returns(21)
  • Credit Curriculum(1)
  • Credit Write Up(33)
    • Analytical Focus in the Credit Write Up(27)
    • Description and Analysis in the Credit Write-Up(6)
  • Debt Capacity(9)
  • Financial Analysis(55)
    • ACS (Accounting Standards Codification) 842(1)
    • Analysis when one spouse is not a guarantor(1)
    • Auto Dealer analysis(1)
    • Auto Dealership/UCA/Floor-Plan debt(1)
    • Capital Gains(1)
    • Cash distributions, Business cash flow and Guarantor global cash flow(1)
    • Corporate tax return or CPA prepared financial statements?(1)
    • CPA firms and legal firms(1)
    • Credit Analysis Question(1)
    • CSVLI - Cash Surrender Value of Life Insurance(1)
    • Depreciation FAQ(1)
    • Distributions(1)
    • Distributions taken from prior year earnings(1)
    • EBITDA, Defined(1)
    • ESOP financing(1)
    • FAQ - calculating Business Profit (1)
    • Financing Needs(2)
    • Flooring Lines(1)
    • Funded Debt to EBITDA(1)
    • Gain on sale and traditional cash flow(1)
    • Insurance Company statements(1)
    • Language of Business On-Line Classroom Q & A(1)
    • Lending to a Start-up(1)
    • Market and industry data sources(1)
    • More on Depreciation(1)
    • Participations and private equity firms(1)
    • Pitfalls of Partial Analysis(4)
    • Prior Period Adjustments to Retained Earnings(1)
    • Ratios and Messages about Profitability and Cash Flow(12)
    • Schedule L(1)
    • Section 263A(1)
    • Self-Employment Tax(1)
    • Session #1: Business Income Tax Returns(1)
    • Session #2: The Section 179 Deduction(1)
    • SG&A% - Another FAQ(1)
    • SG&BC Course Progress Check Question(1)
    • Syndicated Loans(1)
    • Tax Returns vs. Accrual Statements in Assessing Borrower Risk(2)
    • UCA debt coverage ratio for an interim(1)
  • Five Cs of Credit(10)
  • Fund Accounting(52)
    • Fund Accounting and Municipality Analysis: Part I of II(31)
    • Fund Accounting and Municipality Analysis: Part II of II(20)
    • GASB 68(1)
  • Global Cash Flow(51)
    • Borrower with many corporations(1)
    • Global Cash Flow(50)
  • Healthcare(18)
    • Assessing Hospital Financial Performance(6)
    • Assessing Medical Practices(9)
    • Forces Impacting Hospital Financial Performance(3)
  • Loan Documentation(53)
    • Commercial Loan Documentation(30)
    • Commercial Real Estate Loan Documentation(23)
  • Minimum Financial Data(14)
  • Not for Profit Analysis(24)
  • Personal Income Tax Returns and Cash Flow(65)
    • Session #3: Understanding Schedules K-1(27)
    • Session #4: Personal Income Tax Returns and Cash Flow(38)
  • Problem Loans - Loan Classification(2)
  • Projections(22)
    • Projections and Repayment Sources: Part I of II(13)
    • Projections and Repayment Sources: Part II of II(9)
  • Spreading Financial Statements(6)
  • Stress Testing(1)
  • Testing(2)
    • Exams(1)
    • How do the Credit College exams work?(1)
  • Trusts(2)
    • Trust Returns(1)
    • Trusts(1)
  • UCA Cash Flow(58)
    • Advanced UCA Cash Flow: Part I of II(51)
    • Advanced UCA Cash Flow: Part II of II(4)
    • Related Party Transactions and the UCA Cash Flow Statement(1)
    • Sales Neutral Business Cash Income(1)
    • UCA Cash Flow and Agricultural Loans(1)
  • Working Capital and UCA Cash Flow(27)
Shockproof! Training

PO Box 30304 Walnut Creek, CA 94598
1.866.237.7228 support@shockproof.com

  • About
  • Career Opportunities

© Copyright 2001-2025 Shockproof! Training