What is collateral?
Collateral is when the debtor offers something tangible to the creditor in the case that the debtor cannot repay the loan (i.e. default on the loan). In order for the creditor to actual seize the collateral, the collateral must have attachment.
There are a variety of types of collateral that can offered to the credit:
1) Cash secured loan: This is when the debtor offers up other bank accounts that the creditor can liquidate
2) Invoice collateral: This when companies use uncollected invoices (i.e. accounts receivable) as collateral. If the debtor defaults, the creditor is paid on outstanding invoices instead of the debtor.
3) Inventory: A company can use inventory to collateralize a loan. Basically, the credit would take ownership of the inventory and liquidate it.
4) Real estate: The debtor can offer up their personal residence/land to collateralize a loan.
5) Equipment: The debtor can offer up personal equipment such as a car or boat. Company’s can also offer up machinery and equipment.
Back To All Questions
You might also be interested in...
-
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
-
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
-
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
