OFF-BALANCE SHEET

Off-Balance Sheet

Off-Balance Sheet

Off-Balance Sheet

An off-balance sheet can be defined as an account in which recorded the amount expended by the company and which are not yet available or have not yet been paid. In other words, are included in this account assets and liabilities of the company that are still under a contract running or that have not yet been settled by a payment.

Off-Balance Sheet Items and its Effect

The off-balance sheet includes elements for one of these parties of record but are not because of actual or non-payment of the execution of the obligation which is still ongoing (Ronen et al, 2000). Generally, this term is realized by an unpaid debt or an investment by the company. Transactions outside the balance sheet are transactions that a company has entered that were structured in such a format to be missing from the balance of the company, which are known as off-balance sheet transactions. This means that some do not appear as debt obligations, and certain earnings and profits may not appear in the balance. Manipulating the books transactions, the company can increase its ability to borrow, because a lender or investor examining the books of the company would not see the specific transactions, and not notice how much debt the company has actually pay.

The off-balance sheet can also designate a load that investment. In the latter context, it is as an element of great importance in the life of the company. A fact which leads more and more companies looks to off-balance sheet activities. Main features of this off-balance due one of its advantages: it provides the company the opportunity to own regular income through, for example, the performance of obligations by the other party.

History

Off-balance sheet activities are common for financial institutions. Complex activities such as Swaps and other financial activities were off-balance sheet items, which date back to 1920. If it was an acceptable minimum level of activity when he left the balance sheet, increasing number of transactions has become a concern. This has become more in focus during the 2008 financial crisis. Banks and other financial institutions had excessive amounts of off balance sheet financing that hid the risk faced by these institutions (Metz, 2005).

Company Balance Sheets

Non-financial companies can also engage in off balance sheet financing. A popular activity is left of the leases. Leases are classified as non-operating can usually be absent in the balance sheet of the company. Two common criteria for classification are to use two different interest rates between the parties in ...