01. Definition Of Accounting: “the art of recording, classifying and
summarizing in a significant manner and in terms of money, transactions and
events which are, in part at least of a financial character and interpreting
the results there of”.
02. Book Keeping: It is mainly
concerned with recording of financial data relating to the business operations
in a significant and orderly manner.
03. Concepts
of accounting:
·
Separate
entity concept
·
Going
concern concept
·
Money
measurement concept
·
Cost
concept
·
Dual
aspect concept
·
Accounting
period concept
·
Periodic
matching of costs and revenue concept
·
Realization
concept.
04. Conventions
Of Accounting
·
Conservatism
·
Full
disclosure
·
Consistency
·
D
materiality.
05. Systems
of bookkeeping
·
Single
entry system
·
Double
entry system
06. Systems
of accounting
·
Cash
system accounting
·
Mercantile
system of accounting.
07. Principles
of accounting
Personal a/c: Debit the receiver
Credit the giver
Real a/c: Debit what comes in
Credit what goes out
Nominal a/c: Debit all expenses and losses
Credit all gains and incomes
08. Meaning
of journal: Journal means chronological record of transactions.
09. Meaning of ledger: Ledger is a set
of accounts. It contains all accounts of the business enterprise whether real,
nominal, personal.
10. Posting: It means transferring the
debit and credit items from the journal to their respective accounts in the
ledger.
11. Trial balance: Trial balance is a
statement containing the various ledger balances on a particular date.
12. Credit note: The customer when
returns the goods get credit for the value of the goods returned. A credit note is sent to him
intimating that his a/c has been credited with the value of the goods returned.
13. Debit note: When the goods are
returned to the supplier, a debit note is sent to him indicating that his a/c has been
debited with the amount mentioned in the debit note.
14. Contra entry: Which accounting
entry is recorded on both the debit and credit side of the cashbook is known as the contra
entry.
15. Petty cash book: Petty Cash is
maintained by business to record petty cash expenses of the business, such as
postage, cartage, stationery, etc.
16. Promissory Note: An
instrument in writing containing an unconditional undertaking Signed by the
maker, to pay certain sum of money only to or to the order of a certain person
or to the barer of the instrument.
17. Cheque:
A bill of exchange drawn on a specified banker and payable on demand.
18. Stale Cheque: A stale cheque means
not valid of cheque that means more than six
months the cheque is not valid.
20. Bank Reconciliation Statement: It is a statement reconciling the balance
as shown by the bank passbook and the balance as shown by the Cash Book. Obj:
to know the difference & pass necessary correcting, adjusting entries in the
books.
21. Matching concept: Matching means
requires proper matching of expense with the revenue.
22. Capital Income: The term capital
income means an income which does not grow out of or pertain to the running of the business
proper.
23. Revenue Income: The income, which
arises out of and in the course of the regular business transactions of a
concern.
24. Capital Expenditure: It means an
expenditure, which has been incurred for the purpose of obtaining a long-term
advantage for the business.
25. Revenue Expenditure: An
expenditure that incurred in the course of regular business transactions of a
concern.
26. Differed Revenue Expenditure: An
expenditure, which is incurred during an accounting period but is applicable
further periods also. Eg: heavy advertisement.
27. Bad Debts: Bad debts denote the
amount lost from debtors to whom the goods were sold on credit.
28. Depreciation: Depreciation denotes
gradually and permanent decrease in the value of asset due to wear and tear,
technology changes, laps of time and accident.
29. Fictitious Assets: These are
assets not represented by tangible possession or property. Examples of
preliminary expenses, discount on issue of shares, debit balance in the profit
and loss account when shown on the assets side in the balance sheet.
30. Intangible Assets: Intangible
assets mean the assets which is not having the physical appearance. And its
have the real value, it shown on the assets side of the balance sheet.
31. Accrued Income: Accrued income means
income which has been earned by the business during the accounting year but
which has not yet been due and, therefore, has not been received.
32. Out standing Income: Outstanding
Income means income which has become due
during the accounting year but which has not so far been received by the
firm.
33. Suspense Account: the suspense
account is an account to which the difference in the trial balance has been put
temporarily.
34. Depletion: It implies removal of
an available but not replaceable source, Such as extracting coal from a coal mine.
35. Amortization: The process of writing of intangible
assets is term as amortization.
36. Dilapidations: The term
dilapidations to damage done to a building or other property during tenancy.
37. Capital Employed: The term capital
employed means sum of total long-term funds employed in the business. i.e.
(share capital+ reserves & surplus
+long term loans –
(non business assets + fictitious assets)
38. Equity Shares: Those shares which
are not having pref. rights are called equity shares.
39. Pref.Shares: Those shares which are carrying the
pref.rights is called pref. shares
Pref.rights in respect of
fixed dividend. Pref.right to repayment of capital in the even of company
winding up.
40. Leverage:
It is a force applied at a particular point to get the desired result.
41. Operating leverage: The operating
leverage takes place when a changes in revenue
greater changes in EBIT.
42. Financial leverage: It is nothing
but a process of using debt capital to increase the rate of return on equity
43. Combine leverage: it is used to
measure of the total risk of the firm = operating risk + financial risk.
44. Joint venture: A joint venture is
an association of two or more the persons who combined for the execution of a
specific transaction and divide the profit or loss their of an agreed ratio.
45. Partnership: Partnership is the
relation b/w the persons who have agreed to share the profits of business
carried on by all or any of them acting for all.
46. Factoring: It is an arrangement
under which a firm (called borrower) receives advances against its receivables, from a
financial institutions (called factor)
47. Capital Reserve: The reserve which
transferred from the capital gains is called capital reserve.
48. General Reserve: The reserve
which is transferred from normal profits of the firm is called general reserve
49. Free Cash: The cash not for any
specific purpose free from any encumbrance like surplus cash.
50. Minority Interest: Minority
interest refers to the equity of the minority shareholders in a subsidiary company.
51. Capital Receipts: capital receipts
may be defined as “non-recurring receipts from the owner of the business or
lender of the money crating a liability to either of them.
52. Revenue Receipts: Revenue receipts
may defined as “A recurring receipts against sale of goods in the normal course
of business and which generally the result of the trading activities”.
53. Meaning of Company: A company is
an association of many persons who contribute money or money’s worth to common
stock and employs it for a common purpose. The common stock so contributed is
denoted in money and is the capital of the company.
54. Types
of a company:
·
Statutory
companies
·
Government
company
·
Foreign
company
·
Registered
companies:
ü Companies limited by shares
ü Companies limited by
guarantee
ü Unlimited companies
ü D. Private company
ü E. Public company
55. Private company: A private co. is
which by its AOA: Restricts the right of the members to transfer of shares
Limits the no. Of members 50. Prohibits
any Invitation to the public to subscribe for its shares or debentures.
56. Public company: A company, the
articles of association of which does not contain the requisite restrictions to
make it a private limited company, is called a public company.
57. Characteristics
of a company:
·
Voluntary
association
·
Separate
legal entity
·
Free
transfer of shares
·
Limited
liability
·
Common
seal
·
Perpetual
existence.
58. Formation
of company:
·
Promotion
·
Incorporation
·
Commencement
of business
59. Equity
share capital: The total sum of equity shares is called equity share
capital.
60. Authorized share capital: it is the
maximum amount of the share capital, which a company can raise for the time
being.
61. Issued capital: It is that part of the
authorized capital, which has been allotted to the public for subscriptions.
62. Subscribed capital: it is the part of the
issued capital, which has been allotted to the public.
63. Called up capital: It has been portion of
the subscribed capital, which has been called up by the company.
64. Paid up capital: It is the portion of the
called up capital against which payment has been received.
65. Debentures: Debenture is a
certificate issued by a company under its seal acknowledging a debt due by it to its
holder.
66. Cash
Profit: Cash profit is the profit it is occurred from the cash sales.
67. Deemed public Ltd. Company: A private
company is a subsidiary company to public
company it satisfies the
following terms/conditions Sec 3(1)3:
·
Having
minimum share capital 5 lakhs
·
Accepting
investments from the public
·
No
restriction of the transferable of shares
·
No
restriction of no. Of members.
·
Accepting
deposits from the investors
68. Secret reserves: secret reserves are
reserves the existence of which does not appear on the face of balance sheet. In such a
situation, net assets position of the business is stronger than that disclosed
by the balance sheet.
These reserves are crated
by:
·
Excessive
dep.of an asset, excessive over-valuation of a liability.
·
Complete
elimination of an asset, or under valuation of an asset.
69. Provision: Provision usually means
any amount written off or retained by way of providing depreciation, renewals
or diminutions in the value of assets or retained by way of providing for any
known liability of which the amount can not be determined with substantial accuracy.
70. Reserve: The provision in excess
of the amount considered necessary for the purpose it was originally made is
also considered as reserve Provision is charge against profits while reserves
is an appropriation of profits Creation of reserve increase proprietor’s fund
while creation of provisions decreases his funds in the business.
71. Reserve Fund: The term reserve
fund means such reserve against which clearly
investment etc.
72. Undisclosed Reserves: Sometimes a
reserve is created but its identity is merged with some other a/c or group of
accounts so that the existence of the reserve is not known such reserve is
called an undisclosed reserve.
73. Finance Management: financial
management deals with procurement of funds and their effective utilization in business.
74. Objectives Of Financial Management: Financial
management having two objectives that
Is:
·
Profit
maximization: The
finance manager has to make his decisions in a manner so that the profits of the concern are
maximized.
·
Wealth
maximization:
Wealth maximization means the objective of a firm should be to maximize its value or wealth, or value of a
firm is represented by the market price of its common stock.
75. Functions
of financial manager:
·
Investment
decision
·
Dividend
decision
·
Finance
decision
·
Cash
management decisions
·
Performance
evaluation
·
Market
impact analysis
76. Time value of money: The time
value of money means that worth of a rupee received today is different from the worth of a rupee
to be received in future.
77. Capital structure: It refers to the mix of sources from where
the long-term funds required in a business may be raised; in other words, it
refers to the proportion of debt, preference capital and equity capital.
78. Optimum capital structure: capital
structure is optimum when the firm has a combination of equity and debt so that
the wealth of the firm is maximum.
79. Wacc: It denotes weighted average
cost of capital. It is defined as the overall cost of capital computed by reference to the
proportion of each component of capital as weights.
80. Financial break-even point: it denotes
the level at which a firm’s EBIT is just sufficient to cover interest and preference dividend.
81. Capital budgeting: capital
budgeting involves the process of decision making with regard to investment in
fixed assets. Or decision making with regard to investment of money in
long-term projects.
82. Pay back period: Payback period represents the time period
required for complete recovery of the initial investment in the project.
83. ARR: Accounting or average rate of
return means the average annual yield on the project.
84. NPV: The net present value of an
investment proposal is defined as the sum of the present values of all future
cash in flows less the sum of the present values of all cash out flows
associated with the proposal.
85. Profitability Index: where
different investment proposal each involving different initial investments and
cash inflows are to be compared.
86. IRR: internal rate of return is
the rate at which the sum total of discounted cash inflows equals the
discounted cash out flow.
87. Treasury Management: It means it is defined as the efficient
management of liquidity and financial risk in business.
88. Concentration Banking: It means
identify locations or places where customers are placed and open a local bank
a/c in each of these locations and open local collection canter.
89. Marketable Securities: Surplus
cash can be invested in short term instruments in order to earn interest.
90. Ageing Schedule: In a ageing schedule
the receivables are classified according to their age.
91. Maximum
Permissible Bank Finance (MPBF): it is the maximum amount that banks can
lend a borrower towards his working capital requirements.
92. Commercial Paper: A cp is a short
term promissory note issued by a company, negotiable by endorsement and
delivery, issued at a discount on face value as may be determined by the
issuing company.
93. Bridge Finance: It refers to the loans taken by the
company normally from a commercial banks for a short period pending
disbursement of loans sanctioned by the financial institutions.
94. Venture
Capital: It refers to the financing
of high-risk ventures promoted by new qualified entrepreneurs who require funds
to give shape to their ideas.
95. Debt
Securitization: It is a mode of
financing, where in securities are issued on the basis of a package of assets
(called asset pool).
96. Lease Financing: Leasing is a contract where one party
(owner) purchases assets and permits its views by another party (lessee) over a
specified period
97. Trade Credit: It represents credit granted by suppliers
of goods, in the normal course of business.
98. Over Draft: Under this facility a fixed limit is
granted within which the borrower allowed to overdraw from his account.
99. Cash credit: It is an arrangement under which a
customer is allowed an advance up to certain limit against credit granted by
bank.
100. Clean overdraft: It refers to an advance by way of
overdraft facility, but not back by any tangible security.
101. Share capital: The sum total of the
nominal value of the shares of a company is called share capital.
102. Funds Flow Statement: It is the statement deals with the
financial resources for running business activities. It explains how the funds obtained and how
they used.
103. Sources of funds: There are two sources of funds Internal
sources and external sources.
Internal source: Funds from operations is
the only internal sources of funds and some important points add to it they do
not result in the outflow of funds Depreciation on fixed assets
(b) Preliminary expenses or goodwill written
off, Loss on sale of fixed assets
Deduct the following items,
as they do not increase the funds:
Profit on sale of fixed
assets, profit on revaluation Of fixed assets
External sources:
·
Funds
from long-term loans
·
Sale of fixed assets
·
Funds
from increase in share capital
104. Application of funds: (a) Purchase
of fixed assets (b) Payment of dividend (c)Payment of tax liability (d) Payment
of fixed liability
105. ICD (Inter corporate deposits): Companies can borrow funds for a short
period. For example 6 months or less from another company which have surplus
liquidity. Such Deposits made by one
company in another company are called ICD.
106. Certificate of deposits: The
CD is a document of title similar to a fixed deposit receipt issued by
banks there is no prescribed interest rate on such CDs it is based on the
prevailing market conditions.
107. Public deposits: It is very important source of short term
and medium term finance. The company can
accept PD from members of the public and shareholders. It has the maturity period of 6 months to 3
years.
108. Euro issues: The euro issues means that the issue is
listed on a European stock Exchange. The
subscription can come from any part of the world except India.
109. GDR (Global depository receipts): A depository receipt is basically a
negotiable certificate, dominated in us dollars that represents a non-US
company publicly traded in local currency equity shares.
110. ADR (American depository receipts): Depository receipt issued by a company in
the USA
are known as ADRs. Such receipts are to
be issued in accordance with the provisions stipulated by the securities
Exchange commission (SEC) of USA
like SEBI in India.
111. Commercial banks: Commercial banks extend foreign currency
loans for international operations,
just like rupee loans. The banks also
provided overdraft.
112. Development banks: It offers long-term and medium term loans
including foreign currency loans.
113. International agencies: International agencies like the
IFC,IBRD,ADB,IMF etc. provide indirect assistance for obtaining foreign
currency.
114. Seed capital assistance: The seed capital assistance scheme is
desired by the IDBI for professionally or technically qualified entrepreneurs
and persons possessing relevant experience and skills and entrepreneur traits.
115. Unsecured loans: It constitutes a significant part of
long-term finance available to an enterprise.
116. Cash flow statement: It is a
statement depicting change in cash position from one period to another.
117. Sources
of cash: Internal sources-
·
Depreciation
·
Amortization
·
Loss
on sale of fixed assets
·
Gains
from sale of fixed assets
·
Creation
of reserves
External sources-
·
Issue
of new shares
·
Raising
long term loans
·
Short-term
borrowings
·
Sale of fixed assets,
investments
118. Application
of cash:
·
Purchase
of fixed assets
·
Payment
of long-term loans
·
Decrease
in deferred payment liabilities
·
Payment
of tax, dividend
·
Decrease
in unsecured loans and deposits
119. Budget:
It is a detailed plan of operations for some specific future
period. It is an estimate prepared in
advance of the period to which it applies.
120. Budgetary control: It is the system of management control
and accounting in which all operations are forecasted and so for as possible
planned ahead, and the actual results compared with the forecasted and planned
ones.
121. Cash budget: It is a summary statement of firm’s
expected cash inflow and outflow over a specified time period.
122. Master budget: A summary of budget schedules in capsule
form made for the purpose of presenting in one report the highlights of the
budget forecast.
123. Fixed budget: It is a budget, which is designed to
remain unchanged irrespective of the level of activity actually attained.
124. Zero-base-budgeting: It is a management tool which provides a
systematic method for evaluating all operations and programmes, current of new
allows for budget reductions and expansions in a rational manner and allows
reallocation of source from low to high priority programs.
125. Goodwill: The present value of firm’s anticipated
excess earnings.
126. BRS:
It is a statement reconciling the balance as shown by the bank pass
book and balance shown by the cash book.
127. Objective of BRS: The objective of preparing such a
statement is to know the causes of difference between the two balances and pass
necessary correcting or adjusting
entries in the books of the firm.
128. Responsibilities of accounting: It is a system of control by delegating
and locating the Responsibilities for costs.
129. Profit centre: A centre whose performance is measured in
terms of both the expense incurs and revenue it earns.
130. Cost centre: A location, person or item of equipment
for which cost may be ascertained and used for the purpose of cost control.
131. Cost:
The amount of expenditure incurred on to a given thing.
132. Cost accounting: It is thus concerned with recording,
classifying, and summarizing costs for determination of costs of products or
services planning, controlling and reducing such costs and furnishing of
information management for decision making.
133. Elements of cost:
·
Material
·
Labour
·
Expenses
·
Overheads
134. Components
of total costs:
·
Prime
cost
·
Factory
cost
·
Total
cost of production
·
Total
c0st
135. Prime cost: It consists of direct material direct
labour and direct expenses. It is
also known as basic or first or flat
cost.
136. Factory cost: It comprises prime cost, in addition
factory overheads which include cost of indirect material indirect labour and
indirect expenses incurred in factory. This cost is also known as works cost or
production cost or manufacturing cost.
137. Cost of production: In office and administration overheads
are added to factory cost, office cost is arrived at.
138. Total cost: Selling and distribution overheads are
added to total cost of production to get the total cost or cost of sales.
139. Cost unit: A unit of quantity of a product, service
or time in relation to which costs may
be ascertained or expressed.
140. Methods
of costing:
·
Job
costing
·
Contract
costing
·
Process
costing
·
Operation
costing
·
Operating
costing
·
Unit
costing
·
Batch
costing.
141. Techniques
of costing:
·
Marginal
costing
·
Direct
costing
·
Absorption
costing
·
Uniform
costing.
142. Standard costing: Standard costing
is a system under which the cost of the product is determined in advance on
certain predetermined standards.
143. Marginal costing: It is a technique
of costing in which allocation of expenditure to production is restricted to
those expenses which arise as a result of production, i.e., materials, labour,
direct expenses and variable overheads.
144. Derivative: Derivative is product
whose value is derived from the value of
one or more basic variables of underlying asset.
145. Forwards: A forward contract is
customized contracts between two entities were settlement takes place on a
specific date in the future at today’s pre agreed price.
146. Futures: A future contract is an
agreement between two parties to buy or sell an asset at a certain time in the
future at a certain price. Future
contracts are standardized exchange traded contracts.
147. Options: An option gives the holder
of the option the right to do some thing. The option holder option may exercise
or not.
148. Call option: A call option gives the
holder the right but not the obligation to buy an asset by a certain date for a
certain price.
149. Put option: A put option gives the
holder the right but not obligation to sell an asset by a certain date for a
certain price.
150. Option price: Option price is the
price which the option buyer pays to the option seller. It is also referred to
as the option premium.
151. Expiration date: The date which is
specified in the option contract is called expiration date.
152. European
option: It is the option at exercised only on expiration date it self.
153. Basis:
Basis means future price minus spot price.
154. Cost of carry: The relation between
future prices and spot prices can be summarized in terms of what is known as
cost of carry.
155. Initial Margin: The amount that must
be deposited in the margin a/c at the time of first entered into future
contract is known as initial margin.
156 Maintenance
Margin: This is some what lower than initial margin.
157. Mark to Market: In future market, at
the end of the each trading day, the margin a/c is adjusted to reflect the
investors’ gains or loss depending upon the futures selling price. This is
called mark to market.
158. Baskets:
Basket options are options on portfolio of underlying asset.
159. Swaps: Swaps are private agreements
between two parties to exchange cash flows in the future according to a pre
agreed formula.
160. Impact cost: impact cost is cost it
is measure of liquidity of the market. It reflects the costs faced when
actually trading in index.
161. Hedging:
Hedging means minimize the risk.
162. Capital market: Capital market is
the market it deals with the long term investment funds. It consists of two
markets 1.primary market 2.secondary market.
163. Primary market: Those companies
which are issuing new shares in this market. It is also called new issue
market.
164. Secondary market: Secondary market
is the market where shares buying and selling. In India secondary market is called
stock exchange.
165. Arbitrage: It means purchase and
sale of securities in different markets in order to profit from price
discrepancies. In other words arbitrage is a way of reducing risk of loss
caused by price fluctuations of securities held in a portfolio.
166. Meaning of ratio: Ratios are
relationships expressed in mathematical terms between figures which are
connected with each other in same manner.
167. Activity
ratio: It is a measure of the level of activity attained over a period.
168. Mutual Fund: A mutual fund is a pool
of money, collected from investors, and is invested according to certain
investment objectives.
169. Characteristics of Mutual Fund : Ownership of the MF is in the hands of the of
the investors MF managed by investment professionals The value of portfolio is
updated every day
170. Advantage of MF to Investors: Portfolio
diversification Professional management
Reduction in risk Reduction of
transaction casts Liquidity Convenience and flexibility
171. Net asset value: The value of one
unit of investment is called as the Net Asset Value.
172. Open-Ended Fund: Open ended funds
means investors can buy and sell units of fund, at NAV related prices at any time, directly from the fund this is
called open ended fund. For ex; unit 64
173. Close Ended Funds: Close ended
funds means it is open for sale to investors for a specific period, after which
further sales are closed. Any further transaction for buying the units or
repurchasing them, happen, in the secondary markets.
174. Dividend Option: Investors who
choose a dividend on their investments, will receive dividends from the MF, as
when such dividends are declared.
175. Growth Option : Investors who do
not require periodic income distributions can be choose the growth option.
176. Equity Funds: Equity funds are
those that invest pre-dominantly in equity shares of company.
177. Types of Equity Funds: Simple
equity funds Primary market funds
Sectoral funds Index funds
178. Sectoral
Funds : Sectoral funds choose to invest in one or more chosen
sectors of the equity markets.
179. Index Funds: The fund manager takes a
view on companies that are expected to perform well, and invests in these
companies
180. Debt Funds: The debt funds are
those that are pre-dominantly invest in debt securities.
181. Liquid Funds: The debt funds invest
only in instruments with maturities less than one year.
182. Gilt Funds: Gilt funds invests only
in securities that are issued by the GOVT. and therefore does not carry any
credit risk.
183. Balanced Funds: Funds that invest
both in debt and equity markets are called balanced funds.
184. Sponsor: Sponsor is the promoter of the
MF and appoints trustees, custodians and the AMC with prior approval of SEBI .
185. Trustee: Trustee is responsible to
the investors in the MF and appoint the
AMC for managing the investment
portfolio.
186. AMC: The AMC describes Asset
Management Company, it is the business face of the MF, as it manages all the
affairs of the MF.
187. R & T Agents: The R&T agents
are responsible for the investor servicing functions, as they maintain the
records of investors in MF.
188. Custodians: Custodians are
responsible for the securities held in the mutual fund’s portfolio.
189. Scheme Take Over: If an existing MF
scheme is taken over by the another AMC, it is called as scheme take over.
190. Meaning Of Load: Load is the factor
that is applied to the NAV of a scheme to arrive at the price.
192. Market Capitalization: Market
capitalization means number of shares issued multiplied with market price per
share.
193. Price Earning Ratio : The ratio
between the share price and the post tax earnings of company is called as price
earning ratio.
194. Dividend Yield: The dividend paid
out by the company, is usually a
percentage of the face value of a share.
195. Market Risk: It refers to the risk
which the investor is exposed to as a result of adverse movements in the
interest rates. It also referred to as the interest rate risk.
196. Re-investment
risk: It the risk which an investor has to face as a result of a fall in
the
interest rates at the time
of reinvesting the interest income flows from the fixed Income security.
197. Call Risk: Call risk is associated
with bonds have an embedded call option in them. This option hives the issuer
the right to call back the bonds prior to maturity.
198. Credit Risk: Credit risk refers to
the probability that a borrower could default on a commitment to repay debt or band loans
199. Inflation Risk: Inflation risk
reflects the changes in the purchasing power of the cash flows resulting from
the fixed income security.
200. Liquid Risk: It is also called market
risk, it refers to the ease with which bonds could be traded in the market.
201. Drawings: Drawings denotes the
money withdrawn by the proprietor from the business for his personal use.
202. Outstanding Income: Outstanding
Income means income which has become due during the accounting year but which
has not so far been received by the firm.
203. Outstanding Expenses: Outstanding
Expenses refer to those expenses which have become due during the accounting
period for which the Final Accounts have been prepared but have not yet been
paid.
204. Closing Stock: The term closing
stock means goods lying unsold with the businessman at the end of the
accounting year.
205. Methods
of depreciation:
Unirorm
charge methods:
·
Fixed
installment method
·
Depletion
method
·
Machine
hour rate method.
Declining
charge methods:
·
Diminishing
balance method
·
Sum
of years digits method
·
Double
declining method
Other methods :
·
Group
depreciation method
·
Inventory
system of depreciation
·
Annuity
method
Depreciation fund method
Insurance
policy method.
206. Accrued Income: Accrued Income
means income which has been earned by the business during the accounting year
but which has not yet become due and,
therefore, has not been received.
207. Gross
profit ratio: It indicates the efficiency of the production/trading
operations.
Formula : Gross profit
-------------------X100
Net sales
208. Net
profit ratio: it indicates net
margin on sales
Formula: Net profit
--------------- X 100
Net sales
209. Return On Share Holders Funds : It
indicates measures earning power of equity capital.
Formula :
profits available for
Equity shareholders
-----------------------------------------------X
100
Average Equity Shareholders Funds
210. Earning per Equity share (EPS): It
shows the amount of earnings attributable to each equity share.
Formula :
profits available for
Equity shareholders
----------------------------------------------
Number
of Equity shares
211. Dividend Yield Ratio: It shows the
rate of return to shareholders in the form of dividends based in the market
price of the share
Formula : Dividend per share
---------------------------- X100
Market price
per share
212. Price Earning Ratio: It a measure for determining the value of
a share. May also be used to measure the rate of return expected by investors.
Formula : Market price of
share(MPS)
-------------------------------X 100
Earning
per share (EPS)
213. Current
Ratio: It measures short-term debt paying ability.
Formula : Current
Assets
------------------------
Current
Liabilities
214. Debt-Equity Ratio: It indicates the
percentage of funds being financed through borrowings; a measure of the extent of trading on equity.
Formula : Total Long-term Debt
---------------------------
Shareholders funds
215. Fixed Assets Ratio: This ratio
explains whether the firm has raised adepuate long-term funds to meet its fixed
assets requirements.
Formula Fixed Assets
-------------------
Long-term Funds
216 . Quick Ratio: The ratio termed as ‘
liquidity ratio’. The ratio is ascertained y comparing the liquid assets to
current liabilities.
Formula : Liquid Assets
------------------------
Current
Liabilities
217. Stock turnover Ratio: The ratio
indicates whether investment in inventory in efficiently used or not. It,
therefore explains whether investment in inventory within proper limits or not.
Formula: cost of goods sold
------------------------
Average stock
218. Debtors Turnover Ratio: The ratio
the better it is, since it would indicate that debts are being collected more
promptly. The ration helps in cash budgeting since the flow of cash from
customers can be worked out on the basis of sales.
Formula: Credit sales
-------------------
Average
Accounts Receivable
219. Creditors Turnover Ratio: It
indicates the speed with which the payments for credit purchases are made to
the creditors.
Formula: Credit Purchases
-----------------------
Average
Accounts Payable
220. Working Capital Turnover Ratio: It
is also known as Working Capital Leverage Ratio. This ratio Indicates whether
or not working capital has been effectively utilized in making sales.
Formula: Net Sales
----------------------------
Working Capital
221. Fixed Assets Turnover Ratio: This
ratio indicates the extent to which the investments in fixed assets contributes
towards sales.
Formula: Net Sales
--------------------------
Fixed
Assets
222. Pay-out Ratio: This ratio indicates
what proportion of earning per share has been used for paying dividend.
Formula: Dividend per Equity Share
--------------------------------------------X100
Earning per Equity
share
223. Overall Profitability Ratio: It is
also called as “ Return on Investment” (ROI) or Return on Capital Employed (ROCE) . It indicates the percentage of
return on the total capital employed in the business.
Formula :
Operating profit
------------------------X
100
Capital employed
The term capital employed
has been given different meanings a.sum total of all assets whether fixed or
current b.sum total of fixed assets, c.sum total of long-term funds employed in
the business, i.e., share capital +reserves &surplus +long term loans –(non
business assets + fictitious assets). Operating profit means ‘profit before interest
and tax’
224. Fixed Interest Cover Ratio: The
ratio is very important from the lender’s point of view. It indicates whether the business would earn
sufficient profits to pay periodically the interest charges.
Formula : Income before interest and Tax
---------------------------------------
Interest Charges
225. Fixed Dividend Cover Ratio: This ratio is important for preference
shareholders entitled to get dividend at a fixed rate in priority to other
shareholders.
Formula : Net Profit after Interest and Tax
------------------------------------------
Preference
Dividend
226. Debt Service Coverage ratio: This
ratio is explained ability of a company to make payment of principal amounts
also on time.
Formula : Net profit before interest and tax
---------------------------------------- 1-Tax rate
Interest
+ Principal payment installment
227. Proprietary Ratio: It is a variant
of debt-equity ratio . It establishes relationship between the proprietor’s
funds and the total tangible assets.
Formula : Shareholders funds
----------------------------
Total tangible assets
228. Difference between joint venture and
partner ship:
·
In
joint venture the business is carried on without using a firm name, In the
partnership, the business is carried on
under a firm name.
·
In
the joint venture, the business transactions are recorded under cash system In
the partnership, the business transactions are recorded under mercantile
system. In the joint venture, profit and loss is ascertained on completion of
the venture In the partner ship , profit and loss is ascertained at the end of
each year.
·
In
the joint venture, it is confined to a particular operation and it is
temporary. In the partnership, it is confined to a particular operation and it
is permanent.
229. Meaning of Working Capital: The funds
available for conducting day to day operations of an enterprise. Also represented by the excess of current assets
over current liabilities.
230. Concepts
of accounting:
·
Business
entity concepts: According
to this concept, the business is treated as a separate entity distinct from its
owners and others.
·
Going
concern concept: According
to this concept, it is assumed that a business has a reasonable expectation of
continuing business at a profit for an indefinite period of time.
·
Money
measurement concept: This
concept says that the accounting records only those transactions which can be
expressed in terms of money only.
·
Cost
concept: According
to this concept, an asset is recorded in the books at the price paid to acquire
it and that this cost is the basis for all subsequent accounting for the asset.
·
Dual
aspect concept: In
every transaction, there will be two aspects – the receiving aspect and the
giving aspect; both are recorded by debiting one accounts and crediting another
account. This is called double entry.
·
Accounting
period concept: It
means the final accounts must be prepared on a periodic basis. Normally
accounting period adopted is one year, more than this period reduces the
utility of accounting data.
·
Realization
concept: According
to this concepts, revenue is considered as being earned on the data which it is
realized, i.e., the date when the property in goods passes the buyer and he
become legally liable to pay.
·
Materiality
concepts: It
is a one of the accounting principle, as per only important information will be
taken, and un important information will be ignored in the preparation of the
financial statement.
·
Matching
concepts:
The cost or expenses of a business of a particular period are compared with the
revenue of the period in order to ascertain the net profit and loss.
·
Accrual
concept: The
profit arises only when there is an increase in owners capital, which is a
result of excess of revenue over expenses and loss.
231. Financial analysis: The process of
interpreting the past, present, and future financial condition of a company.
232. Income statement: An accounting
statement which shows the level of revenues, expenses and profit occurring for
a given accounting period.
233. Annual report: The report issued
annually by a company, to its share holders. it containing financial statement
like, trading and profit & lose account and balance sheet.
234. Bankrupt : A statement in which a
firm is unable to meets its obligations and hence, it is assets are surrendered
to court for administration
235. Lease: Lease is a contract between
to parties under the contract, the owner of the asset gives the right to use
the asset to the user over an agreed period of the time for a consideration
236. Opportunity cost : The cost associated with
not doing something.
237. Budgeting : The term budgeting is
used for preparing budgets and other producer for planning, co-ordination, and control
of business enterprise.
238. Capital: The term capital refers to
the total investment of company in money, tangible and intangible assets. It is
the total wealth of a company.
239. Capitalization:
It is the sum of the par value of stocks and bonds out standings.
240. Over capitalization: When a business
is unable to earn fair rate on its outstanding securities.
241. Under Capitalization: When a
business is able to earn fair rate or over rate on it is outstanding
securities.
242. Capital gearing: The term capital
gearing refers to the relationship between equity and long term debt.
243. Cost
of Capital: It means the minimum rate of return expected by its investment.
244. Cash
Dividend: The payment of dividend in cash
245. Define the term accrual : Recognition
of revenues and costs as they are earned or incurred. It includes recognition
of transaction relating to assets and liabilities as they occur irrespective of
the actual receipts or payments.
245. Accrued Expenses: An expense which
has been incurred in an accounting period but for which no enforceable claim
has become due in what period against the enterprises.
246. Accrued Revenue: Revenue which has
been earned is an earned is an accounting period but in respect of which no
enforceable claim has become due to in that period by the enterprise.
247. Accrued liability: A developing but
not yet enforceable claim by an another person which accumulates with the
passage of time or the receipt of service or otherwise. it may rise from the
purchase of services which at the date of accounting have been only partly
performed and are not yet billable.
248. Convention of Full disclosure: According
to this convention, all accounting statements should be honestly prepared and
to that end full disclosure of all significant information will be made.
249. Convention of consistency: According
to this convention it is essential that accounting practices and methods remain
unchanged from one year to another.
250. Define the term preliminary expenses: Expenditure
relating to the formation of an enterprise. There include legal accounting and
share issue expenses incurred for formation of the enterprise.
251. Meaning of Charge : Charge means it
is a obligation to secure an indebt ness. It may be fixed charge and floating
charge.
252. Appropriation
: It is application of profit towards Reserves and Dividends.
253. Absorption costing: A method where
by the cost is determine so as to include the appropriate share of both
variable and fixed costs.
254. Marginal Cost: Marginal cost is the
additional cost to produce an additional unit of a product. It is also called
variable cost.
255. What are the ex-ordinary items in the
P&L a/c: The transaction which are not related to the business is
termed as ex-ordinary transactions or ex-ordinary items. Egg:- profit or losses
on the sale of fixed assets, interest received from other company investments,
profit or loss on foreign exchange, unexpected dividend received.
256. Share premium: The excess of issue
of price of shares over their face value. It will be showed with the allotment
entry in the journal, it will be adjusted in the balance sheet on the
liabilities side under the head of “reserves & surplus”.
257. Accumulated Depreciation: The total
to date of the periodic depreciation charges on depreciable assets.
258. Investment: Expenditure on assets
held to earn interest, income, profit or other benefits.
259. Capital: Generally refers to the
amount invested in an enterprise by its owner. Ex; paid up share capital in
corporate enterprise.
260. Capital Work In Progress: Expenditure
on capital assets which are in the process of construction as completion.
261. Convertible Debenture: A debenture
which gives the holder a right to conversion wholly or partly in shares in
accordance with term of issues.
262. Redeemable Preference Share: The
preference share that is repayable either after a fixed (or) determinable
period (or) at any time dividend by the management.
263. Cumulative Preference Shares : A
class of preference shares entitled to payment of umulates dividends. Preference shares are
always deemed to be cumulative unless they are expressly made non-cumulative
preference shares.
264. Debenture Redemption Reserve : A
reserve created for the redemption of debentures at a future date.
265. Cumulative Dividend: A dividend
payable as cumulative preference shares which it unpaid cumulates as a claim
against the earnings of a corporate before any distribution is made to the
other shareholders.
266. Dividend Equalization Reserve: A
reserve created to maintain the rate of dividend in future years.
267. Opening Stock: The term ‘opening
stock’ means goods lying unsold with the businessman in the beginning of the
accounting year. This is shown on the debit side of the trading account.
268. Closing Stock: The term ‘Closing
Stock’ includes goods lying unsold with the businessman at the end of the
accounting year. The amount of closing stock is shown on the credit side of the
trading account and as an asset in the balance sheet.
269. Valuation Of Closing Stock: The
closing stock is valued on the basis of “Cost or Market price whichever is
less” principle.
272. Contingency: A condition (or)
situation the ultimate out comes of which gain or loss will be known as
determined only as the occurrence or non occurrence of one or more uncertain
future events.
273. Contingent Asset: An asset the
existence ownership or value of which may be known or determined only on the
occurrence or non occurrence of one more uncertain future events.
274. Contingent Liability: An obligation
to an existing condition or situation which may arise in future depending on
the occurrence of one or more uncertain future events.
275. Deficiency : The excess of
liabilities over assets of an enterprise at a given date is called deficiency.
276. Deficit:
The debit balance in the profit and loss a/c is called deficit.
277. Surplus: Credit balance in the
profit & loss statement after providing for proposed appropriation &
dividend, reserves.
278. Appropriation Assets: An account
sometimes included as a separate section of the profit and loss statement
showing application of profits towards dividends, reserves.
279. Capital Redemption Reserve: A
reserve created on redemption of the average cost:- the cost of an item at a
point of time as determined by applying an average of the cost of all items of
the same nature over a period. When weights are also applied in the computation
it is termed as weight average cost.
280. Floating Change: Assume change on
some or all assets of an enterprise which are not attached to specific assets
and are given as security against debt.
281. Difference between Funds flow and Cash
flow statement:
·
A
Cash flow statement is concerned only with the change in cash position while a
funds flow analysis is concerned with change in working capital position
between two balance sheet dates.
·
A
cash flow statement is merely a record of cash receipts and disbursements.
While studying the short-term solvency of a business one is interested not only
in cash balance but also in the assets which are easily convertible into cash.
282. Difference
Between the Funds flow and Income statement :
·
A
funds flow statement deals with the financial resource required for running the
business activities. It explains how were the funds obtained and how were they
used, Whereas an income statement discloses the results of the business
activities, i.e., how much has been
earned and how it has been spent.
·
A
funds flow statement matches the “funds raised” and “funds applied” during a
particular period. The source and application of funds may be of capital as
well as of revenue nature. An income statement matches the incomes of a period
with the expenditure of that period, which are both of a revenue nature.
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