ACCOUNTING MATERIAL

ACCOUNTING MATERIAL

1. Accounting:

Accounting is 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 financial character and interpreting the results there of.

2. Book Keeping:

It is mainly concerned with recording of financial data relating to the business operations is significant and orderly manner.

3. Branches of Accounting:

Financial Accounting and Management Accounting

4. Concepts of Accounting:

a. Separate entity concept

b. Going concern concept

c. Money measurement concept

d. Cost concept

e. Dual aspect concept

f. Accounting period concept

g. Periodic matching of costs and revenue concept

h. Realization concept

5. Conventions of Accounting:

1. Conservatism

2. Full disclosure

3. Consistency

4. materiality

6. Systems of book keeping:

a) Single entry system, b) Double entry system

7. Systems of Accounting:

a) Cash system accounting, b) Mercantile system of accounting

8. Principles of accounting:

a. Personal a/c --- Debit the receiver and credit the giver

b. Real a/c -- debit what comes in and credit what goes out

c. Nominal a/c -- Debit all Expenses and losses and Credit all gains and incomes

9. Meaning of Journal:

Journal means chronological record of transactions

10. Meaning of Ledger:

Ledger is a set of accounts. It contains all accounts of the business enterprise whether real, nominal, personal.

11. Posting:                   

It means transferring the debit and credit items from the journal to their respective accounts in the ledger.

12. Trial Balance: 

Trial balance is a statement containing the various ledger balances on a particular date.

13. 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 account has been credited with the value of the goods returned.

14. Debit Note: 

When the goods are returned to the supplier, a debit note is sent to him indicating that his account has been debited with the amount mentioned in the debit note.

15. Contra Entry: 

Which accounting entry is recorded on both the debit and credit side of the cash book is known as the contra entry.

16. Petty cash Book:

Petty cash is maintained by business to record petty cash expenses of the business, such as postage, cartage, stationery etc.

17. Promissory note: 

As 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 to the barer of the instrument

18. Cheque: 

A bill of exchange drawn on a specified banker and payable on demand

19. 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 pass book and the balance as shown by the Cash Book. OBJ: to know the difference and 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

27. Bad Debts: 

Bad debts denote the amount lost from debtors to whom the goods were sold on credit.

28. Depreciation:

Dep denotes decrease in the value of asset due to wear and tear, laps of time and accident.

29. Fictitious assets:

Fictitious assets are type of peculiar assets whose existence is invisible but whose benefit is enjoyed.

30. Prepaid expenses:

those expenses which have been paid in advance for future.

31. Accrued Income:

It means the trader may earn the income by rendering some service but the income has not been realized in terms of money but definitely comes in near future.

32. Classification of errors:

Errors of omission, Errors of commission, Errors of principle, Compensating errors

33. Suspense A/c:

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 tangible 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 the equity shares.

39. Pref. Shares:

Those shares which are carrying the pref.rights is called pref.shares.

    a. Pref.rights in respect of fixed dividend, b. Pref.right to repayment of capital in the event 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 Company:

     a. Statutory companies

     b. Government company

     c. Foreign company, d. Registered companies

      Companies limited by shares,  Companies limited by guarantee,  Unlimited companies Private company,  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 which is not a private company is called 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:

1. Having minimum share capital 5 lakes, 2. Accepting investments from the public 3. No restriction of the transferable of shares, 4. No restriction of no. of members 5. Accepting deposits from the investors

68. Secret reserves:

Secret reserves are 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: 1. Excessive dep. of an asset, excessive over-valuation of a liability.

2. 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 account 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:

1. Profit maximization:  The finance manager has to make his decisions in a manner so that the profits of the concern are maximized.  2. 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:

1.Investment decision    2.Dividend decision 3.Finance decision  4.Cash management decisions  5.Performance evaluation

6. Market impact analysis

76.  Time value of money: 

The time value of money means that worth of a rupee receive 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 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 represent the time 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 place and open a local bank account in each of these locations and

open local collection centre.

89.  Marketable securities: 

Surplus cash can be invested in short term instruments in order to earn interest.

90.  Ageing schedule: 

In an 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 commercial paper 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 view by another party (lesee) 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. Clean Overdraft:

It refers to an advance by way of overdraft facility, but not back by any tangible security.

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.

a. Depreciation of fixed assets. 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:-  1. Funds from long term loans,  2. Sale of fixed assets. 3. 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 issues 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. Speed 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.  a.  Depreciation.  b.  Amortization.  c. Loss on sale of fixed assets.  d. Gains from sale of fixed assets.  e. Creation of reserves external sources :-  a. Issue of new shares.  b.  Raising loan term loans.  c.  Short-term borrowings.  d. Sale of fixed assets, investments.

118. Application of cash:

a. Purchase of fixed assets .  b. Payment of long term loans.  c. Decrease in deferred payment liabilities.  d. Payment of tax, dividend.  e. 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 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:

(A) Material (B) Labour (C) Expenses (D) Overheads

134. Components of total costs:

(A) Prime cost (B) Factory costs (C) Total cost of production (D) Total cost

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:

(A) Job costing (B) Contract costing (C) Process costing (D) Operation costing (E) Operating costing (F) Unit costing (G) Batch costing

141. Techniques of costing:

(a) marginal costing (b) direct costing (c) absorption costing (d) 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 mose 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 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 its 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:

A mutual fund is a pool of money, collected from investors, and is invested according to certain investment objectives.

169. characteristics of mutual fund:

          1.Ownership of the MF is in the hands of the of the investors

          2.MF managed by investment professionals

          3.The value of portfolio is updated every day

170. Advantage of MF to investors:

          1. Portfolio diversification 

           2. Professional management  

           3. Reduction in risk

           4. Reduction of transaction casts

          5. Liquidity

           6. 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.

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 i called as price earning ratio.

194. Dividend yield:

The dividend paid out by the company, us 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.