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.
