Glossary

Accounting: A systematic process of measuring the economic activity of a business to provide

useful information to the management for making business decisions. A process that deals
with measurement and reporting of business transactions.

Accounting equation: An equation that expresses the relationship between assets, liabilities,
and owners’ equity in a business: Assets = Liabilities + Shareholders’ Equity.

Accounting period: The time period to which the financial report relates.

Accounting policies: The accounting principles and practices adopted by a company to report
its financial results.

Accounting system: The procedures and processes used by a business to collect, record and
report accounting data.

Accounts payable (Trade payable: Amounts owed to providers/suppliers of inventory, goods

or services acquired in the normal course of business.

Accounts receivable (Trade receivable): Amounts due and not paid from customers on
account of sales or services already rendered.

Accounts receivable turnover: A ratio used to indicate how quickly a company collects its
receivables; calculated as: sales (revenue) divided by average accounts receivable.

Accrual accounting: A system of accounting in which expenses and revenues are recorded as
they are incurred and earned regardless of when the cash is exchanged: revenue is recognized
when earned or realized (realization concept) and expenses are recognized when incurred.

Accumulated depreciation: The cumulative amount of depreciation charged on an asset since

the asset was available for use up to a particular point in time is known as accumulated
depreciation.

Acid-test ratio: A ratio used as a measure of short-term liquidity position; measure of a firms
ability to its short term liabilities also called quick ratio and calculated as current asset less
inventory divided by current liabilities

Acquisition: A business combination in which one company acquires control over the
operations of another entity.

Acquisition cost: The amount that includes all the cost necessary to acquire an asset and
prepare it for its intended use.
Additional paid-in capital (Securities Premium) : The investment by stockholders in excess
of the par or stated value.

Administrative expenses: Expenses incurred in relation to general administration of the

company’s operations.

Ageing of accounts receivables: A method of reviewing for uncollectible accounts receivables

by which an estimate of the bad debt expense is determined. The receivables balance are
classified into age categories and then an estimate of uncollectible amounts is applied.

Ageing schedule: A form used to categorize the various individual accounts receivable
according to the length of time each has been outstanding.

Allowance for doubtful accounts: Shows an estimate of the accounts receivable that will not
be collected ie doubtful

Allowance method: A method of recognizing the estimated losses from doubtful accounts as
expenses during the period in which the sales occur following the matching principle.

Amortization: The process of allocating the cost of intangible assets to expense over its useful
life.

Annual report: A formal report that summarizes the results of operations and financial
position of a company for the past year and outlines future plans and projections by the
company. It contains valuable information prepared by the management of the company
once in a year.

Asset: A resource owned or controlled by an entity from which future economic benefits are
expected to flow to the entity.

Asset turnover: Financial ratio measuring how efficiently a company uses its assets to
generate revenue. The ratio formula is computed as total sales divided by average total
assets.

Audit report: A report issued by an independent auditor stating whether a company’s

financial statements fairly report its financial position, operating results, and cash flows in
accordance with generally accepted accounting principles.

Available-for-sale securities: Investment securities not intended for immediate trading nor
intended to be held until maturity. The securities which cannot be classified as trading or held
to maturity are classified as available for sale securities.

Average collection period: Average number of days that lapse between the time a sale
is made and the time the cash is collected. Calculated by dividing average receivables
outstanding by average daily sales.
Average cost method: An inventory cost flow assumption method whereby cost of goods sold
and the cost of ending inventory are determined by using an average cost of all merchandise
available for sale during the period.

Balance sheet: A financial statement which reports, as on a given point in time, the assets,
liabilities, and owners’ equity of a business. Balance sheet shows the financial position of the
entity as on a specific date.

Bad debt expense: An amount that represents the portion of receivables that are estimated
to be uncollectible for the current year.

Basic earnings per share: Earnings per share calculation which considers only common stock
(equity shares) issued and outstanding without considering preference shares or share
warrants if any which are going to be exercised on a future date. It is computed as the net
income divided by the weighted-average common shares/equity shares outstanding for the
period.

Board of directors: Group elected by the shareholders to control and direct the strategic and
long-run planning for the corporation.

Book value of an asset: The net value of asset or the carrying amount of an asset computed
at historical cost or its fair value less accumulated depreciation.

Business combination: The combining or the merging of two businesses accomplished

through the exchange of cash or an exchange of stock.

Capital expenditure: The costs of purchasing property plant and equipment (fixed assets),
additions to fixed assets and improvements to the asset
Capital structure: A firm’s strategy for financing its assets with relative amounts of debt and
equity.
Carrying amount : The value of an asset currently shown in the balance sheet of the entity.
Cash (sales) discount: A reduction in sales price allowed if payment is received within a
specified period, usually offered to customers to encourage prompt payment.
Cash equivalents: Short-term, highly liquid investments that can be converted easily to cash
usually having a maturity period of three months or less.
Cash flow from operating activities: The cash flows arising from the normal operations of the
business; is computed making adjustments for non-cash expenses and changes in working
capital from the net income as stated in the income statement.
Cash flow statement: Also called statement of cash flows.It is one of the three primary
financial statements. The cash flow statement provides information about the cash inflows
and cash outflows of a company during a period of time. The statement is divided into cash
flows from operating, investing, and financing activities.
Cash flows from financing activities: Cash flows relating to liability and shareholders’ equity
accounts.
Cash flows from investing activities: Cash flows relating to lending money and to purchasing
and selling investments and productive long term assets.
Cash flow-to-net income ratio: Financial ratio used to analyze the cash flow relationship
between cash from operations and reported net income.
Cash: Cash can include coins, currency, cash at bank. Serves as a medium of exchange and
provides a basis of measurement for accounting.
Commercial paper: Short term obligations or promissory notes, unsecured, interest bearing
with flexible maturities.
Common size analysis: Common size analysis expresses comparison in percentages compared
to the last periods with respect to a common base (revenue in respect of income statement
and total assets in case of balance sheet).
Common stock : Shares or stock carrying the most basic rights to ownership of a company.
Usually has a face or a par value and divided into number of units.
Comparability: For accounting information, the quality that allows a user to analyse and
compare two or more companies and judge them taking various parameters.
Comparative statements: Financial statements of two or more periods.
Comprehensive income: Comprehensive income reflects the overall change in a company’s
net income during a period and includes items that are not yet realised.
Conservatism: The concept that directs the measurement of the items in the financial
statements with a pessimistic approach, that is, anticipating and recognizing all the possible
future losses but not the gains.
Consistency: The concept requiring the entity to apply the same accounting principles and
treatment to comparable transactions from period to period.
Consolidated financial statements: The combined financial statements of a parent company
and its subsidiary ie as a group.
Contingencies: Circumstances resulting in potential gains or losses that will not be resolved
until some future event occurs. And the outcome of which is dependent on the occurrence of
future events.
Contingent asset: An asset that may arise in the future if certain event occur.
Contingent liabilities: Liabilities whose payment is dependent on the occurrence of a
particular event such as settlement of litigation or ruling of a court.
Contributed capital The portion of owners’ or shareholders’ equity contributed by investors
(the owners) in exchange for shares of stock.
Convertible preferred stock: Preferred stock that can be converted into common stock.
Convertible securities: Securities whose term permit the holder to convert the investment
into common stock or ordinary shares of the company.
Corporation: A legal entity chartered by a state; ownership is represented by shares of stock.
Cost of goods available for sale: The cost of all goods available for sale during the period;
computed by adding the beginning inventory and net purchases.
Cost of goods sold: The costs incurred to purchase or manufacture the goods sold during a
period.
Cost concept: The underlying idea that transactions are recorded at their historical costs or
exchange prices at the transaction date.
Current assets: Inventory and other assets that can be easily converted to cash within a year
or within the operating cycle whichever longer.
Current liabilities: Liabilities expected to be satisfied within a year or within the operating
cycle, whichever is longer.
Current ratio: A measure of the liquidity of a business; equal to current assets divided by
current liabilities.

Debt: Fund which the company borrows..

Debt-to-equity ratio A measure of the amount of borrowed funds for each unit of money
invested by owners; equal to total liabilities divided by total shareholders’ equity.

Declining-balance depreciation method (written down value method): Computation of

periodic depreciation expense which gradually decreases in each successive period, based on
depreciation computed as a fixed percentage of the declining book value.

Deferred revenue: A liability arising from the receipt of cash before the revenue is earned.

Deferred taxes: Classified as an asset or liability depending on the nature of timing

differences. The differences are the result of any situation that recognizes revenue or
expense in a different time period for tax purposes than for accounting purposes.

Depletion: The method of cost allocation that assigns the original cost of a natural resource
to the periods benefited.

Depreciable amount: The cost of an asset less its salvage or residual value.

Depreciation: It is the systematic allocation of depreciable amount of the asset over its useful
life.
Depreciation expense: The depreciation on asset charged each year to the income statement.

Direct Method: Refers to the approach for preparing the cash flows from operating activities
in which cash receipts and cash payments are reported.

Discontinued operation: The disposal of a major segment of business.

Dividends (cash): Distribution of profits by way of cash payment to the shareholders of the
company.

Dividend payable: A current liability arising because of dividends declared by the board of
directors but not yet paid.
Double-entry bookkeeping: A system of accounting whereby each transaction has got a dual
effect; for every debit there is a corresponding credit. It is a system of recording transactions
that holds the equality of the accounting equation: Assets = Liabilities + Equity.

Earnings per share: Income or profit for the period reported on a per share basis. The
presentation of earnings per share is generally required by the generally accepted accounting
principles.
Earnings: A term used interchangeably with net income and profits.
Entity concept: This concept states that the owner and business are separate and the business
transactions should be recorded separately and should not be mixed with personal
transactions of the owner.
Equipment: Asset used in the production of goods or services.
Equity: Equity is the residual interest in the assets of the business after deducting all its
liabilities.
Estimated liability: An obligation of the business whose exact amount cannot be determined
until a later date. Also called as provision.
Expenses: Outflows or use of resources or incurrence of liabilities (or both) during the process
of revenue generating operations.
Extraordinary items: Material events or transactions which occur infrequently and unusual in
nature.

Fair value: The amount at which an asset (liability) could be bought (incurred) or sold (settled)
in an arms’ length transaction between knowledgeable willing parties.
FASB (Financial Accounting Standards Board): A private independent body that develops the
financial accounting standards to be followed by US companies.
FIFO (First in first out) Method: An inventory costing method that assumes that goods
purchased or produced first are sold out first and consequently the items remaining in the
ending inventory consist of the most recently purchased or produced.
Financial accounting: Measurement and reporting of financial information primarily for
external users.
Financial analysis: An analytical study of the company’s financial reports.
Financial assets: These are monetary assets and more liquid as compared to other assets of
the business. Investment in securities and bonds comprise its financial assets. They can be
traded in the financial market. Stocks, bonds, securities, bank deposits are examples of
financial assets.
Financial leverage: The amount of debt financing in relation to equity financing.
Financial liability: It is a contractual obligation to pay cash or similar to the investors as per
the terms and conditions of the contract. Financial liabilities include loans, bonds, and
derivative financial liabilities.
Financial Statement Analysis: Financial Statement Analysis refers to a set of tools and
techniques used to analyse and interpret the financial statement numbers
Financial statements: A complete set of financial statements consisting of the balance sheet,
income statement, statement of cash flows along with the notes to financial statements,
statement of comprehensive income, statement of changes in equity.
Financing activities: Business activities concerned with the raising and repayment of funds
through debt and equity.
Finished goods: Inventory that is fully manufactured and held for sale.
Fixed Asset: Long lived, assets used for business operations primarily, property, plant &
equipment.
Foreign currency transactions: Transactions which are settled with a currency other than
home currency.
Foreign currency: A currency other than an entity’s functional currency.

Gains: Profits realized from activities other than normal operating activities of the business.

Generally accepted accounting principles (GAAP): Accounting principles and practices which
are authorized/formulated by legally recognized bodies.

Going concern assumption: The assumption that a business entity will continue to exist and
operate for an indefinite period of time.
Goodwill: An intangible asset that arises when a business is valued at more than the fair value
of its net assets, usually due to its good strategic location, reputation, good customer
relations, or similar factors; equal to the excess of the purchase price over the fair value of
the net assets acquired in mergers.

Gross profit: Equals the difference between net sales revenue and the cost of goods sold or
cost of sales.

Gross sales: Total recorded sales before deducting sales discounts and sales returns and
allowances.

Held to maturity securities: Investments in bonds of other companies with a positive intent
to hold the securities till maturity.
Historical cost: The original purchase price of the asset.
Horizontal analysis: A comparison of financial statements items with a previous period and
computing the percentage change of all the items with respect to the previous period.
Human resource accounting: Attempts to account or measure the value of human resource
(employees.)
I
Impairment: A temporary or permanent reduction in the value of an asset.
Income Statement: A statement that reports the revenue and expenses for a specific period
of time.
Income Taxes: Taxes levied by central, state and local bodies on the reported profits.
Indirect method: A formal recognized method of presenting cash flows from operating
activities in which the net income is adjusted for non-cash and non-operating items and
working capital changes to arrive at the cash flows from operations.
Industry segment: A division or a part of an organization providing a product or related
products (or services) to outsiders.
Initial public offering (IPO): The first or initial sale of common stock or ordinary shares to the
general public by a previously privately held concern.
Insolvent: A condition in which the company is unable to pay its debts or discharge its
liabilities and is declared bankrupt.
Intangible asset: An identifiable non-monetary asset without physical substance such as legal
rights.
Interest: The cost for the use of money for a specific period.
Interim period: A financial reporting period shorter than a full financial or fiscal year.
International Financial Reporting Standards (IFRS): Accounting standards, guidance issued
by the International Accounting Standards Board.
Inventories: Include assets: (a) held for sale in the ordinary course of business; (b) in the
process of production for such sale; or (c) in the form of materials or supplies to be consumed
in the production process or in the rendering of services.
Investing activities: Business activities involving acquisition and disposal of long-term assets
and other investments not included in cash equivalents.
Issued stock: The shares of stock sold or otherwise transferred to the shareholders or
stockholders.
J
Joint control: The contractually agreed sharing of control over an economic activity.
Joint venture: A contractual agreement whereby two or more parties undertake business
activities that is subject to joint control.
Journalizing: The process of recording journal entries in journal.
Journals: Accounting records in which transactions are first entered, providing a chronological
record of business transactions.
L
Land improvements: Expenses incurred for making the land more usable. These are generally
the added structures like parking lots or walkways which improve the functionality of land.
They are depreciated if their useful life can be estimated.
Land: A long term realty asset used for business purpose, appears under the head property,
plant & equipment and not depreciated.
Lease: An agreement conveying the right to use property, plant or equipment for a specified
period in exchange of consideration or periodic payments.
Ledger: A summary of the effects of transactions on each individual accounts.
Lessee: The party to a lease who acquires the right to use the leased property.
Lessor: The owner of the leased property who transfers the right to use the property to the
lessee.
Leverage: The degree to which the a business’s capital structure includes debt financing.
Liabilities: These are the claims of creditors and outsiders against the resources of the
business. These are the present obligations of the business arising from past events involving
the sacrifice of future economic benefits.
License: Rights to commence and engage in a particular activity.
LIFO (Last in first out): The cost flow method for inventory valuation which assumes the units
purchased last are sold out first.
Limited liability: The concept that the shareholders in a company are liable only to the extent
of nominal value of the shares held by them and their personal assets are not liable in the
case of liquidation of the company.
Liquid assets: Current assets that are either in cash or can be readily converted to cash.
Liquidation: The process of disposing off the assets of the business, settling the liabilities and
distributing the remaining cash to the shareholders.
Liquidity: The extent to which how quickly the assets and liabilities can be converted to cash.
Listed company: A company whose shares or bonds are listed on a stock exchange for trading.
Long-term liabilities: Liabilities due in a period exceeding one year or one operating cycle,
whichever is longer.
Losses: Losses incurred from activities that are incidental to a firm’s primary activities.
M
Maintenance Expenditures incurred for routine maintenance of the fixed assets to keep them
in good operating condition.
Management discussion and analysis (MD&A): Section of the annual report where
management comments on the performance of the business, liquidity, asset structure,
sources and utilization of fund and future projections for company’s performance.
Market value (stock): The price at which the shares are quoted in the stock exchanges. It
indicates the price the investors are willing to pay for a share of the company.
Marketable securities: Debt and equity securities which can be readily converted to cash.
Matching: An accounting concept which requires that all the expenses incurred for generating
the revenue should be matched with the revenue in the same accounting period.
Materiality: A concept that requires the entities to disclose the items (material in nature) in
the financial statements which would effect the decision of the users of financial statements.
Maturity date: Date on which the principal and the remaining interest of a financial
instrument gets due.
Maturity value: The amount of cash the borrower or the drawer is to pay the payee on the
maturity of a loan or a debt based financial instrument.
Merchandize inventory: The inventory which is not manufactured but purchased by the
wholesalers and retailers from the suppliers and manufacturers to be resold to the
consumers.
Merger: A combination of one or more companies into a single corporate entity.
Minority interest (non-controlling interest): The amount of equity contribution made by
outside shareholders to consolidated subsidiaries that are not 100% owned by the parent
company.
Minority share of earnings: The portion of income that belongs to the minority shareholders
of a firm that has been consolidated.
Monetary assets: Cash and other assets which represent the right to receive a specific
amount of money.
Monetary liabilities: Liabilities which represent the obligation to pay a specific amount of
money at a specific date or during a specific period.
Mortgage payable: A loan secured by an asset with the asset title pledged to the lender.
Multi-step income statement: A form of the income statement that arrives at the net income
following step by step format for presenting different heads of income and expenses. This
form of income statement lists the operating revenues and expenses
N
Net assets: The excess of total assets over total liabilities (equivalent to shareholders’ equity)
Net income: The amount by the total income exceeds the total expenses. Also called net profit
or the bottom line on the income statement.
Net of tax: Reporting the items after considering the tax effects; deducting the tax element
from the figures.
Net realizable value: The amount of cash expected to be received from the sale of assets in
the normal course of business; net realizable value equals selling price less normal selling
costs for inventory and equals gross receivables less the allowance for doubtful debts in the
case of accounts or trade receivable.
Net sales: Gross sales less any allowance, discounts, rebates and returns.
Net worth: Also called shareholder’s funds or shareholders’ equity. Represent excess of assets
over the liabilities.
Nominal accounts: The name given to revenue, expense or other accounts that are closed at
the end of the accounting period.
Non-controlling interest: The term prescribed by the accounting standards to replace
“minority interest” and directs that this item be classified in the consolidated balance sheet
within equity separately from the equity of the owners of the parent.
Non-cumulative preferred stock: Preferred shares or stocks which don’t have claims on any
prior year dividends that may have been passed
Non-current assets: Assets that do not qualify as current assets. These are long-term assets
used by the business for a period exceeding one year.
Note payable: Payables in the form of a written promissory notes promising to pay a certain
amount of money in the future.
Note receivable: A receivable resulting from the acceptance of a promissory note by another
person promising to pay a certain sum of money in future.
Note: A written promise to pay signed by the debtor
Notes to financial statements: Information that clarifies and gives details of the items
presented in the financial statements.
Number of days’ sales in inventory: Measures the number of days the inventory takes to sell-
off. Calculated by dividing average inventory by average daily cost of goods sold.
O

Off-balance sheet financing: Refers to a financing arrangements used by companies to avoid

disclosing all of their debt on the balance sheet to make their financial position look stronger.
Operating leases are a typical example of off-balance sheet financing.

Operating activities: One of three major categories included in the cash flow statement;
shows the cash flows arising from the normal operations of the business.

Operating cycle: The period of time elapsing between the acquisition of goods, the sale of
goods and the final cash collection out of those sales.

Operating expenses: Consist of the selling and administrative expenses incurred during the
course of business operations.

Operating income: A measure of the result of a company’s business operations. Computed

as revenue minus cost of goods sold and operating expenses. Also called profit before interest
and taxes.

Operating lease: Periodic payment for the right to use the asset, is economically equivalent
to the rental of the leased asset. Recorded in a manner similar to the recording of rent
expense payments.

Option: Contract giving the owner the right, but not the obligation, to buy or sell a security,
commodity or currency at a specified price at a specific date or over a specified period.

Other comprehensive income: Gains or losses recorded separately after the net income is
computed and reflected in the statement of comprehensive income and statement of
changes in equity (example: foreign currency translation adjustments, pension benefits,
unrealized gains and losses from available for sale securities etc.)

Other income and expenses: Income and expenses from secondary activities of the business
not directly related to the primary operations.

Outstanding shares: The number of shares that are currently held by all its shareholders
(issued shares less treasury shares).

Owners’ equity(shareholders’ equity, stockholders’ equity): The ownership interest in the

assets of the entity remaining after deducting all its liabilities.
P

Par value: A nominal value assigned to each share of a corporation’s stock.

Parent company: A company that owes a controlling interest in another company.

Patent: An exclusive legal right granted to the inventor for a specified period by the
government and debarring others from using the invention in any way.

Payable (trade): Short-term obligations created by the acquisition of goods and services from
the suppliers like trade payable, wages payable.

Payee: The party that will receive the money from a promissory note at a future date.

Pension fund: A fund established through contributions from employers and sometimes from
employees that provides pension benefits to employees after retirement.

Pension plan: An arrangement whereby an employer provides benefits (payments) to

employees after they retire for their services rendered.

Periodic inventory system: A system of accounting for inventory in which the amount of
inventory is determined at the end of a specified period, not when the merchandize is
purchased or sold.

Perpetual inventory system: A system of accounting for inventory in which detailed records
for purchases and sales of each individual items are recorded throughout the accounting
period.

Preferred stock: Stock that has some preference over common stock usually in the event of
dividend distribution and liquidation.

Prepaid expenses: Payments made in advance for items normally charged to expense.

Price-earnings (PE) ratio: Is computed by dividing market price per share of the company by
its earnings per share. It measures the relationship between the market price of the share
and its earnings.

Promissory note: A formal written promise to pay a certain amount of money at a certain
specified future date.

Property, plant and equipment: Long term tangible assets used for business operations. It
includes land, buildings, equipment and other fixed assets used for producing goods or
services.

Provision: A liability whose timing and amount is uncertain.

Provision for doubtful debts: An estimated amount expected to be uncollectible from the
receivables charged to the income statement and in case of write offs reduced from trade
receivables.

Quarterly statements: Interim financial statements prepared on a quarterly basis.

Ratio analysis: A comparison of relationships among different account balances. It measures

the relationship between different elements of financial statements. Ratio analysis is used to
evaluate various aspects of a company's operating, investing and financial efficiency.

Raw materials: The basic materials which are used in manufacturing a product.

Realization concept: A concept in accounting which states that revenue should be recognized
only when it is earned.

Receivables: Claims arising from selling of goods or services to customers are referred to as
trade receivables. Other claims may be from sources such as loans to employees or tax refund.

Replacement cost: The cost to replace an asset.

Reporting currency: The currency used for presenting the financial statements.

Research and development (R&D): Activities undertaken to innovate or discover new

knowledge, products or apply research findings in developing new products, services,
processes, or formulate new techniques, design, and test products; build prototypes; and
operate pilot plants.

Retained earnings: The undistributed profits retained and reinvested in the business for
future growth and expansion.

Return on assets: A measure of the amount of income generated per dollar of investment in
assets.

Return on equity: A measure of the amount of profit earned per dollar of amount invested,
equal to net income divided by equity.

Return on sales: A measure of the amount of profit earned on each dollar of sales; equal to
net income divided by sales.

Residual value: The expected value of a fixed asset at the end of its useful life.
Revenue: Increase in equity as a result of selling goods or services to customers.

Revenue expenditures: Costs whose benefit is consumed only in the current period or
expenses incurred for normal day to day operations and routine maintenance of assets.

Revenue recognition: The process of recording revenue in the books; revenue should be
recognized normally when the seller has fulfilled his obligations and there is reasonable
certainty in the collection of the consideration.

Revenue recognition principle: The principle guiding the point in time at which revenue
should be recognized. The idea that revenue should be recorded when it is earned that is (1)
the earnings process has been substantially completed and (2) collection of sale consideration
is reasonably assured and the risks and rewards of ownership has been transferred to the
buyer.

Royalties: Payment made to acquire a right to use an intellectual property (patent, copyright,
natural resource) for the purpose of generating revenue other desirable purpose.

Sales mix: The relative distribution of sales among the various products available for sale.

Securities and Exchange Commission (SEC): An independent agency of the U.S. Government
that has the authority over the accounting and financial disclosures for the companies and
also regulates the issuance and trading of securities in the United States.

Selling expenses: Expenses that are incurred directly in the selling of goods.

Service business: A business engaged in providing services to customers.

Share capital: The total amount contributed by the shareholders of the business.
Share premium: The proceeds collected over and above the par value of shares from the
shareholders.

Stakeholders: All parties interested in the performance and the financial position of the
company.

Statement of changes in equity: A financial reports the changes in equity over an accounting
period. The statement lists the details of all the components of equity which together lead to
a change in the balance of equity from one period to another.

Stock split: A reduction in the par or face value of share resulting in an increase in the number
of shares outstanding keeping the amount of total issue capital remaining unchanged.

Shareholders: The owners of the company. They can be an individual, institution that legally
owns one or more shares in the company.
Shareholders’ (stockholders’) equity: Total owners’ equity of a company.

Specific identification method: Inventory valuation method which assigns the specific costs
to the specific item sold. Thus the actual cost of inventory items sold is assigned to cost of
goods sold.

Straight-line depreciation method: Depreciation expense is allocated uniformly throughout

the useful life of the asset. Computed by dividing the depreciable cost of the asset by its useful
life.

Taxable income: Income computed as per the income tax regulations which forms the basis
for calculating the income tax liability of the entity.

Trade payables: Amounts due to suppliers of goods or services, also called accounts payable.
Trade receivables: Receivables generated when goods or services are sold on credit.

Trademark: A distinctive registered name, term or symbol used to identify a business and its
products or services.

Trading securities: Debt and equity securities which are purchased with the intention of
selling them in the near future to generate profits from short-term changes in market prices.

Transactions: Monetary events which result in exchanges of goods or services

between/among two or more entities or any other event having a monetary impact on the
business enterprise.

Treasury stock: Stock issued by the company but subsequently bought back by the company
and held for possible future reissuance or retirement.

Trial balance: A list of all the accounts with their balances on a particular date.

Turnover: The sales of the goods or services by the business or other form of revenue from
operations of the business.

Useful life: Estimated number of years over which a long-term asset is expected to provide
economic benefits to the company.

Unearned revenues: Amounts received before the revenue is earned, that is before the goods
are delivered or services are rendered to the customers.
Unrealized gain or loss: The gains or losses resulting from changes in fair value of equity or
debt securities for a period.

Voucher: A source document acting as a proof or evidence that transactions had occurred.

Warranties: Guaranteed obligations of a company to offer free service, repairs on goods

failing to perform satisfactorily or to replace defective goods within a specified period of time.

Work in progress inventory: Semi-finished goods in the inventory comprise the work in
progress inventory. They refer to the raw material cost, labour cost and overhead cost which
are incurred but are associated with the products that have not been finished yet.

Working capital: The excess of current assets over the current liabilities of the business. This
is the capital which is used for day to day operations of the business.

Written down value: Also called the net book value of the assets. It is cost of the asset less
accumulated depreciation and impairment .