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Advanced Accounting Terms Final 18
Advanced Accounting Terms Final 18
Commerc
e
Chapter # 1
Joint Stock Company:
It may be defined as an artificial person recognized by law, with a distinctive name, a common
seal, a common capital comprising transferable shares carrying limited liability and having a
perpetual succession.
Perpetual Existence:
A joint stock company has long life compared to other forms of business organizations. When
company is formed and commences business, it has then a continuous life. The shareholders can
come or go.
Common Seal:
Joint stock company is an artificial person created by law, it therefore cannot sign documents for
itself. The common seal with the name of the company engraved on it is, therefore, used as a
substitute for its signature.
Memorandum of Association:
It is the basic document of the company. It is known as the charter of the company. It contains
the fundamental conditions upon which alone company can be incorporated. It sets out the
limited outside which the action of the company cannot go.
Articles of Association:
It is second important document in the incorporation of a company. It contains the rules and
regulations for the internal management of the company.
Prospectus:
It is a valuable document issued by the company for raising of the capital.
Object of Prospectus:
The object of prospectus is to arouse the interest of the investors in the proposed company and to
induce them to invest in its shares and bonds etc.
Shares:
The total capital of the company is divided into smaller United. Each unit is called a share.
Bonus Shares:
The shares issued to its shareholders by the company from its accumulated profits and reserves,
free of cost are known as bonus shares.
Right Shares:
An option to buy a share at a specified price during specified period.
Or
Right shares are the shares which are issued to the existing shareholders under such pre-emotive
right.
Share Capital:
The total capital of the company is divided into large number of shares. The sum or total of the
par value of these shares is called share capital.
Authorized Capital:
It is the amount of capital with which the company is registered. This capital is mentioned in the
memorandum of association. This capital is also known as nominal capital or registered capital.
Issued Capital:
Shares offered to the general public for contribution are known as shares issued.
Subscribed Capital:
Out of the total number of shares offered (issued) by the company, that number of shares which
are taken up by the public are known as shares subscribed. The total par value of such share is
called subscribed capital.
Called up Capital:
A company may require the payment of the par value either in installments or in one lump sum.
This amount is known as called up capital.
Un-called up Capital:
Advance Capital:
Sometimes, the shareholders pay more than the called up capital, the excessive amount is known
as advance paid up capital.
Reserve Capital:
It is the portion of the subscribed capital which the company, through a special resolution,
reserve to call in the event of winding up.
Over Subscription:
Over subscription mean to receive more applications than the shares offered to general public.
Under Subscription:
Under subscription means to receive less applications than the shares offered to general public.
Preliminary Expenses:
These are the expenses which are incurred in the initial stages of incorporation. E.g., legal fees,
remuneration of promoters, cost of preparing and printing of various documents etc.
Underwriting Commission:
The commission which is paid to underwriter, to take the risk of unsold shares is known as
underwriting commission.
Chapter # 2
Debentures:
Any written document evidencing the indebtedness of a company is known as debenture. It
includes debenture stock, bonds, term finance certificates etc.
Collateral Security:
Collateral security means additional security which becomes effective only in the event of the
loan not being paid when it becomes due. The debentures are also issued as collateral security for
a loan taken from a bank.
Term Debentures:
When all the debentures of an issue mature at the same time, they are called term debentures.
Serial Debentures:
If the maturities of the debentures are spread over several dates, they are called serial debentures.
Redemption of Debentures:
Redemption of debentures means discharging the liability on account of debentures.
I. Redemption of Debentures out of Profit
II. Redemption of debentures out of capital
III. Redemption of debentures out of sinking fund
IV. Redemption of debentures out of cumulative fund
V. Redemption of debentures out of Non-cumulative sinking Fund
VI. Redemption of debentures by insurance policy
VII. Redemption of debentures by conversion
Ex-Interest Price:
In case the price quoted is ex-interest, it means that the company will have to pay the seller
besides the price for debentures, interest for the period for which the seller held the debentures.
Cum-Interest Price:
In case the price quoted by the seller is cum-interest, it means that the price quoted is inclusive of
the interest for the period for which the seller held the debentures.
Chapter # 3
Trading Account:
It is prepare to find out the gross profit or gross loss of a business.
Gross Profit:
Gross profit is the excess of net sales over its cost of goods sold with the involvement of
adjustment in stocks.
Dividend:
Dividend is a distribution of earning made to shareholders in proportion to the number of shares
owned.
Stock Dividend:
A distribution of corporate earning to stockholders, made in the form of additional shares of
stock in the proportion of their existing shares. Its basic purpose is to give shareholders evidence
of earning without the movement of cash.
Interim Dividend:
A dividend paid by the company during the course of its financial year, is called interim
dividend.
Scribed Dividend:
Scribe dividend is synonym for bonus issue, sometimes companies issue shares and debentures
as dividend which is known as scribe dividend.
Sinking Fund:
A fixed amount is drawn from available profit and then invested in some business and this
investment is realized at the time of redemption of debentures. This fund is known as sinking
fund.
Patents:
Legal rights given to an inventor for the use of his idea (registered with his name).
Copy Right:
Right to publish and control specific literary material granted by law.
Trade Mark:
A symbol, insignia or name that identifies a company.
Deferred Cost:
An advance payment which has been paid for goods and services which are to be supplied latter
or where benefit is to be felt later. These payments are expected to convert into expenses after
normal operation of business.
Capital Reserve:
A reserve which is not available for distribution e.g., share premium, capital redemption reserve
etc.
Capital Redemption Reserve:
It arises when a company buys or redeems its own shares
Un-appropriated Profit:
That part of the profit which has not been transferred to some specific purpose. It is available for
dividend distribution.
Proposed Dividend:
Amount of dividend presented in Annual general meeting for approval to be paid to the existing
shareholders is known as proposed dividend.
Chapter # 4
Ratio:
Ratio is the numerical relationship between two variables which are connected with each other in
some way or the other.
Accounting Ratios:
The term accounting ratios is used to describe significant relationship which exists between
figures shown in a balance sheet, in a profit and loss account, in a budgetary control system or in
any other part of the accounting organization.
Inter-Statement Ratios:
Liquidity Ratios:
Liquidity ratios are the ratios meant for testing short term financial position of a business. These
are designed to test the ability of the business to meet its short term obligations promptly. E.g.
Current ratios, quick ratios, absolute liquid ratios etc
Solvency Ratios:
Solvency ratios are also known as leverage ratios. These are meant for testing long term financial
soundness of any unit. E.g. Debt to Equity Ratio, Capital Gearing Ratio etc
Efficiency Ratios:
Efficiency ratios are also known as activity ratios. These are meant to study the efficiency with
which the resources of the unit have been used. These are also popularly known as turnover
ratios. E.g. Inventory turnover ratio, return on investment etc.
Chapter # 5
Department:
A department, is usually, a unit of the rest of the business and functions as a physical part of it.
Each department is considered a separate profit center. Though geographically, each department
is an integral part of the rest of the departments.
Departmental Account:
Departmental accounts show the profit or loss of each department. These are prepared In
columnar form.
Chapter # 6
Branch:
A section of an enterprise that is geographically separated from the rest of the business. The
activities of branch are controlled by head office and usually it carries on the same functions as
of the enterprise.
Dependent Branch:
When the policies and administration of a business are totally controlled by the head office, who
also maintains its accounts, the branch is called a dependent branch.
Service Branch:
This branch executes or books orders on behalf of the head office. This branch maintains
expenditure accounts for salaries, wages and miscellaneous expenses etc. the branch manager is
generally provided small fund to meet items of expenses.
Debtors System:
This method is suitable for the small size branches. Under this a branch account is opened for
each branch in the head office ledger. All transactions relating to that branch are recorded in this
account.
Independent Branch:
The branch which establishes its own double entry book-keeping system quite separate from
head office, is known as independent branch.
Goods-in-transit:
The goods which are on the way to the branch/head office are called goods-in-transit.
Cash-in-transit:
The cash which is on the way to branch/head office is called cash-in-transit.
Detailed Incorporation:
Under this method, incorporation is done with a view to prepare branch trading and profit and
loss account in the books of head office. Head office opens a separate branch trading and profit
and loss account to incorporate all revenue transactions of the branch.
Abridged Incorporation:
Under this method, a memorandum trading and profit and loss account is prepared for
ascertaining branch profit. Only one entry is passed for incorporating branch net profit/loss.
Foreign Branch:
When a branch is established abroad, it is called a foreign branch. The accounting arrangements
for a foreign branch are exactly the same as for any independent branch, up to the trial balance.
The trial balance of the ranch is translated into the currency of head office.
Chapter # 7
Consignment:
Consignment is an act of sending the goods by the owner (manufacturer or whole seller) to his
agent, who agrees to collect, store and sell them on the risk and behalf of the owner on
commission basis.
Consignor:
The manufacturer or wholesaler who sends his goods to his agent for sale is known as consigner.
Consignee:
The person to whom goods are sent for sale purpose is known as consignee.
Consignment Inward:
When goods are dispatched by the consigner to the consignee, it will be a consignment inward
from consignee's view point.
Consignment Outward:
When goods are dispatched by the consigner to the consignee, it will be a consignment outward
from consigner's view point.
Account Sales:
It is a report prepared by consignee and sent to the consigner, periodically, which shows the
detail about the sale of goods; the price at which goods are sold; expenses paid by the consignee
on behalf of consigner; agents commission and the net balance for which he is liable.
Performa Invoice:
It is a forwarding letter sent by consigner to consignee along with the goods containing
particulars as to the name of the item, number (quantity or weight or measurement) and the price.
Commission:
In connection with the consignment, the remuneration of the consignee for selling the goods of
the consigner is called commission.
Delcredre Commission:
The additional commission which is paid to consignee, If loss on account of bad debts is borne
by him.
Overriding Commission:
It is normally granted by consigner when he desires his agent to work hard to push a new line of
product in the market.
Consignment Account:
This is by nature a profit and loss account. All expenses related to consignment are debited and
all revenues are credited to this account. The difference between the two sides of this account
shows the result of particular consignment.
Chapter # 8
Contract:
"Making an agreement in business to do certain work for consideration"
Contractor:
A person who agrees to do certain work for someone is called contractor.
Contractee:
A person for whom some work is being done is called contractee.
Contract Account:
"The systematic recording of the work done under each contract for a third party in consideration
who agrees to pay a fixed sum of money at the completion of full work or part payment after the
work is completed partially and is being certified / approved by the architect or surveyor".
Extras:
The additional amount which is paid to contractors for some additions and alterations to be made
in the work originally agreed to be done under contract is known as extras.
Sub-contract:
The transfer of some portion of the work to be done under contract to a sub-contractor is known
a sub-contract e.g., steel work, special flooring etc.
Escalation Clause:
Escalation clause is usually provided in the contract as a safeguard against any likely changes in
the price or utilization of material and labor. Such a clause safeguards the interest of both the
contractor and contractee in case of fluctuations in the prices of material and labor etc.
Work Certified:
The work approved by the contractee's architect in case of contract is known as work certified.
Work Uncertified:
The work which is not approved by the contractee's architect is known as work certified.
Retention Money:
The difference between the amount of work certified and the amount actually paid on the basis of
work certified to the contractor is known as retention money.
Work-In-Progress:
The work-in-progress includes the amount of work certified and the amount of work uncertified.
It appears on the asset side of balance sheet. The amount of cash received from the contractee
and reserve for contingencies will be deducted out of this amount.
Chapter # 9
Hire Purchaser:
Hire purchaser or hirer is a person who acquires or obtains the possession of goods (assets) from
the seller (owner) under hire purchase agreement.
Cash Price:
Cash means the price at which the goods maybe purchased by the hire purchaser for immediate
cash payment.
Down Payment:
This is the initial amount paid by the hire purchaser at the time of signing the hire purchase
agreement.
Installment:
It is the sum, inclusive of interest together with principal amount, paid at the end of the period as
agreed.
Sales Method:
Under this method, hire purchase sale is treated as a credit sale. The only exception is that the
vendor agrees to accept payments in installments and for that he charges interest.
Repossession:
The act of recovery of possession of the asset due to non-payment of installments by the hire
purchaser to hire vendor is known as repossession.
Complete Repossession:
In such case the hire vendor closes the hire purchasers account in his books by transferring the
balance of the hire purchaser account to the goods repossessed account; and the hire purchaser
closes the hire vendor account in his books by transferring the balance of the hire purchase assets
account to hire the hire vendor account.
Partial Repossession:
In case of partial repossession of goods, only a part of the asset is taken back by the hire vendor
and the other part is left with the hire purchaser. As the portion of the asset is still left with the
hire purchaser, neither party closes the accounts of the other in their respective books.
Stock at Shop:
It is the physical value of unsold goods lying in the godown of the retailer. It is not used within
the ascertainment of profit or loss arising out of the hire purchase transaction.
Leasing:
In leasing the lesser transfers the rights of using an asset to lessee for a specific period of time.
The ownership of asset remains with the lesser. The lessee pays the lease rentals according to
agreed terms.
Chapter # 10
Joint Venture:
It is sometimes in the mutual benefit of two or more persons or firms to run a specific business
venture together instead of doing it separately. These are known as joint ventures.
Co-venturers:
The persons involved in joint ventures are known as co-venturers.
Memorandum Method:
Under this method, each venturer records only such transactions of the venture which effect him
personally. Joint venture account is written up on the bases of personal accounts maintained by
the venturers. In this case joint venture account is maintained on memorandum basis.
Chapter # 11
Amalgamation:
An amalgamation refers to the merger of two or more existing companies into a single new
company. In this case, none of the amalgamating companies legally survive and a new company
Purchase Consideration:
Purchase consideration is the amount which is paid by the purchasing company for the purchase
of the business of the vendor company.
Chapter # 12
Liquidation of Companies:
Liquidation or winding up of a company is a process by which dissolution of a company is
brought about and it's property is administered for the benefit of its credited and members. An
administrator called liquidator is appointed who takes over the control of the company, collects
its assets, pays its debts and finally distributes the surplus among its members in accordance with
their rights.
Liquidator:
Modes of Liquidation:
A company can be wound up in any of the following three ways;
1: Compulsory winding up under order of the court,
2: Voluntary winding up, and
a) Member Voluntary b) Creditors Voluntary
3: Winding up under the supervision of the court.
Statement of Affairs:
Where the court has made a winding up order or appointed an official liquidator or provisional
manager there shall be made out and submitted to the official liquidator or provisional manager a
statement as to the affairs of the company in the prescribed form, verified by an affidavit is
known as statement of affairs.
Unsecured Creditors:
The creditors which are not secured against the assets of the company are known as unsecured
creditors.
Preferential Creditors:
The creditors which the company pays before the payment of unsecured creditors. E.g., rent
payable, wages payable etc.