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1. definition of accounting: ³the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of a financial character and interpreting the results there of´. 2. book keeping: It is mainly concerned with recording of financial data relating to the business operations in a significant and orderly manner. 3. Branches of accounting a. financial accounting b. management accounting 4. Concepts of accounting: A. separate entity concept C. money measurement concept E. dual aspect concept G. periodic matching of costs and revenue concept 5 Conventions of accounting A. conservatism B. full disclosure C. consistency D 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 Credit the giver b. real a/c : debit what comes in Credit what goes out c. nominal a/c : debit all expenses and losses credit all gains and incomes 9. Meaning of journal: journal means chronological record of transactions. 1 B. going concern concept D. cost concept F. accounting period concept H. realization concept.

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 a/c 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 a/c 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.promisory note: an instrument in writing containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument. 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 & 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. 2

25. Revenue expenditure: an expenditure that incurred in the course of regular business transactions of a concern. 26. Differed revenue expenditure: an expenditure which is incurred during an accounting period but is applicable further periods also. Eg: heavy advertisement. 27. Bad debts: bad debts denote the amount lost from debtors to whom the goods were sold on credit. 28. Depreciation: depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear, technology changes, laps of time and accident. 29. Fictitious assets: These are assets not represented by tangible possession or property. Examples of preliminary expenses, discount on issue of shares, debit balance in the profit and loss account when shown on the assets side in the balance sheet. 30.Intanglbe Assets : Intangible assets means the assets which is not having the physical appearance. And its have the real value, it shown on the assets side of the balance sheet. 31. Accrued Income: Accrued income means income which has been earned by the business during the accounting year but which has not yet been due and, therefore, has not been received. 32. Out standing Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm. 33. Suspense account: the suspense account is an account to which the difference in the trial balance has been put temporarily. 34. Depletion: it implies removal of an available but not replaceable source, Such as extracting coal from a coal mine. 35. Amortization: the process of writing of intangible assets is term as amortization. 36. Dilapidations: the term dilapidations to damage done to a building or other property during tenancy. 37. Capital employed: the term capital employed means sum of total long term funds employed in the business. i.e. (share capital+ reserves & surplus +long term loans ± (non business assets + fictitious assets) 38. Equity shares: those shares which are not having pref. rights are called equity shares.


39. Pref.shares: Those shares which are carrying the pref.rights is called pref. shares Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the even of company winding up. 40. Leverage: It is a force applied at a particular point to get the desired result. 41. Operating leverage: the operating leverage takes place when a changes revenue greater changes in EBIT. in

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 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 ³non-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 ³A 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.


61. Characteristics of a company: Voluntary association Separate legal entity Free transfer of shares Limited liability Common seal Perpetual existence. Companies limited by shares b. Authorized share capital: it is the maximum amount of the share capital which a company can raise for the time being. 56. government company 3. private company E. is which by its AOA: Restricts the right of the members to transfer of shares Limits the no. Paid up capital: It is the portion of the called up capital against which payment has been received. 57. Subscribed capital: it is the part of the issued capital which has been allotted to the public 63. 5 . of members 50.54. 64. 60. Unlimited companies D. Formation of company: Promotion Incorporation Commencement of business 59. is called a public company. Companies limited by guarantee c. Private company: A private co. Issued capital: It is that part of the authorized capital which has been allotted to the public for subscriptions. Types of a company: 1. Equity share capital: The total sum of equity shares is called equity share capital. foreign company 4. Public company: A company. 58.. the articles of association of which does not contain the requisite restrictions to make it a private limited company. public company 55. Registered companies: a. Prohibits any Invitation to the public to subscribe for its shares or debentures. 62. Called up capital: It has been portion of the subscribed capital which has been called up by the company. Statutory companies 2.

Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c or group of accounts so that the existence of the reserve is not known such reserve is called an undisclosed reserve. Profit maximization: the finance manager has to make his decisions in a manner so that the profits of the concern are maximized. In such a situation. 66. Objectives of financial management: financial management having two objectives that Is: 1. accepting deposits from the investors 68. no restriction of the transferable of shares 4. 72.. 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. net assets position of the business is stronger than that disclosed by the balance sheet. These reserves are crated by: 1. Provision: provision usually means any amount written off or retained by way of providing depreciation. Cash profit: cash profit is the profit it is occurred from the cash sales. 74. 5. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt due by it to its holder. Complete elimination of an asset. 71. 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. Reserve fund: the term reserve fund means such reserve against which clearly investment etc. Deemed public Ltd.65. 73. of members. excessive over-valuation of a liability. Company: A private company is a subsidiary company to public company it satisfies the following terms/conditions Sec 3(1)3: 1. 6 . No restriction of no. 69. having minimum share capital 5 lakhs 2. 67. 2. accepting investments from the public 3. Excessive dep. finance management: financial management deals with procurement of funds and their effective utilization in business.of an asset. or under valuation of an asset. Secret reserves: secret reserves are reserves the existence of which does not appear on the face of balance sheet.

85. Pay back period: payback period represents the time period required for complete recovery of the initial investment in the project. Or decision making with regard to investment of money in long term projects. ARR: accounting or average rate of return means the average annual yield on the project. Wacc: it denotes weighted average cost of capital. 77. 78. 83. preference capital and equity capital. 86. 79. 81. 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. Capital structure: it refers to the mix of sources from where the long-term funds required in a business may be raised. Wealth maximization: wealth maximization means the objective of a firm should be to maximize its value or wealth. It is defined as the overall cost of capital computed by reference to the proportion of each component of capital as weights. 80. it refers to the proportion of debt. IRR: internal rate of return is the rate at which the sum total of discounted cash inflows equals the discounted cash out flow.2. Capital budgeting: capital budgeting involves the process of decision making with regard to investment in fixed assets. 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. 7 . or value of a firm is represented by the market price of its common stock. Financial break even point: it denotes the level at which a firm¶s EBIT is just sufficient to cover interest and preference dividend. in other words. Functions of financial manager: Investment decision Dividend decision Finance decision Cash management decisions Performance evaluation Market impact analysis 76. 75. Time value of money: the time value of money means that worth of a rupee received today is different from the worth of a rupee to be received in future. 82. Profitability index: where different investment proposal each involving different initial investments and cash inflows are to be compared.

Marketable securities: surplus cash can be invested in short term instruments in order to earn interest. 90. 95. 89. 91. issued at a discount on face value as may be determined by the issuing company. 99. 101. 92. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to overdraw from his account.87. where in securities are issued on the basis of a package of assets (called asset pool). 98. 8 . 94. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit against credit granted by bank. 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. Share capital: The sum total of the nominal value of the shares of a company is called share capital. 96. Ageing schedule: in a ageing schedule the receivables are classified according to their age. negotiable by endorsement and delivery. 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. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its views by another party (lessee) over a specified period 97. Debt securitization: It is a mode of financing. 88. Maximum permissible bank finance (MPBF): it is the maximum amount that banks can lend a borrower towards his working capital requirements. Commercial paper: a cp is a short term promissory note issued by a company. in the normal course of business. 93. Treasury management: it means it is defined as the efficient management of liquidity and financial risk in business. 100. but not back by any tangible security. Trade Credit: It represents credit granted by suppliers of goods. Clean overdraft: It refers to an advance by way of overdraft facility. Concentration banking: it means identify locations or places where customers are placed and open a local bank a/c in each of these locations and open local collection centre.

Public deposits: It is very important source of short term and medium term finance. 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. Application of funds: (a) Purchase of fixed assets (b) Payment of dividend (c)Payment of tax liability (d) Payment of fixed liability 105. profit on revaluation of fixed assets External sources: (a) Funds from long term loans (b) Sale of fixed assets (c) Funds from increase in share capital 104. 107. For example 6 months or less from another company which have surplus liquidity. just like rupee loans. It has the maturity period of 6 months to 3 years. dominated in us dollars that represents a non-US company publicly traded in local currency equity shares. ADR (American depository receipts): Depository receipt issued by a company in the USA are known as ADRs. The company can accept PD from members of the public and shareholders. 103. The subscription can come from any part of the world except India. Sources of funds: There are two sources of funds Internal sources and external sources. The banks also provided overdraft. 108. 109. 106.Euro issues: The euro issues means that the issues is listed on a European stock Exchange. Loss on sale of fixed assets Deduct the following items as they do not increase the funds: Profit on sale of fixed assets. It explains how the funds obtained and how they used. 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 on fixed assets (b) Preliminary expenses or goodwill written off. 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.102. Such deposits made by one company in another company are called ICD.GDR (Global depository receipts): A depository receipt is basically a negotiable certificate . 110. ICD (Inter corporate deposits): Companies can borrow funds for a short period. Funds flow statement: It is the statement deals with the financial resources for running business activities.Commercial banks: Commercial banks extend foreign currency loans for international operations. 9 .

investments 118. 125. current of new allows for budget reductions and expansions in a rational manner and allows reallocation of source from low to high priority programs. 114. 10 . Fixed budget: It is a budget which is designed to remain unchanged irrespective of the level of activity actually attained. 120. provide indirect assistance for obtaining foreign currency. 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. 121.IBRD. 116. 123.International agencies: International agencies like the IFC.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 long term loans (c)Short-term borrowings (d)Sale of fixed assets.112. Goodwill: The present value of firm¶s anticipated excess earnings. 115. 124. Budgetary control: It is the system of management control and accounting in which all operations are forecasted and so for as possible planned ahead. 117.IMF etc. 122. Cash budget: It is a summary statement of firm¶s expected cash inflow and outflow over a specified time period. Application of cash: (a) Purchase of fixed assets (b) Payment of long-term loans (c) Decrease in deferred payment liabilities (d) Payment of tax. Cash flow statement: It is a statement depicting change in cash position from one period to another.ADB.budgeting: It is a management tool which provides a systematic method for evaluating all operations and programmes. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for professionally or technically qualified entrepreneurs and persons possessing relevant experience and skills and entrepreneur traits. It is an estimate prepared in advance of the period to which it applies. and the actual results compared with the forecasted and planned ones. Budget: It is a detailed plan of operations for some specific future period. dividend (e) Decrease in unsecured loans and deposits 119.base. Zero. Unsecured l0ans: It constitutes a significant part of long-term finance available to an enterprise.Development banks: It offers long-term and medium term loans including foreign currency loans 113.

131. 140. office cost is arrived at. Cost centre: A location. 136. This cost is also known as works cost or production cost or manufacturing cost. Components of total costs: production (D) Total c0st (A) Prime cost (B) Factory cost (C)Total cost of 135. service or time in relation to which costs may be ascertained or expressed. It is a system of control by delegating and 129. controlling and reducing such costs and furnishing of information management for decision making. 133. 130. Cost unit: A unit of quantity of a product. 132. Profit centre: A centre whose performance is measured in terms of both the expense incurs and revenue it earns. Total cost: Selling and distribution overheads are added to total cost of production to get the total cost or cost of sales. 127. BRS: It is a statement reconciling the balance as shown by the bank pass book and balance shown by the cash book. Cost of production: in office and administration overheads are added to factory cost. 128. 137. Responsibilities of accounting: locating the responsibilities for costs. Prime cost: It consists of direct material direct labour and direct expenses. in addition factory overheads which include cost of indirect material indirect labour and indirect expenses incurred in factory. 138. person or item of equipment for which cost may be ascertained and used for the purpose of cost control. Cost: The amount of expenditure incurred on to a given thing. Factory cost: It comprises prime cost. and summarizing costs for determination of costs of products or services planning. 139. It is also known as basic or first or flat cost. 11 .126. Elements of cost: (A) Material (B) Labour (C) Expenses (D) Overheads 134. Cost accounting: It is thus concerned with recording.Methods of costing: (A)Job costing (B)Contract costing (C)Process costing (D)Operation costing (E)Operating costing (F)Unit costing (G)Batch costing. classifying. 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.

It is also referred to as the option premium. materials. 12 . 150. labour. Cost of carry: the relation between future prices and spot prices can be summarized in terms of what is known as cost of carry. The option holder option may exercise or not. European option: it is the option at exercised only on expiration date it self. 154. 153. Techniques of costing: costing (d) uniform costing. 147.. Put option: a put option gives the holder the right but not obligation to sell an asset by a certain date for a certain price. Standard costing: standard costing is a system under which the cost of the product is determined in advance on certain predetermined standards. 144. 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. 151.e. 143. Option price: option price is the price which the option buyer pays to the option seller. 156 Maintenance margin: this is somewhat lower than initial margin. 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. Future contracts are standardized exchange traded contracts. 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. i. 149. 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. Basis: basis means future price minus spot price. Options: an option gives the holder of the option the right to do some thing. 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. 152. direct expenses and variable overheads. Expiration date: the date which is specified in the option contract is called expiration date. 145. (a) marginal costing (b) direct costing (c)absorption 142. 155. Derivative: derivative is product whose value is derived from the value of one or more basic variables of underlying asset. 146.141.

advantage of MF to investors : y Portfolio diversification y Professional management y Reduction in risk 13 . It reflects the costs faced when actually trading in index. Impact cost: impact cost is cost it is measure of liquidity of the market. 162.157. mutual fund : a mutual fund is a pool of money. Hedging: hedging means minimize the risk. Baskets: basket options are options on portfolio of underlying asset. 161.secondary market. 163. 165. In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio. Meaning of ratio: Ratios are relationships expressed in mathematical terms between figures which are connected with each other in same manner. Secondary market: secondary market is the market where shares buying and selling. 159. 167. Activity ratio: it is a measure of the level of activity attained over a period. 160. This is called mark to market. and is invested according to certain investment objectives. 164. 169. 168.primary market 2. It consists of two markets 1. collected from investors. at the end of the each trading day. In India secondary market is called stock exchange. Primary market: those companies which are issuing new shares in this market. Swaps: swaps are private agreements between two parties to exchange cash flows in the future according to a pre agreed formula. Mark to market: in future market. Capital market: capital market is the market it deals with the long term investment funds. 158. 166. the margin a/c is adjusted to reflect the investors¶ gains or loss depending upon the futures selling price. Arbitrage: it means purchase and sale of securities in different markets in order to profit from price discrepancies. It is also called new issue market. characteristics of mutual fund : y Ownership of the MF is in the hands of the of the investors y MF managed by investment professionals y The value of portfolio is updated every day 170.

174. 176.growth option : investors who do not require periodic income distributions can be choose the growth option.y y y Reduction of transaction casts Liquidity Convenience and flexibility 171. gilt funds : gilt funds invests only in securities that are issued by the GOVT. Any further transaction for buying the units or repurchasing them. 14 .debt funds : the debt funds are those that are pre-dominantly invest in debt securities. directly from the fund this is called open ended fund. dividend option : investors who choose a dividend on their investments. happen. and therefore does not carry any credit risk. 181. at NAV related prices at any time. unit 64 173. 179. and invests in these companies 180. liquid funds : the debt funds invest only in instruments with maturities less than one year. in the secondary markets. as when such dividends are declared.types of equity funds : y Simple equity funds y Primary market funds y Sectoral funds y Index funds 178.index funds :the fund manager takes a view on companies that are expected to perform well. fund : open ended funds means investors can buy and sell units of fund. will receive dividends from the MF. after which further sales are closed. For ex.close ended funds : close ended funds means it is open for sale to investors for a specific period. sectoral funds : sectoral funds choose to invest in one or more chosen sectors of the equity markets. 182. 175.equity funds : equity funds are those that invest pre-dominantly in equity shares of asset value : the value of one unit of investment is called as the Net Asset Value 172.

190. 188. 197. sponsor : sponsor is the promoter of the MF and appoints trustees. is usually a percentage of the face value of a share. custodians : custodians are responsible for the securities held in the mutual fund¶s portfolio. market risk : it refers to the risk which the investor is exposed to as a result of adverse movements in the interest rates.meaning of load: load is the factor that is applied to the NAV of a scheme to arrive at the price. 196. trustee : trustee is responsible to the investors in the MF and appoint the AMC for managing the investment portfolio. market capitalization : market capitalization means number of shares issued multiplied with market price per share. This option hives the issuer the right to call back the bonds prior to maturity. 198. call risk : call risk is associated with bonds have an embedded call option in them. credit risk : credit risk refers to the probability that a borrower could default on a commitment to repay debt or band loans 15 . 192. 185.price earning ratio : the ratio between the share price and the post tax earnings of company is called as price earning ratio. as they maintain the records of investors in MF. 189. custodians and the AMC with prior approval of SEBI . 187. dividend yield : the dividend paid out by the company. 184. scheme take over : if an existing MF scheme is taken over by the another AMC. 195.183. It also referred to as the interest rate risk. 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. AMC : the AMC describes Asset Management Company. it is the business face of the MF. 193.balanced funds :funds that invest both in debt and equity markets are called balanced funds. R & T Agents : the R&T agents are responsible for the investor servicing functions. it is called as scheme take over. as it manages all the affairs of the MF. 186. 194.

liquid risk : it is also called market risk. 204. Group depreciation method b. Double declining method 3.drawings : drawings denotes the money withdrawn by the proprietor from the business for his personal use. Insurance policy method.199. it refers to the ease with which bonds could be traded in the market. Annuity method d. therefore.Unirorm charge methods : a. has not been received.Sum of years digits method c.Accrued Income : Accrued Income means income which has been earned by the business during the accounting year but which has not yet become due and. Fixed installment method b . 203. Declining charge methods : a. Inventory system of depreciation c. Formula : Gross profit X100 Net sales 208. 205.inflation risk : inflation risk reflects the changes in the purchasing power of the cash flows resulting from the fixed income security.Gross profit ratio : it indicates the efficiency of the production/trading operations. 206. 201. 200. Methods of depreciation : 1. Diminishing balance method b. 202.Depletion method c.outstanding Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm. 207.Net profit ratio : it indicates net margin on sales Formula : Net profit X 100 Net sales 16 . Depreciation fund method e. 2. Other methods : a.closing stock : The term closing stock means goods lying unsold with the businessman at the end of the accounting year.Outstanding Expenses : Outstanding Expenses refer to those expenses which have become due during the accounting period for which the Final Accounts have been prepared but have not yet been paid. Machine hour rate method.

May also be used to measure the rate of return expected by investors. Formula : Current Assets Current Liabilities 214. Formula : Liquid Assets Current Liabilities 17 . Formula Fixed Assets Long-term Funds 216 . return on share holders funds : it indicates measures earning power of equity capital. price earning ratio : it a measure for determining the value of a share. Formula : profits available for Equity shareholders X 100 Average Equity Shareholders Funds 210.Current ratio : it measures short-term debt paying ability. Formula : profits available for Equity shareholders Number of Equity shares 211.209. Formula : Market price of share (MPS) X 100 Earning per share (EPS) 213.dividend yield ratio : it shows the rate of return to shareholders in the form of dividends based in the market price of the share X 100 Formula : Dividend per share Market price per share 212.Fixed Assets ratio : This ratio explains whether the firm has raised adepuate longterm funds to meet its fixed assets requirements. Debt-Equity Ratio : it indicates the percentage of funds being financed through borrowings. The ratio is ascertained y comparing the liquid assets to current liabilities. a measure of the extent of trading on equity. Quick Ratio : The ratio termed as µ liquidity ratio¶. Formula : Total Long-term Debt Shareholders funds 215. Earning per Equity share (EPS) : it shows the amount of earnings attributable to each equity share.

217. It indicates the percentage of return on the total capital employed in the business. The ration helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales. This ratio indicates whether or not working capital has been effectively utilized in making sales. Stock turnover Ratio : the ratio indicates whether investment in inventory in efficiently used or not. Formula : Credit Purchases Average Accounts Payable 220. Working capital turnover ratio: it is also known as Working Capital Leverage Ratio. Formula : cost of goods sold Average stock 218. 18 .Pay-out Ratio : This ratio indicates what proportion of earning per share has been used for paying dividend. therefore explains whether investment in inventory within proper limits or not.Fixed Assets Turnover ratio : This ratio indicates the extent to which the investments in fixed assets contributes towards sales.Creditors Turnover Ratio : it indicates the speed with which the payments for credit purchases are made to the creditors. It.Overall Profitability Ratio : It is also called as ³ Return on Investment´ (ROI) or Return on Capital Employed (ROCE) . Formula : Dividend per Equity Share X 100 Earning per Equity share 223. Formula : Net Sales Fixed Assets 222 . Formula : Credit sales Average Accounts Receivable Debt collection period is calculated by any of the following ratios: I) Month/day in a year ii) average debtor* months/days Debtors turn over net credit sales for the year 219. since it would indicate that debts are being collected more promptly. Formula : Net Sales Working Capital 221. Debtors Turnover Ratio : the ratio the better it is.

the business transactions are recorded under cash system In the partnership. Formula : Net Profit after Interest and Tax Preference Dividend 226. Debt Service Coverage ratio : This ratio is explained ability of a company to make payment of principal amounts also on time. In the partnership.  In the joint venture.e. share capital +reserves &surplus +long term loans ±(non business assets + fictitious assets).Formula : Operating profit Capital employed X 100 The term capital employed has been given different meanings a. It indicates whether the business would earn sufficient profits to pay periodically the interest charges.Tax rate 227. sum total of all assets whether fixed or current b. the business transactions are recorded under mercantile system. c. It establishes relationship between the proprietor¶s funds and the total tangible assets. sum total of fixed assets.Difference between joint venture and partner ship :  In joint venture the business is carried on without using a firm name. Proprietary ratio: It is a variant of debt-equity ratio .. i. Formula : Income before interest and Tax Interest Charges 225 . Formula : Net profit before interest and tax Interest + Principal payment installment 1. Operating profit means µprofit before interest and tax¶ 224 . profit and loss is ascertained on completion of the venture 19 . sum total of long-term funds employed in the business. Formula : Shareholders funds Total tangible assets 228.  In the joint venture. Fixed Dividend Cover ratio : This ratio is important for preference shareholders entitled to get dividend at a fixed rate in priority to other shareholders. Fixed Interest Cover ratio: the ratio is very important from the lender¶s point of view. the business is carried on under a firm name.

9. Dual aspect concept :. 230. more than this period reduces the utility of accounting data. 4.e. an asset is recorded in the books at the price paid to acquire it and that this cost is the basis for all subsequent accounting for the asset. This is called double entry. 20 . Accounting period concept :. Going concern concept :. it is confined to a particular operation and it is temporary.In the partner ship . 2. Realization concept :. the business is treated as a separate entity distinct from its owners and others. profit and loss is ascertained at the end of each year. there will be two aspects ± the receiving aspect and the giving aspect. 8. Also represented by the excess of current assets over current liabilities . as per only important information will be taken. Business entity concepts :. revenue is considered as being earned on the data which it is realized. the date when the property in goods passes the buyer and he become legally liable to pay.concepts of accounting : 1.. Normally accounting period adopted is one year. Matching concepts :.This concept says that the accounting records only those transactions which can be expressed in terms of money only.The cost or expenses of a business of a particular period are compared with the revenue of the period in order to ascertain the net profit and loss. it is confined to a particular operation and it is permanent 229.It means the final accounts must be prepared on a periodic basis. Money measurement concept :. Cost concept :-According to this concept. it is assumed that a business has a reasonable expectation of continuing business at a profit for an indefinite period of time. 6. In the partnership. i. both are recorded by debiting one accounts and crediting another account.  In the joint venture. 3. Meaning of Working capital : The funds available for conducting day to day operations of an enterprise. 7.According to this concept. 5.In every transaction.It is a one of the accounting principle. Materiality concepts :.According to this concept. and un important information will be ignored in the preparation of the financial statement.According to this concepts.

Opportunity cost : The cost associated with not doing the term accrual : Recognition of revenues and costs as they are earned or incurred . tangible and intangible assets. it is assets are surrendered to court for administration 235 . present. 241. to its share holders.Capitalization : It is the sum of the par value of stocks and bonds out standings. Accrual concept :. trading and profit & lose account and balance sheet. 243.Cost of capital : It means the minimum rate of return expected by its investment. 232. Bankrupt : A statement in which a firm is unable to meets its obligations and hence. It is the total wealth of a company.10. Capital gearing : The term capital gearing refers to the relationship between equity and long term debt. 239. 231. 238. 242.and control of business enterprise . Over capitalization : When a business is unable to earn fair rate on its outstanding securities. Budgeting : The term budgeting is used for preparing budgets and other producer for planning. expenses and profit occurring for a given accounting period. and future financial condition of a company.Annual report : The report issued annually by a company. 240. it includes recognition of transaction relating to assets and liabilities as they occur irrespective of the actual receipts or payments.Capital : The term capital refers to the total investment of company in money. Lease : Lease is a contract between to parties under the contract.Cash dividend : The payment of dividend in cash 245. 245. accrued expenses : An expense which has been incurred in an accounting period but for which no enforceable claim has become due in what period against the enterprises. Under capitalization : When a business is able to earn fair rate or over rate on it is outstanding securities. which is a result of excess of revenue over expenses and loss. it containing financial statement like. 237. 234. Financial analysis :The process of interpreting the past.The profit arises only when there is an increase in owners capital. 244. 21 . the owner of the asset gives the right to use the asset to the user over an agreed period of the time for a consideration 236. 233. Income statement : An accounting statement which shows the level of revenues.

There include legal accounting and share issue expenses incurred for formation of the enterprise.Absorption costing : A method where by the cost is determine so as to include the appropriate share of both variable and fixed costs.Accrued liability : A developing but not yet enforceable claim by an another person which accumulates with the passage of time or the receipt of service or otherwise. It may be fixed charge and floating charge. profit or other benefits.Meaning of Charge : charge means it is a obligation to secure an indebt ness. Egg:profit or losses on the sale of fixed assets. 254. 251. 257. 248.Marginal Cost : Marginal cost is the additional cost to produce an additional unit of a product. 249. 22 . What are the ex-ordinary items in the P&L a/c : The transaction which are not related to the business is termed as ex-ordinary transactions or ex-ordinary items. It will be showed with the allotment entry in the journal. interest received from other company investments. 253. 247.246. 255. 252.Accumulated Depreciation : The total to date of the periodic depreciation charges on depreciable assets. all accounting statements should be honestly prepared and to that end full disclosure of all significant information will be made. it will be adjusted in the balance sheet on the liabilities side under the head of ³reserves & surplus´. it may rise from the purchase of services which at the date of accounting have been only partly performed and are not yet billable.Convention of consistency : According to this convention it is essential that accounting practices and methods remain unchanged from one year to another. income.Investment : Expenditure on assets held to earn interest. It is also called variable cost.Define the term preliminary expenses : Expenditure relating to the formation of an enterprise.Appropriation : It is application of profit towards Reserves and Dividends. 258. profit or loss on foreign exchange. Share premium : The excess of issue of price of shares over their face value. 250. unexpected dividend received.Convention of Full disclosure : According to this convention.Accrued revenue : Revenue which has been earned is an earned is an accounting period but in respect of which no enforceable claim has become due to in that period by the enterprise. 256 .

264.Valuation of closing stock : The closing stock is valued on the basis of ³Cost or Market price whichever is less´ principle. Cumulative dividend : A dividend payable as cumulative preference shares which it unpaid cumulates as a claim against the earnings of a corporate before any distribution is made to the other shareholders. 262. This is shown on the debit side of the trading account. Cumulative preference shares : A class of preference shares entitled to payment of cumulates dividends.Contingent Asset : An asset the existence ownership or value of which may be known or determined only on the occurrence or non occurrence of one more uncertain future events. The amount of closing stock is shown on the credit side of the trading account and as an asset in the balance sheet. Ex. 267. Convertible Debenture : A debenture which gives the holder a right to conversion wholly or partly in shares in accordance with term of issues.Capital : Generally refers to the amount invested in an enterprise by its owner. 274. Dividend Equalization reserve : A reserve created to maintain the rate of dividend in future years. Capital Work In Progress : Expenditure on capital assets which are in the process of construction as completion. paid up share capital in corporate enterprise. Opening Stock : The term µopening stock¶ means goods lying unsold with the businessman in the beginning of the accounting year. 261. Contingency : A condition (or) situation the ultimate out come of which gain or loss will be known as determined only as the occurrence or non occurrence of one or more uncertain future events. 272. 269. 23 .Redeemable Preference Share : The preference share that is repayable either after a fixed (or) determinable period (or) at any time dividend by the management.Debenture redemption reserve : A reserve created for the redemption of debentures at a future date. 273. Contingent liability : An obligation to an existing condition or situation which may arise in future depending on the occurrence of one or more uncertain future events. 266. Preference shares are always deemed to be cumulative unless they are expressly made non-cumulative preference shares.259. 265. 260.Closing Stock : The term µClosing Stock¶ includes goods lying unsold with the businessman at the end of the accounting year. 263. 268.

When weights are also applied in the computation it is termed as weight average cost. 280.the cost of an item at a point of time as determined by applying an average of the cost of all items of the same nature over a period. 277. which are both of a revenue nature. Difference between Funds flow and Cash flow statement :  A Cash flow statement is concerned only with the change in cash position while a funds flow analysis is concerned with change in working capital position between two balance sheet dates.Appropriation Assets : An account sometimes included as a separate section of the profit and loss statement showing application of profits towards dividends. i. 282. reserves. Deficiency : the excess of liabilities over assets of an enterprise at a given date is called deficiency. 278.Deficit : The debit balance in the profit and loss a/c is called deficit. Capital redemption reserve : A reserve created on redemption of the average cost:. An income statement matches the incomes of a period with the expenditure of that period.Surplus : Credit balance in the profit & loss statement after providing for proposed appropriation & dividend . 281. Whereas an income statement discloses the results of the business activities. 279. reserves. The source and application of funds may be of capital as well as of revenue nature. Difference Between the Funds flow and Income statement :  A funds flow statement deals with the financial resource required for running the business activities.  A funds flow statement matches the ³funds raised´ and ³funds applied´ during a particular period.e. It explains how were the funds obtained and how were they used. While studying the short-term solvency of a business one is interested not only in cash balance but also in the assets which are easily convertible into cash.Floating Change : Assume change on some or all assets of an enterprise which are not attached to specific assets and are given as security against debt.. 24 . 276.275. how much has been earned and how it has been spent.  A cash flow statement is merely a record of cash receipts and disbursements.

Impact cost: impact cost is cost it is measure of liquidity of the market. What is a subsidiary company? A company which is controlled by its holding company. What is a merger? A merger is a transaction between two companies where by both companies merge into each other and as a result a new company is formed. They may/may not join the Board of directors after the company is formed. What is an IPO? IPO stands for Initial Public offering. tax saving Bonds. Debentures. Preference shares. What are consolidated statements? These are the financial statements reported by a holding company and these statements include the financial performance of its subsidiaries. 25 . Based upon the bids received the offer price is fixed.Swaps: swaps are private agreements between two parties to exchange cash flows in the future according to a pre agreed formula. Mutual funds. Equity Shares. The shares are issued for the first time to the public as opposed to the secondary market. More than 50% of capital being owned by holding company. In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio. What are the various investing opportunities you have? Real Estate. Who are promoters? Promoters are the people who initiates the idea of creating the company. Arbitrage: it means purchase and sale of securities in different markets in order to profit from price discrepancies. Government securities. The control could be because of any of the following factors. A non US company issues ADRs in US in order to rise capital. What is an ADR? ADR is American Depository Receipt. Majority of the Board of directors of subsidiary are from holding company. An ADR will normally be in multiples of Equity shares of that company. What is book building? Book building is a process where by the company seeks bids from prospective investors for its Public offer. Insurance etc. It reflects the costs faced when actually trading in index.

Write down of investments. : Goodwill. TRADEMARKS Adjustments after Net Income : Dividends.revenue expendatures/deffered revenue expenditures/capital expenditure 3.all accounting concepts 2. Normally issued to the employees of the companies to motivate and retain them. Insurance All Items which are in Bold are important 1. What is the rule of Nominal accounts? Debit all expenses and losses.memorentum of association 7.primary market or secondary market 26 .What is stock option? Stock option is an instrument that carries a right to buy the underlying stock at a certain price during certain time frame. What are the important financial ratios a banker looks into when you approach for loan? Debt Service coverage ratio Interest Coverage Ratio What is a prospectus? It is an invitation asking prospective investors to invest in the company.pvt ltd company.Types of shares 5.public ltd comp 4.subsidary company or holding company 9. Provisions. Interest on capital in case of partnerships Contingent liabilities Fixed expenses : Guarantees : Rent.share premium/discount on issue of shares 6. Credit all incomes and gains. PATENTS. What is the financial year in India? Apr1-Mar31 Give example for the following: Non Cash Expenditures Intangible assets : Depreciation.ariticles of association 8.minority interst 10.

duties of finance manager 38.provision/reserve 16. It is also called new issue profit and revenue profit 35. Secondary market: secondary market is the market where shares buying and selling.interim audit/statutory audit 39.non recurring items in p&l account Ex:sale of investment fund/ trade discount/cash discount 37.rebate u/s 88 of income tax act 36.non cash expenditure acoount in p&l account ex:depiriciatiaon 27.accounting treatment: loss of inventory---no insurance coverage partly insurance coverage fully insurance coverage 32.debtor/creditor defenations 30.stock exchanges in india and abroad 12. 11.write entry and posting outstanding salaries 31.diff.accrued income 29.divedend-interium and final dividend 19.debentures and bonus shares 18.SEBI(security exchange board india) 15.Primary market: those companies which are issuing new shares in this market.Sensex 27 .goodwill valution and methods 21.depriciation-Acounting standard-6 13.working capital 23.depletion/amortization 14.general reserve or capital reserve 17.cashflow and funds flow 22.jointventure and partnership 25. form of balance sheet---horizontal\vertical--schedule 6 very important fully covered 34. In India secondary market is called stock exchange.inventory valution and methods 20. ratio analysis----all ratios are prepared33.marginal cost/margin of safety/break evenpoint/vairiable cost/semi varible cost/fixed cost 24. between revenue and income 28.

how it will useful in Capital Budgeting y Father of Economics -. optimim stage of debt equity) y what is cost of goods sold y Finance Manager Duties y Capital expenditure and Fixed expenditure y What is IPO y What is ADR y Tell about Credit Rating agencies y Diff b/w Gross profit and Net Profit y Leverages (operating and financial ) y Leverages usage y Closing stock ( Cost or Market value which is less) y PortFolio Management y Mutual funds y What is ³Limited ³ in company names means y Prospectues y Qurom y Diff b/w Pvt and Public Limited Company y Income Tax Paid is not treated as Expenditure for Income Tax y Time Value of Money.Adam Smith y Father of Scientific Mgt²FW Taylor y Integrated and Non Integrated Accounts y Holding Vs subsidiary companies y Revaluation Reserve y Recurring and Non Recurring Items in P&l a/c y Association not for profit y Deductions y Accrual Basis and Cash Basis y GodWill y Working Capital y Costing Basics and important topics y What is meant by B/sheet.Questions asked in Earlier interviews collected from frineds y Provisions Vs Reserves y What is Balance sheet and Cash flow y Schedule 6 format y Trading A/c Vs P&L A/c y Exampls of Non Recurring Expenditure y Revenue Vs Income y Ratio Analysis All formulas y (Imp debt equity .sheet y Q)depreciation.Amortization and Impairment? 28 . Cashflow y How going concern concept reflects in B.

that an entity holds for usage may not be spent for additions or improvements to structures or equipment that are 29 .expr Q)tangible-intangible Q)associate & holding ---subsi if we r having 20 to 50% interest more than 50% subsi y Q)What is appropriation account and what are the components of appr. y Diff between Capital Resv and Revenue Resrv? y What are the components of B/S? y What is net-worth? y What is differed Expenditure?Where can u find iton B/S? y what is liquid ratio and acid ratio? y Debt-Equity ratio? y What is unearned revenue?Ex: Advanced income y What is Working Capital? y Structure of cost sheet? y Functions of financial Mgt? y What is Primary market and Secondary market? y SEBI? y capital expenditure -. when on review by a company.a/c?from Net profit --------to provide reserves. where as depreciation is a uniform charge of the cost of the asset over its estimated useful life. an impairment is recognized to the extent the carrying value exceeds the fair value of the asset. Asset impairment arises as result of review of the long-lived assets by an entity. Q)what is EPS and DPS? Q)Asset write-down arises. Note: Asset write-down is not to be confused with depreciation or amortization (which is a regular charge of the cost of an asset over its estimated useful life).y y y Q)cap expr and rev. and if the sum of expected future cash flows is less than the carrying value of the asset. circumstances indicate that the carrying value of an asset.

from a debtor for the previous purchase of merchandise or services. y employee stock options y minority interest y consolidated accounts y kinds of depreciation charge . y Income statement: An accounting statement which shows the level of revenues. employee stock options y Mergers and Amalgamations y Derivatives y mutual funds y open end and close end y option and warrants y Financial analysis: The process of interpreting the past. y Q)accounts payable -. institution or individual that are due. long term loans. to a creditor for previously purchased merchandise or services.amounts recorded as assets on the books of a company. The equation may be expressed in its simplest form as: assets = liabilities + net worth. y Bankrupt: A statement in which a firm is unable to meets its obligations and hence. it is assets are surrendered to court for administration y Fixed liabilities: long term liabilities are the loans payable after a reasonable duration says 5 to 10 years. y Q)capital gain or loss -.the basic equation of double-entry accounting that reflects the relationship of assets. y Q)accounts receivable -. and future financial condition of a company. liabilities and net worth (reserves + stockholders equity + retained earnings). but have not yet been collected. expenses and profit occurring for a given accounting period. y Q)accounting equation -. present. Ex: debentures. but have not yet been paid.the gain or loss incurred from the sale or disposition of assets including securities and real estate.amounts recorded as liabilities on the books of a company.used to carry on the activities of an organization or individual. mortgage 30 . institution or individual that are owed.

Gilt funds: gilt funds invest only in securities that are issued by the GOVT. The banks also provided overdraft. Liquid funds: the debt funds invest only in instruments with maturities less than one year. Index funds: the fund manager takes a view on companies that are expected to perform well. ADR (American depository receipts): Depository receipts issued by a company in the USA are known as ADRs. Balanced funds: funds that invest both in debt and equity markets are called balanced funds. Types of equity funds: y Simple equity funds y Primary market funds y Sectoral funds y Index funds Sectoral funds: sectoral funds choose to invest in one or more chosen sectors of the equity markets. and therefore do not carry any credit risk. just like rupee loans. 31 . and invests in these companies Debt funds: the debt funds are those that are pre-dominantly invest in debt securities. Such receipts are to be issued in accordance with the provisions stipulated by the securities Exchange commission (SEC) of USA like SEBI in India.Contingent liabilities: damages payable but still under dispute. Inflation risk: inflation risk reflects the changes in the purchasing power of the cash flows resulting from the fixed income The subscription can come from any part of the world except India. Commercial banks: Commercial banks extend foreign currency loans for international operations. Ratio is a relation ship between two or more variables expressed: I) percentage ii) rate and iii) proportion Concentration banking: it means identify locations or places where customers are placed and open a local bank a/c in each of these locations and open local collection centre. Euro issues: The Euro issues means that the issues is listed on a European stock Exchange. Equity funds: equity funds are those that invest pre-dominantly in equity shares of company. bills discounted but likely to dishonoured etc.

Accounting period: The period of 12 months starting from 1st April ending with 31st March of subsequent year. Tally Apportionment (cost apportionment): Charging a proportion of a cost to a cost centre or cost unit because the cost centers or cost units are not directly incurring those costs although they share in incurring them. summarizing and reporting business transactions. Administration overheads: Expenses towards day-to-day administration of a business. any loss or gain on the asset can be reclaimed against (or added to) any profits for income tax purposes. or spoilage in excess of the normal loss. Allotment: A method of distributing previously unissued shares in a limited company in exchange for a contribution of capital. Accumulated depreciation (aggregate depreciation): The total amount of the depreciation written off from the cost price or valuation of a fixed asset since it was brought in to the balance sheet of an organization. Accounts payable (trade creditors): The amounts owned by the business from customers for invoiced amounts. by the merging of two or more companies. Applications software: Computer programs that are designed for a particular purpose or applications. Absorption Costing: The cost accounting system in which the overheads of an organization are charged to the production by means of the process of absorption Accounting: The process of recording. Balancing Charge: When a fixed asset is sold or disposed of. The combination may be effected by one company acquiring others. Accounts receivable collection period: The time given to customers for repaying their debts. or by existing companies being dissolved and a new company formed to take over the combined business. Accounts receivable (trade debtors): The amounts owing to a business from customers for invoiced amounts.g. person or item of equipment for which cost may be ascertained and used for the purpose of cost control. e. Amalgamation: The combination of two or more companies. 32 . classifying. this is a situation where the Actual Expenditure is more than Budgeted. Adverse variance (unfavorable variance): In standard costing and budgetary control. This usually occurs with land and buildings. This is called a balancing charge. Appreciation: An increase in the value of an asset usually as a result of inflation. Abnormal loss: The loss arising from manufacturing process through unusual wastage.Cost centre: A location.

Bill of exchange: A bill drawn by the seller of goods and accepted by the buyer with the promise to pay the certain sum of money with in the stipulated period of time. usually for a specific transaction. Bad debt: An amount owed by a debtor that is unlikely to be paid. Book-keeping: Maintaining record of day-to-day business transactions. such as paying in a sum of money by means of a cheque or withdrawing a sum by means of an automated teller machine. for example. Registered capital): The maximum amount of share capital that a company may raise as per its memorandum of association. Capital redemption reserve: Apportionment from the Profit / Loss and Reserves to the extent of shares redeemed.Arithmetic Mean (arithmetic average): An average in which individual numbers or quantities are added together and divided by their total number. Cash Discount: A discount receivable or allowable for setting an invoice for cash. These costs include warehousing. Bank charge: The amount charged to a customer by bank. Business entity Concept: The concept which differentiates the owner and the business in Financial Accounting. Carriage Inwards: Loading / Unloading costs incurred on purchases Carriage outwards: Loading / Unloading costs incurred on Sales. 33 . Asset: Any Expenditure which will give benefits for more than a year. and security. Bills Receivable: The Document for the amounts owed to a business by Customers. due to a company going into liquidation. Carrying cost: The cost of holding stock from the date of receipt to the date of disposal. This level normally represents the production capacity or Sales volume. This is transferred to Profit & Loss Account. Balance sheet: A statement of the Assets and Liabilities of an Enterprise as on a particular date. Bank reconciliation is usually performed weekly or monthly and are a form of internal control check. Batch costing: A form of costing in which the unit cost is expressed on the basis of a batch produced. In the profit and loss account. or for any other specified period. Break Even Point: No profit and No loss position level. Nominal capital. insurance. or within a specified period. Authorized share capital (Nominal share capital. Budget: A plan of how money will be spent over a period of time in relation to the money available. Bills Payable: The Document evidencing the amounts owed by a business to Creditors. Capital: The amount of initial contribution by the promoter of a business. Bank reconciliation statement: A statement that reconciles the bank balance in the books of an organization with the bank statement. Bad debts recovered: Debts originally classed as bad debts and written off to the profit and loss account (or to a provision for bad and doubtful debts) but subsequently recovered either in part or in full. such as suppliers.

often expressed as a percentage. discounts allowable as expenditure. The expenditure on goods and services required to carry out the operations of an organization. or finished goods. Cash-flow Statement: A statement showing the inflows and outflows of cash and cash equivalents for a business over a financial period. Contribution margin ratio: (contribution. which will be carried forward to the next accounting sales ratio. Compensating Error: An error that is not revealed in a trial balance because one error is cancelled out by another error or errors. Cash-flow Budget: A Budget that summarizes the expected cash inflows and the expected cash outflows of an organization over a budget period. for example unpaid suppliers of raw materials. Creditors: Businesses or individuals to whom an organization owes money.production-volume ratio. Cost of Capital: It is the amount that an organization needs to pay on its equity or debt. work in progress.profit-volume ratio)The ratio of the contribution per product to the sales value. 34 . It is usually represented by percentage. Contribution (Contribution margin): The unit production is the difference between the unit selling price of a product and its marginal cost of production. Closing Balance: The debit or credit balance on a ledger at the end of an accounting period. Works Cost. combined subject to any necessary consolidation adjustments. less the closing stock at the end of the period. COSA: Abbreviation for cost of sales adjustment cost. Company Doctor: The person having professional exposure in Accounts and Commerce. Credit: The reputation and financial standing of a person or organization. Consolidated balance sheet : The balance sheet of a group providing the financial information contained in the individual financial statements of the parent company of the group and its subsidiary undertakings. Creditor-days ratio: A ratio that gives an estimate of the average number of days credit taken by an organization before the creditors are paid. It is the quantum of future liability that may or maynot arise in Connection with occurence of future uncertain.discounts receivable are classed as revenue. usually prepared on monthly basis. Cost sheet: The statement showing the cost classification such as Prime Cost. Credit Note: A document evidencing the payables or liability. payables may arise dueto goods returned from customers. Closing Stock: The stock remaining within an organization at the end of an accounting period as raw materials. Contingent liability : An Information placed as a footnote to the Balance Sheet. Cost of Production. Cost of Goods sold: Opening stock at the beginning of an accounting period plus the purchases for the period.

Double-entry book-keeping: A method of recording the transactions of a business in a set of accounts. Debt-equity ratio: The ratio showing the portion of debts (i.Cumulative preference share: Cumulative preference shares guarantee the eventual payment of these dividends in arears before the payment of dividends on ordinary shares. 35 . Direct expenses are included in the direct cost Direct labour: Workers who are directly involved in the production. Differential analysis: An assessment of the impact on costs and revenues of specific management decisions. Direct expense: Expenditure that would not be incurred unless a particular cost unit were produced. Depreciation: It is the physical wear and tear of a fixed asset. Drawer: A person who signs a bill of exchange ordering the drawee to pay the specifed sum at the specified time. Current ratio: The ratio of the current assets of a business to the current liabilities. provided that the company returns to profit in subsequent years. Dispersion: Dispersion is the degree of variation of the variable from the central value. The optimum order quantity is that which equates the total ordering costs and total holding costs. Direct materials: The Cost / Expenses towards core materials used in the production. Debit: An entry on the left-hand side of an account in double-entry book keeping that increases either the assets or the recorded expenditure of the organization keeping the book Debit Note: A document sent by an organiazation to a person showing that the recipient is indebted to the organization for the amount shown in the debit note. Day book: It is the book initial entries in Financial Accounting. such that every transaction has a dual aspect and therefore needs to be recorded in at least two accounts. Drawee: The person on whom a bill of exchange is drawn. Debtors: Those who owe money to an organization. Debtors collection period: The average days that a debtors have taken to pay their dues. Dividend: The distribution to the shareholders at a percentage on their share capital. the outside liability) on the capital employed. More days will lead fund stagnation. Current liabilities: Amounts owed by a business to other organizations and individuals that should be paid within one year from the balance-sheet date. Debenture: The most common form of long-term loan taken by a company. Debenture redemption reserve: A capital reserve into which amounts are transferred from the profit and loss account for debentures that are redeemable at a future date.e. Economic Order Quantity: Determines the optimum order size for purchasing or manufacturing an item of stock. for example for sales of goods. It is usually denoted by percentages on the cost of such asset.

Independent Events: Two or more events are said to be independent when the outcome of one does not affect and is not affected by the other. and if required. Index Numbers: Index Numbers are devices for measuring differences in the magnitude of a group of related variables. Indirect Costs: Expenses that cannot be traced directly to a product or cost unit and are therefore overheads. Gross Margin Ratio: The percentage of gross profit on sales. remains unchanged irrespective of changes in the levels of production or sales. together with supporting notes. Labour cost. Last-in-first-out Cost: A method of valuing units of raw material or finished goods issued from stock by using the latest unit value for pricing the issues until all the quantity of stock received at that price is used up. Financial Statements: Statements showing the performance of the company during the financial year.e. It is also known as works cost. Inventory: The stock of products / materials in the business. Factory Cost: It is a collection of Materials cost. where funds stands for working capital. Ledger Account: It is a record of transactions classified across different heads of Accounts. Income and Expenditure Account: It is a nominal account showing the net result of operations Either surplus (i. Excess of Income over Expenditure) or Deficit (i. Liquid Instrument: A negotiable instrument that the purchaser is able to 36 . the cash-flow statement. for example money. Factory overheads. Job Costing: A Costing process to assess the individual costs of performing each job. Incremental Cost: The additional cost incurred as the result of a particular decision or activity. Excess of Expenditure over Income) is arrived. They cosists profit and loss account. Goodwill: It is the value of reputation. Liquidation (Winding up): The distribution of a company¶s assets among its creditors and members prior to its dissolution.. Intangible Property: A property that cannot be possessed physically but that confers on its owner a legally enforceable right to receive a benefit. Fixed Overhead Cost: The elements of costs that. Issued Share Capital: The amount of the share capital issued for public subscription.Equity Share Capital: The owners capital in the company..e. Liquid Assets: Assets held in cash or in something that can be readily turned into cash. Funds Flow Statement:Source and Application of Funds. Imputed Cost: A cost that is not actually incurred by an organization but is introduced into the management accounting records in order to ensure that the costs incurred by dissimilar operation are comparable. balance sheet. Insolvency: The inability to pay one¶s debts when they fall due. Fixed Asset: An asset which is to remain in the business and giving benefit for years.

Margin of Safety: The difference between the level of activity at which an organization breaks even and a given level of activity greater than the breakeven point.sell before maturity. inter alia. Maximum Stock Level: The highest level of stock planned to be held. Operating Costing: The form of costing applied both to the provision of services within an organization and to the costing of continuous operating processes. Process Costing: A method of cost accounting applied to production carried out by a series of chemical or operational stages or process. The operating cycle (in days) will be arrived combining Inventory holding period and Debtors Collection period and excluding 37 . Operating Cycle: The average time between buying goods and receiving cash from their sale. the production volumes and the production cost to be incurred in a budget period. any amounts above the maximum would be considered excess stock. Mutually Exclusive Events : Two events are said to be mutually exclusive or incompatible when both cannot happen simultaneously in a single trial. Median: Median refers to the middle value in a distribution. Production Budget: A budget set for the production function of an organization under a system of budgetary control. such as electricity generation. or spoilage that can be expected. which includes. Profit and Loss Account: An account in the books of an organization showing the profits (or losses) made on its business activities with the deduction of the appropriate expenses. Marginal cost represents the additional cost incurred as a result of the production of one additional unit of production. Net Worth: The value of an organization when its liabilities have been deducted from the value of its assets. to be part of that process. Obsolescence: A fall in the value of an asset as a result of its age or decline in its usefulness. Net Asset Value (NAV): The value of a share in a company calculated by Dividing the amount for the net assets of the company by the number of shares in issue. Mean deviation: It is the average difference between the items in a distribution and the median or mean of that series. on the basis of historical studies. Quartile deviation: It gives the average amount by which the two quartiles Normal Loss: The loss arising from a manufacturing or chemical process through waste. Liquid Ratio: A ratio of Quick Assets to Quick Liabilities where ³Quick´ denotes µReadily available by cash¶ Long-term Liability: A sum owed that does not have to be repaid within the next accounting period of a business. Provision for bad debts: A provision calculated to cover the debts during an accounting period that are not expected to be paid. Mode: The Mode or the modal value is that value in a series of observations which occur with the greatest frequency. Marginal Cost: The variable costs per unit of production.

Probability: The Proabability of a given event is an expression of likelihood or chance of occurance of an event. Partnership Accounts: The accounts kept by a partnership. Price-earnings Ratio: The current market price of a company share divided by the earnings per share. Petty Cash Book: A book used to record petty cash transactions. They include an appropriation account in which the profit of a partnership is shared between the partners in accordance with the partnership agreement.creditors payment period. assets and liabilities must be revalued to their current market value. Petty Cash: The amount of cash that an organization keeps in notes or coins on its premises to pay small items of expense. It is usually kept in an imprest account. Cost of Opportunity lost (or) Opportunity foregone. It indicates further orders to be made otherwise it will lead to shortage of stock during the lead time. Semi-variable Cost: An item of expenditure that contains both a fixed 38 . Opportunity Cost: The income or benefit foregone as the result of carrying out a particular decision. Premium: An amount in excess of the nominal value of a share or other security. Revenue Expenditure: Expenditures which are recurring in nature. or adding its operating expenses to its trading loss. Safety Stock: A level of stock that provides a safety buffer in the event of increased demand or reduced receipt of stocks. Operating Profit (or Loss): The profit (or loss) made by a company as a result of its principal trading activity. in either case this is before taking into account any extraordinary items. Preferential Creditor: A creditor whose debt will be met in preference to those of other creditors and who thus has the best chance of being paid in full on the bankruptcy on an individual or the winding-up of a company. Reorder Level: It is a level of indication to the inventories. Return on Capital Employed: An accounting ratio expressing the profit of an organization for a financial period as a percentage of the capital employed. Regression: Regression is the measure of the average relationship between two or more variables in terms of the original units of the data. when resources are limited or when mutually exclusive projects are involved. Paid-up Share Capital: The total amount of money that the shareholders have paid to the company for their fully paid shares. This is arrived at by deducting its operating expenses from its trading profit. Revaluation Account: In a partnership to which a new partner is admitted or if an existing partner dies or retires. These Expenditures usually forms part of Profit and Loss Account. Sales Budget: A budget set for the sales function of an organization under a system of budgetary control. Personal Accounts: Heads of Accounts representing personality. Debit the Receiver and Credit the giver.

Statement of affairs: A statement showing the assets and liabilities. If there is 2 company under different grade and different fixed / floating rate can gin advantage by reducing their interest rate by ³Interest rate swap´. varies directly with the level of activity achieved. as a result of its use in the business.e. y 1 / (Offer Rate) = Bid Rate. lowest rate is bid rate.23 / 35 is given then highest rate is offer rate. Share issued at a premium: A share issued at a price above its par value. its members or shareholders) in exchange for shares. Future spot rate: It is actual rate prevailing on the agreed future date. Working Capital: The capital of a business that can be used in its day-today trading. In this if µCompany A¶ wants to borrow at floating rate and µCompany B¶ wants to borrow and fixed rate.Generally interest rate differs from company to company because of their grade (reputation) and rates can be fixed rates or floting rate. Interest rate swap: . Interest Rate Parity: i) ii) Domestic Rate < Foreign Rate + Forward Premium / Discount (In this case invest in foreign currency) Domestic Rate > Foreign Rate + Forward Premium / Discount (In this case invest in Domestic Currency) Forward Rate: It is rate negotiated for the delivery to be made / taken on a future date for present transaction. Variable cost: An item of expenditure that. Other points:y Currency country which has less Interest rate will have forward rate at premium and vice versa y If two rates ie. Written-down value (WDV) : The value of an asset for tax purpose after taking account of its reduction in value below the initial cost. By this swap one company gains 39 . Trading account: The part of a profit and loss account in which the cost of goods sold is compared with the money raised by their sale in order to arrive at the gross profit. The discount is the differnce between the par value and the issue price. Share issued at a discount: A share issued at a price below its par value. The premium is the difference between the issue price and the par value.cost element and a variable-cost element.20. then interest rate swap is applied by which company A borrows at floating Rate of company B and company B borrows at fixed rate of company A. Share Capital: That part of the finance of a company received from its owners (I. y If INR / DG is given and we have to DG / INR then it is 1 / (INR / DG) y 1 / (Bid Rate) = Offer Rate.

6. Scope The scope of the statutory audit is fixed by the company¶s act 1956. 5. I e in case of first auditors. The internal auditor submits his report to the management of the company who is also his appointing authority. It also has to take the permission of the central government. Removal The procedure of removal of the statutory auditor is very complex. Essentially a person should be a practicing chartered accountant to be appointed as a statutory auditor. It can not be changed by mutual consent between the auditor and the management of the audited business unit. Difference between Internal Audit and Statutory Audit Following are the main points of difference between internal audit and statutory audit: 1. Report The statutory auditor submits his report to the shareholder of the company in its general meeting. There is no fixed qualification for the position of an internal auditor. 2. Net gain is splited between two companies so that the two companies benefits by paying lower interest rate for their barrowing. The scope of the internal audit is fixed by the mutual consent of the auditor and the management of the unit under audit. In case of internal auditor the management who appoints him fixes his Remuneration. 7. 40 . 4. 1956. Qualification Qualifications of the statutory auditor are prescribed in the companies act. The main object of the internal audit is to detect and prevent the errors and frauds. Objects The main object of the statutory audit is to form an opinion on the financial statement of the organization auditor has to state that whether the financial statements are showing the true and fair view of the affairs of the organization or not.and other company losses. Remuneration Remuneration of the statutory auditor is fixed by the appointing authority. Appointment The management of the organization makes the appointment of an internal auditor. To look at the problem quickly the theory followed in ³Difference in fixed rate interest of two companies is profit´ and ³Difference in floating rate interest of two companies is loss´. The management of the entity can remove internal auditor. Then net gain / loss are found. the auditors the directors fix the Remuneration in case of the subsequent auditors the company in its general meeting fixes the remuneration. First statutory auditors are appointed by the shareholders in the annual general meeting. 3. Only the company in the general meeting can remove the auditor. The statutory auditor is appointed by different authorities.

Profits on sale of license .Cash assistance received or recoverable against exports .engaged in retail trade 44AF 44B -do.Compensation due received . medical. if not credited to P and L A/C ..who is a non-resident. in certain turnkey power projects -do. or Bank extraction or production of petroleum or natural gas or both in India Assessee being a company carrying on Not Applicable to Bank the business of operation of ships 33AC 41 . engineering or architecture or interior decoration) Special Provision for computing profits and gains of business of construction -do.Tax Audit Report Brief particulars of the Sections referred to in Form 3CD Clause No. etc.which is a foreign company engaged in the business of civil construction etc. of mineral oils 44BB -do.who are engaged in business plying.who is engaged in the business of operation of aircraft -do. hiring or leasing goods carriages -do.Duty drawback Assessee carrying on business of growing and manufacturing tea in India Normally Not Applicable to Branches Not Applicable to Bank 33ABA Assessee carrying on business Not Applicable to consisting of prospecting for.Profits & gains of business . in 3CD 9(a) Section Referred 44AA Particulars Maintenance of accounts by certain persons carrying on profession or business (legal.who is engaged in the business of exploration. engaged in the business of operation of ships Not Applicable to bank Remarks Not Applicable to Bank 10 44AD 44AE 44BBA 13 44BBB 28 15 33AB Amounts.

gratia payment in respect of employees who retired Not Applicable to under Exit Policy) Bank Expenditure incurred for extraction.Expenditure on Scientific research 35 35ABB May Apply 35AC Expenditure for obtaining license to operate telecommunication services Not Applicable to Bank Payment made to any public sector company. the public Payment to associations and institutions for carrying out rural development programs May Apply Payment to associations and institutions for carrying out programs of conservation of natural resources 35CCA May Apply Amortisation of certain preliminary expenses incurred for preparation of feasibility report. local authority or an May Apply association or institution approved by National Committee. 35CCB 35D 35DD 35DDA Not Applicable to Bank 35E 42 . or the uplift of. to undertake eligible project or scheme for promoting social and economic welfare of. May Apply production of minerals etc. conducting market survey or any other survey necessary for the business Not Applicable to of the assessee or engineering services Bank relating to the business of the assessee Amortisation of expenditure in case of amalgamation or demerger Amortisation of expenditure under Voluntary retirement (Ex. preparation of project report.

20. which is payable outside India on Branches which tax has not been paid or deducted during the current year Any interest. rent.17(f) 40(a)(i) Any Interest. Petroleum or natural gas or both in India Not Applicable Relates to assessees carrying on the business of operation of ships 33AC 43 . commission. royalty. it should be Nil for Branches Relates to assessees carrying on Not Applicable business of growing and manufacturing tea in India Not Applicable Related to assessees carrying on business consisting of the prospecting for.000/.where payment has been made otherwise than by account payee cheque / draft Provision made by an assessee for the payment of gratuity to his employees on their retirement or on termination of their employment Sums paid by an assessee to any fund or trust for the benefit of employees other than recognized / approved provident / gratuity funds Expenditure incurred in relation to income not inducible in total income The amount of interest paid in respect capital borrowed for an asset for extension of existing business or profession Amounts paid to any director of the company or relative of such director Not Applicable to Bank May Apply 40(a)(ia) 17(g) 40(b) 40(ba) 17(h) 40A(3) read with Rule 6DD 40A(7) 17(i) Not Applicable to Branches 17(j) 40A(9) Not Applicable to Branches 17(l) 17(m) 14A 36(1)(iii) Not Applicable to Branches Not Applicable to Branches 18 40A(2)(b) 19 33AB 33ABA Normally. fees for professional or technical services liable to TDS on which TDS has not been/ May Apply under effected/ deducted / paid during the current year Some payments made to a working Not Applicable to partner and / or non working partner of Bank partnership firm Payments made to a member by the association of persons or body of individuals (other than a company) Expenditure / payment exceeding Rs. or extracting or production of. fees for technical Normally Not services or sum chargeable under the Applicable to Act.

paid otherwise than by account payee cheque / bank draft or credit to bank A/C Donations to certain funds. cess. charitable May Apply institutions. duty.000/. Branches where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission Interest payable on any loan or Not Applicable to borrowing from any public financial Branches institution Not Applicable to Interest payable on any term loan from Branches Not Applicable to a scheduled bank Branches Sum payable by the assessee as an employer in lieu of any leave at the credit of his employee Repayment of loan or deposit (Time May Apply deposits including RD A/C including interest exceeding Rs. by whatever name called 21(i) 43B(a) The entire gain is credited to P & L A/C May Apply 43B(b) Sums payable by the assessee as an Not Applicable to employer by the way of contribution of Branches any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees Sums paid to an employee as bonus or Not Applicable to commission for services rendered. the gain up to the difference between actual cost and WDV is taxable Sums payable by the assessee by way of tax. or fee.20 41 Any Allowance / deduction / loss / Normally Nil expenditure allowed earlier but some benefit thereof received now Where sale / scrap value of fixed asset is more than written down value. for scientific research or rural development Other Sections / Sub-sections in Chapter VlA are not relevant to the bank. 20. 43B(c) 43B(d) 43B(e) 43B(f) 269T 24 (b) 26 Chapter VlA 80G 80GGA 44 .

etc. 303] Register of Directors¶ share-holdings. [Sec. CERTIFICATES REQUIRED TO BE TAKEN: The following Certificates are required from the management/ concerned authorities / persons while conducting the audit Number of Bank Accounts together with certificate of bank reconciliation. made it obligatory on the part of companies to maintain various registers. Nature of security should be compared with the Register of charges and mortgages. Resolution appointing any person to office or place of profit [Sec. Confirmation of accounts with sister-concerns. Resolution of any loans by the company Resolution approving Donations.CHECKLIST FOR STATUTORY AUDIT 1.] Register of Charges [Sec. Cash in hand. 301] Register of Directors. 193] Minute books of Board Meetings and meetings of the Committee of the Board [Sec.. Name of the financial institutions from whom loan taken specifying the nature of security. companies and firms in which directors are interested [Sec. 150] Index of Members [Sec. STATUTORY REGISTERS / BOOKS: Companies Act. 307] Register of loans. 1956 has. [Sec. 151] Register of debentures-holders [Sec.314(1B)] Resolution for capitalization of expenses. Contingent liabilities. 48(7). 372(6)] List of Account Books maintained by the company along with the name of persons maintaining it. 193] Register of contracts. 370(IC)] Register of investments in shares of any Body Corporate [Sec. Since these registers are needed to be maintained statutorily. through its different sections. these are called ³Statutory Registers´. etc. if any 3. 45 . books. COPIES OF RESOLUTIONS: Obtain the following copies of Resolutions while conducting the company audit Resolution fixing remuneration of working Directors. 143] Register of Members [Sec. etc. 152(2)] Minute books of General Meetings [Sec. etc. 2. Certificate in respect of investments held by bankers or other authorities. The following is the list of statutory registers to be maintained by the Company under Company Law Register of investments in any shares or securities not held by the company in its own name [Sec. to companies under the same management [Sec.

COPIES / STATEMENTS OF COMPUTATIONS: Obtain Copies/Statements of computations of the following items while conducting the company audit. AS-17 Segment Reporting. AS-9 Revenue Recognition. AS-27 Financial reporting of Interests in Joint Ventures. c) Quantum of revaluation has to be disclosed. AS-23 Accounting for investments in associates in consolidated financial statements. AS-10 Accounting for Fixed Assets. AS-14 Accounting for Amalgamation. AS-24 Discontinuing Operations. AS-15 Accounting for Retirements benefits. AS-29 Provisions. AS-18 Related Party disclosure. AS-7 Accounting for Construction Contracts. AS-3 Cash flow Statements. FIXED ASSETS: Check whether all fixed assets are physically in existence and in the ownership of company by checking relevant records. AS-11 Accounting for effects of changes in Foreign Exchange Rates. AS-21 Consolidated financial statements. AS-20 Earnings per share. AS-12 Accounting for Government grants. AS-8 Accounting for Research and Developments. AS-6 Depreciation Accounting. Contingent Liabilities and Contingent assets. AS-2 Valuation of Inventories. prior items and changes in accounting policies. AS-13 Accounting for Investments.4. AS-19 Leases. AS-25 Interim Financial Reporting. AS-4 Contingencies and events occurring after the balance sheet date. AS-28 Impairment of Assets. 6. AS-26 Intangible Assets. Computation of provision for taxation. 46 . Computation of managerial remuneration. AS-5 Net profit or loss for the period. COPLIANCE WITH ACCOUNTING STANDARDS: Ensure due compliance with mandatory accounting standards o o o o o o o o o o o o o o o o o o o o o o o o o o o o o AS-1 Disclosure of Accounting Policies. 5. AS-16 Borrowings Costs. AS-22 Accounting for taxes on income. If yes then a) What is the basis of revaluation? b) Fact of revaluation has to be disclosed for subsequent 5 years. Check whether fixed assets been revalued during the year.

47 . have transfers been made from revaluation reserve to capital reserve.d) If a revaluation asset has been sold. give suitable note. CASH AND BANK BALANCES: Cash and stamps in hand at the date of balance sheet should be counted and checked by the auditors. Verify whether additions/deductions deletions of assets are duly authorized by Minutes of Board and all additions are properly supported by documents of titles. Verify whether all assets were in use during the year and all items of fixed assets been adequately insured. Whether the company is maintaining proper records showing full particulars. If not. 7. including quantitative details and situation of fixed assets. Surprise check must be made to verify the physical counting of cash and stamps.