Basics of accounts 1.

Definition of Accounting: The art of recording, classifying and summarizing in a significant manner and in terms of money, transaction 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 operation in a significant and orderly manner.

3. Branches of Accounting:

(A) Financial Accounting: Financial accounting is concerned with as certainment of profit earned or loss suffered and financial position of a business firm at the end of the accounting period which is usually a period of 12 months.

(B) Cost Accounting: The main purpose of cost accounting is to take note of the expenditure involved and to fix cost of production correctly.

(C) Management Accounting: It provides the financial information insuch a way that will help the management in taking decisions.

4. Concepts of Accounting:

(1) Business entity concept: According to this concept the business istreated as a separate entity distinct from its owners and others.

(2)Going concern concept: According to this concept, it is assumedthat a business has a reasonable expectation of continuing business ata profit for an indefinite period of time.

(3) Money measurement concept: This concept says that the accountingrecords only those transactions which can be expressed in terms ofmoney only.

(4) Cost concept: According to this concept, an asset is recorded inthe books at the price paid to acquire it and that this cost is thebasis for all subsequent accounting for the asset. (5) Dual aspect concept: In every transaction, there will be twoaspects the receiving aspect and the giving aspect; both arerecorded by debiting one accounts and crediting another account. Thisis called double entry.

(6) Accounting period concept: It means the final accounts must beprepared on a periodic basis. Normally accounting period adopted isone year, more than this period reduces the utility of accountingdata.

(7) Realization concept: According to this concepts, revenues isconsidered as being earned on the date which it is realized, i.e. thedate when the property in goods passes the buyer and he become legallyliable to pay.

(8) Materiality concept: It is a one of the accounting principle, asper only important information will be taken and un importantinformation will be ignored in the preparation of the financialstatement.

(9) Matching Concept: The cost or expenses of a business of aparticular period are compared with the revenue of the period in orderto ascertain the net profit and loss. (10) Accrual concept: The profit arises only when there is an increasein owners capital, which is a result of excess of revenue overexpenses and loss.

5. Conventions of Accounting:

(A) Conservatism: pay safe of the business transactions . ex bad debts.

(B) Full disclosure: According to this convention, all accountingstatements should be honestly prepared and to that end full disclosureof all significant information will be made.

(C) Consistency: According to this convention it is essential thataccounting practices and methods remain unchanged from one year topanother.

(D) Materiality: it take only significant information

6. System of Book keeping:

(1) Diary system: Small proprietors of small business can keep theirrecords in a small diary. All purchase of goods, incurring ofexpenses, sale of goods and earning of other incomes can be recordeddirectly in the diary.

(2) Single Entry system: Under this system whatever books may havebeen maintained are according to accounting knowledge, ability andconvenience of the owner of business.

(3) Double Entry system: Every business event or transaction has twoaspects. The recording the double effect of any transaction is knownas double entry system.

7. System of Accounting:

(A)Cash system: In this system entries are made only when cash isreceived or paid.

(B)Mercantile system: In this system entries are made when a paymentor receipts is merely due.

(C)Hybrid system: Hybrid system of accounting is a combination of thecash and mercantile system.

8. Principles of Accounting:

A. Personal A/C : Debit the receiverCredit the giver B. Real A/C : Debit what comes inCredit what goes out

C. Nominal A/C : Debit all expenses and lossesCredit all gains and incomes 9. Meaning of Journal: Journal means chronological record of transaction. 10. Meaning of ledger: Ledger is a set of accounts. It contains allaccounts of the business enterprise whether real, nominal, personal.11. Posing: It means transferring the debit and credit items from thejournal to their respective accounts in the ledger.12. Trial balance: Trial balance is a statement containing the variousledger balances on a particular date.Object of trial balance to check the arithmetical accuracy of ledger accounting.13. Credit note: The customer when returns the goods get credit forthe value of the goods returned. A credit note is sent to himintimating that his A/C has been credited with the value of the goodsreturned.14. Debit note: When the goods are returned to the supplier, a debitnote is sent to him indicating that his A/C has been debited with theamount mentioned in the debit note.15. Contra entry: Which accounting entry is recorded on both the debitand credit side of the cash book is known as the contra entry.16. Petty cash book: Petty cash is maintained by business to recordpetty cash expenses of the business such as postage, cartage,stationery, etc.17. Promissory note: An instrument in writing containing anunconditional undertaking signed by the maker, to pay certain sum ofmoney only to or to the order of a certain person or to the bare ofthe instrument.18. Cheque: A bill of exchange drawn on a specified banker and payableon demand.19. Stale cheque: A stale cheque means not valid of cheque that meansmore than six months the cheque is not valid.20. Bank Reconciliation Statement: It is a statement reconciling thebalances as shown by the bank pass book and the balance as shown bythe cash book. Obj: to know the difference and pass necessarycorrecting, adjusting entries in the books.21. Matching concept: Matching concept means requires proper matchingof expenses with the revenue.22. Capital income: The term capital income means an income which doesnot grow out of or pertain to the running of the business proper.23. Revenue income: The income which arises out of and in the courseof the regular business transaction of a concern.24. Capital expenditure: It means an expenditure which has beenincurred for the purpose of obtaining a long term advantage for thebusiness.25. Revenue expenditure: An expenditure that incurred in the course ofregular business transactions of a concern.26. Differed revenue expenditure: An expenditure which is incurredduring an accounting period but is applicable further periods also.Eg: heavy advertisement.27. Bad debts: Bad debts denote the amount lost from debtors to whomthe goods were sold on credit.28. Depreciation: Depreciation denotes gradually and permanent deceasein the value of asset due to wear and tear, technology changes,

lapsof time and accident.29. Fictitious assets: These are assets not represented by tangiblepossession or property. Examples of preliminary expenses, discount onissue of shares, debit balance in the profit and loss account whenshown on the assets side in the balance sheet.30. Intangible assets. Intangible assets mean the assets which is nothaving the physical appearance. And its have the real value, it shownon the assets side of the balance sheet.31. Accrued income: Accrued income means income which has been earnedby the business during the accounting year but which has not yet beendue and, therefore, has not been received.32. Out standing income: Outstanding income means income which hasbecome due during the accounting year but which has not so far beenreceived by the firm.33. Suspense account: The suspense account is an account to which thedifference in the trial balance has been put temporarily.34. Depletion: It implies removal of an available but not replaceablesource, such as extracting coal from a coal mine.35. Amortization: The process of writing of intangible assets is termas amortization.36. Dilapidation: The term dilapidation to damage done to a buildingor other property during tenancy.37. Capital employed: The term capital employed means sum of totallong term funds employed in the business. i.e.(Share capital + reserves & surplus + long term loans (non businessassets + fictitious assets)38. Equity shares: Those shares which are not having pref. rights arecalled equity shares.39. Pre. Shares: Those shares which are carrying the pref. rights iscalled 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 thedesired result.41. Operating leverage: The operating leverage takes place when achanges in revenue greater changes in EBIT.42. Financial leverage: It is nothing but a process of using debtcapital to increase the rate of return on equity.43. Combine leverage: It is used to measure of the total risk of thefirm=operating risk + financial risk.44. Joint Venture: A joint venture is an association of two or morethe persons who combined for the execution of a specific transactionand divide the profit or loss their of an agreed ratio.45. Partnership: Partnership is the relation b/w the persons who haveagreed to share the profits of business carried on by all or any ofthem acting for all.46. Factoring: It is an arrangement under which a firm (calledborrower) receives advances against its receivables, from financialinstitutions (called factor).47. Capital reserve: The reserve which transferred from the capitalgains is called capital reserve.48. General reserve: The reserve which transferred from normal profitsof the firm is called general reserve.49. Free cash: The cash not for any specific purpose free from anyencumbrance like

surplus cash.50. Minority Interest. Minority interest refers to the equity of theminority shareholders in a subsidiary company.51. Capital receipts: Capital receipts may be defined asnon-recurring receipts from the owner of the business or lender ofthe money crating a liability to either of them.52. Revenue receipts: Revenue receipts may defined as a recurringreceipts against sale of goods in the normal course of business andwhich generally the result of the trading activities.53. Meaning of Company: A company is an association of many personswho contribute money or moneys worth to common stock and employs itfor a common purpose. The common stock so contributed is denoted inmoney and is the capital of the company.54. Types of a company:1. Statutory companies.2. Government company.3. Foreign company.4. Registered companies:A. Companies limited by sharesB. Companies limited by guaranteeC. Unlimited companiesD. Private companiesE. Public companies55. Private company: A private co. is which by its AOA: Restricts the right of the members to transfer of shares Limits the no. of members 50. Prohibits any Invitation to the public to subscribe for itsshares/debentures.56. Public company: A company, the articles of association of which donot contain the requisite restrictions to make it a private limitedcompany is called a public co.57. Characteristics of a company: Voluntary association Separate legal entity Free transfer of shares Limited liability Common seal Perpetual existence.58. Formation of company: Promotion Incorporation

Commencement of business59. Equity share capital: The total sum of equity shares is calledequity share capital.60. Authorized share capital: It is the maximum amount of the sharecapital which a company can raise for the time being.61. Issued capital: It is the part of the authorized capital which hasbeen allotted to the public for subscriptions.62. Subscribed capital: It is the part of the issued capital which hasbeen allotted to the public.63. Called up capital: It has been portion of the subscribed capitalwhich has been called up by the company.64. Paid up capital: It is the portion of the called up capitalagainst which payment has been received.65. Debentures: Debenture is a certificate issued by a company underits seal acknowledging a debt due by it to its holder.66. Cash profits: Cash profit is the profit it is occurred from thecash sales.67. Deemed public Ltd. Company: A private company is a subsidiarycompany to public company it satisfies the following terms/conditionsSec 3(1)3. Having minimum share capital 5 lakhs. Accepting investments from the public No restriction of the transferable of shares. No restriction of no. of members. Accepting deposits from the investors.68. Secret reserves: Secret reserves are reserves the existence ofwhich does not appear on the face of balance sheet. In such

asituation, net assets position of the business is stronger than thatdisclosed by the balance sheet.These reserves are created by: Excessive dep. Of an asset, excessive over-valuation of a liability. Complete elimination of an asset, or under valuation of an asset.69. Provisions: Provision usually means any amount written off orretained by way of providing depreciation, renewals or diminutions inthe value of assets or retained by way of providing for any knowliability of which the amount can not be determined with substantialaccuracy.OrIt is charge against profit to meet unknown loss70. Reserve: Reserves are the amounts which the businessman keepsaside out of profits earned. Provision is charge against profits while reserves is anappropriation of profits Creation of reserve increase proprietors fund while creation ofprovisions decreases his funds in the business.71. Reserve fund: Reserve fund is that amount of reserve which isinvested outside the business.72. Undisclosed reserves: Sometimes a reserve is created but itsidentity is merged with some other A/C or group of accounts so thatthe existence of the reserve is not known such reserve is called anundisclosed reserve.73. Finance management: Financial management deals with procurement offunds and their effective utilization in business.74. Objectives of financial management: Financial management havingtwo objectives that is:1. Profit maximization: The finance manger has to make his decisionsin a manner so that the profits of the concern are maximized.2. Wealth maximization: Wealth maximization means the objective of afirm should be to maximize its value or wealth, or value of a firm isrepresented by the market price of its common stock.75. Functions of financial manager: Investment decision Dividend decision Finance decision] Cash management decisions Performance evaluation Market impact analysis76. Time value of money: The time value of money means that worth of arupee received today is different from the worth of a rupee to bereceived in future.77. Capital structure: It refers to the mix of sources from where thelongterm funds required in a business may be raised; in other wordsit refers to the proportion of debt, preference capital and equitycapital.78. Optimum capital structure: capital structure is optimum when thefirm has a combination of equity and debt so that the wealth of thefirm is maximum.79. WACC: It denotes weighted average cost of capita. It is defined asthe overall cost of capital computed by reference to the proportion ofeach component of capital as weights.80. Financial break even point: It denotes the level at which a firmsEBIT is just sufficient to cover interest and preference dividend.81. Capital budgeting: Capital budgeting involves the process ofdecision making with regard to investment in fixed assets. Or decisionmaking with regard to investment

of money in long term projects.Methods of capital budgeting:Traditional :82. Payback period: Payback period represents the time period requiredfor complete recovery of the initial investment in the project.83. ARR: Accounting or Average rates of return means the averageannual yield on the project.Time adusted method:84. NPV: The net present value of an investment proposal is defined asthe sum of the present values of all future cash inflows less the sumof the present values of all cash out flows associated with theproposal.85. Profitability index: Where different investment proposal eachinvolving different initial investments and cash inflows are to becompared.86. IRR: internal rate is the rate at which the sum total ofdiscounted cash inflows equals the discounted cash out flow.87. Treasury management: it means it is defined as the efficientmanagement of liquidity and financial risk in business.88. Concentration banking: it means identify locations or place wherecustomers are placed and open a local bank a/c in each of theselocations and open local collection center.89. Marketable securities: surplus cash can be invested in short terminstruments in order to earn interest.90. Ageing schedule: in an ageing schedule the receivables areclassified according to their age.91. Maximum permissible bank finance (MPBF): it is the maximum amountthat banks can lend a borrower towards his working capitalrequirements.92. Commercial paper: a cp is a short term promissory note issued by acompany, negotiable by endorsement and delivery, issued at a discounton face value as may be determined by the issuing company.93. Bridge finance: It refers to the loans taken by the companynormally from commercial banks for a short period pending disbursementof loans sanctioned by the financial institutions.94. Venture capital: It refers to the financing of high risk venturespromoted by new qualified entrepreneurs who require funds to giveshape to their ideas.95. Debt securitization: It is a mode of financing, where insecurities are issued on the basis of a package of assets (calledasset pool).Subprime: to get loans without any security96. Lease financing: Leasing is a contract where one party (owner)purchases assets and permits its views by another party (lessee) overa specified period.97. Trade credit: It represents credit granted by suppliers of goods,in the normal course of business.98. Over draft: Under this facility a fixed limit is granted bysuppliers of goods, in the normal course of business.99. Cash credit: It is an arrangement under which a customer isallowed an advance up to certain limit against credit granted by bank.100. Clean overdraft: It refers to an advance by way of overdraftfacility, but not back by any tangible security.101. Share capital: The sum total of the nominal value of the sharesof a company is called share capital.102. Funds flow statement: It is the statement deals

with thefinancial resources for running business activities. It explains howthe funds obtained and how they used.It is a statement of Applications and source103. Sources of funds: There are two sources of funds internal sourcesand external sources.Internal source: Funds from operations is the only internal sources offunds and some important points add to it they do not result in theoutflow funds(A) Depreciation on fixed assets (b) Preliminary expenses or goodwillwritten off, Loss on sale of fixed assets.Deduct the following items as they do not increase the funds:Profit on sale of fixed assets, profit on revaluation of fixed assets.External sources: (a) Funds from long term loans (b) Sale of fixedassets (c) Funds from increase in share capital.104. Application of funds: (a) Purchase of fixed assets (b) Payment ofdividend (c) Payment of tax liability (d) Payment of fixed liability.105. ICD (Inter corporate deposits): Companies can borrow funds for ashort period. For example 6 months or less from another company whichhave surplus liquidity. Such deposits made by one company in anothercompany are called ICD.106. Certificate of deposits: The CD is a document of title similar toa fixed deposit receipt issued by bank there is no prescribed interestrate on such CDs it is based on the prevailing market conditions.107. Public deposits: It is very important source of short term andmedium term finance. The company can accept PD from members of thepublic and shareholders. It has the maturity period of 6 months to 3years.108. Euro issues: The euro issues means that the issues are listed ona European stock Exchange. The subscription can come from any part ofthe world except India.109. GDR (Global depository receipts): A depository receipt isbasically a negotiable certificate, dominated in us dollars thatrepresent a non-US company publicly traded in local currency equityshares.110. ADR (American depository receipts): Depository receipt issued bya company in the USA is known as ADRs. Such receipts are to be issuedin accordance with the provisions stipulated by the securitiesExchange commission (SEC) of USA like SEBI in India.111. Commercial banks: Commercial banks extend foreign currency loansfor international operations, just like rupee loans. The banks alsoprovided overdraft.112. Development banks: It offers long-term and medium term loansincluding foreign currency loans.113. International agencies: International agencies like theIFC<IBRD<ADB<IMF etc. provide indirect assistance for obtainingforeign currency.114. Seed capital assistance: The seed capital assistance scheme isdesired by the IDBI for professionally or technically qualifiedentrepreneurs and persons possessing relevant experience and skillsand entrepreneur traits.115. Unsecured loans: It constitutes a significant part of long-termfinance available to an enterprise.116. Cash flow

statement: It is a statement depicting change in cashposition from one period to another.It is a statement of inflow and out inflow cash and cash equivalentCash flow statement of activities1.Operating activity2.Investing activity3.Financing activity117. Sources of cash:Internal sources: (a) Depreciation (b) Amortization (c) Loss on saleof fixed assets (d) Gains from sale of fixed assets (e) Creation ofreserves.External sources: (a) Issue of new shares (b) Raising long term loans(c) Short-term borrowings (d) Sale of fixed assets, investments.118. Application of cash: (a) Purchase of fixed assets (b) Payment oflong-term loans (c) Decreasing in differed payment liabilities (d)Payment of tax, dividend (e) Decrease in unsecured loans and deposits.119. Budget: It is a detailed plan of operations for some specificfuture period. It is an estimate prepared in advance of the period towhich it applies.120. Budgetary control: It is the system of management control andaccounting in which all operations are forecasted and so for aspossible planned ahead, and the actual results compared with theforecasted and planned ones.121. Cash budget: It is a summary statement of firms expected cashinflow and outflow over a specified time period.122. Master budget: A summary of budget schedules in capsule form madefor the purpose of presenting in one report the highlights of thebudget forecast.123. Fixed budget: It is a budget which is designed to remainunchanged irrespective of the level of activity actually attained.124. Zero-based budgeting: It is a management tool which provides asystematic method for evaluating all operations and programmes,current of new allows for budget reductions and expansions in arational manner and allows reallocation of source from low to highpriority programs.125. Goodwill: The present value of firms anticipated excess earnings.126. BRS: It is statement reconciling the balance as shown by the bankpass book and balance shown by the cash book.127 Objectives of BRS: The obj. of preparing such a statement is toknow the causes o difference between the two balances and passnecessary correcting or adjusting entries in the books of the firm.128. Responsibilities of Accounting: It is a system of control bydelegating and locating the responsibilities for costs.129. Profit centre: A centre whose performance is measured in terms ofboth the expense incurs and revenue it earns.130. Cost centre: A location, person or item of equipment for whichcost may be ascertained and used for the purpose of cost control.131. Cost: The amount of expenditure incurred on to a given thing.132. Cost Accounting: It is thus concerned with recording, classifyingand summarizing costs for determination of costs of products orservices planning, controlling and reducing such costs and furnishingof information management for decision making.133. Elements of cost: (A)

Material (B) Labour (C) Expenses (D) Overheads.134. Components of total Costs: (A) Prime cost (B) Factory cost (C)Total cost of production (D) Total cost.135. Prime cost: It consists of direct material direct labour anddirect expenses. It is also known as basic or first or flat cost.136. Factory cost: It comprises prime cost, in addition factoryoverheads which include cost of indirect material, indirect labour andindirect expenses incurred in factory. This cost is also known asworks cost or production cost or manufacturing cost.137. Cost of production: In office and administration overheads areadded to factory cost, office cost is arrived at.138. Total cost: Selling and distribution overheads are added to totalcost of production to get the total cost or cost of sales.139. Cost unit: A unit of quantity of a product, service or time inrelation to which costs may be ascertained or expressed.140. Methods of costing: (A) Job costing (B) Contract costing (C)Process costing (D) Operation costing (E) Operating costing (F) Unitcosting (G) Batch costing.141. Techniques of costing: (A) Marginal costing (B) Direct costing(C) Absorption costing (D) Uniform costing.142. Standard costing: Standard costing is a system under which thecost of the product is determined in advance on certain predeterminedstandards.143. Marginal cost: It is a technique of costing in which allocationof expenditure to production is restricted to those expenses whicharise as a result of production, i.e. materials, labour, and directexpenses and variable overheads.144. Derivates: Derivative is a product whose value is derived fromthe value of one or more basic variables of underlying asset.145. Forwards: A forward contract is customized contracts between twoentities were settlement takes place on a specific date in the futureat todays pre agreed price.146. Futures: A future contract is an agreement b/w two parties to butor sell an asset at a certain time in the future at a certain price.Future contracts are standardized exchange traded contracts.147. Options: An option gives the holder of the option the right to dosome thing. The option holder may exercise or not.148. Call Option: A call option gives the holder of the right but notthe obligation to buy an asset by a certain date for a certain price.149. Put option: A put option gives the holder the right but notobligation to sell an asset by a certain date for a certain price.150. Option price: Option price is the price which the option buyerpays to the option seller. It is also referred to as the optionpremium.151. Expiration date: The date which is specified in the optioncontract is called expiration date.152. European option: It is the option at exercised only on expirationdate it self.153. Basis: Basis means future price minus spot price.154. Cost of carry: The relation b/w future prices and spot prices canbe summarized in terms of what is known as cost of carry.155. Initial margin: The amount that must

be deposited in the margina/c at the time of first entered into future contract is known asinitial margin.156. Maintenance margin: This is some what lower than initial margin.157. Mark to market: In future market, at the end of the each tradingday, the margin a/c is adjusted to reflect the investors gains orloss depending upon the futures selling price. This is called mark tomarket.158. Baskets: Basket options are options on portfolio of underlying asset.159. Swaps: Swaps are private agreements b/w two parties to exchangecash flows in the future accounting to a pre agreed formula.160. Impact cost: Impact cost is cost it is measure of liquidity ofthe market. It reflects the costs faced when actually trading inindex.161. Hedging: Hedging means minimizing the risk.162. Capital Market: Capital market is the market it deals with thelong term investment funds. It consists of two markets 1.Primarymarket 2.Secondary market.163. Primary market: Those companies which are issuing new sharesbuying and selling. In India secondary market is called stockexchange.164. Secondary market: Secondary market is the market where sharesbuying and selling. In India secondary market is called StockExchange.165. Arbitrage: It means purchase and sale of securities in differentmarkets in order to profit from price discrepancies. In other wordsarbitrage is a way of reducing risk of loss caused by pricefluctuations of securities held in a portfolio.166. Meaning of Ratio: Rations are relationships expressed inmathematical terms between figures which are connected with each otherin same manner.167. Activity ratio: It is a measure of the level of activity attainedover a period.168. Mutual Fund: A mutual fund is a pool of money, collected frominvestors, and is invested according to certain investment objectives.169. Characteristics of Mutual fund: Ownership of the MF is in the hands of the investors. MF managed by investment professional The value of portfolio is updated every day.170. Advantage of MF to investors: Portfolio diversification Professional management Reduction in risk Reduction of transaction casts Liquidity Convenience and flexibility171. Net asset value: The value of one unit of investment is called asthe Net Asset Value.172. Open-ended fund: Open ended funds means investors can buy andsell units of fund, at NAV related prices at anytime, directly fromthe fund this is called open ended fund. For ex: unit 64.173. Close-ended fund: Close ended funds means it is open for sale toinvestors for a specific period, after which further sales are closed.Any further transaction for buying the units or repurchasing them,happen, in the secondary markets.174. Dividend option: Investors, who choose a dividend on theirinvestments, will receive dividends from the MF, as when suchdividends are declared.175. Growth option: Investors who do not require periodic

incomedistributions can be choose the growth option.176. Equity funds: Equity funds are those that invest pre-dominantlyin equity shares of company.177. Types of equity funds: Simple equity funds Primary market funds Sectoral funds Index Funds178. Sectoral funds: Sectoral funds choose to invest in one or morechosen sectors of the equity markets.179. Index funds: The fund manager takes a view on companies that areexpected to perform well, and invests in these companies.180. Debt funds: The debt funds are those that are pre-dominantlyinvest in debt securities.181. Liquid funds: The debt funds invest only in instruments withmaturities less than one year.182. Gilt funds: Gilt funds invest only in securities that are issuedby the Govt. and therefore do not carry any credit risk.183. Balanced funds: Funds that invest both in debt and equity marketsare called balanced funds.184. Sponsor: Sponsor is the promoter of the MF and appoints trustees,custodians and the AMC with prior approval of SEBI.185. Trustee: Trustee is responsible to the investors in the MF andappoints the AMC for managing the investment portfolio.186. AMC: The AMC describes Asset Management Company; it is thebusiness face of the MF, as it manages all the affairs of the MF.187. R&T Agents: The R&T agents are responsible for the investorservicing functions, as they maintain the records of investors in MF.188. Custodians: Custodians are responsible for the securities held inthe MF portfolio.189. Scheme takes over: If an existing MF scheme is taken over by theanother AMC, it is called as scheme take over.190. Meaning of load: Load is the factor that is applied to the NAV ofa scheme to arrive at the price.191. Finance: 1. Provision of money at the time when it is required.2. Funds to support an enterprise.192. Market capitalization: Market capitalization means number ofshares issued multiplies with market price per share.193. Price earning ratio: The ratio b/w the share price and the posttax earning of company is called as price earning ratio.194. Dividend yield: The dividend paid out by the company, is usuallya percentage of the face value of a share.195. Market risk: It refers to the risk which the investor is exposedto as a result of adverse movements in the interest rates. It alsoreferred to as the interest rate risk.196. Re-investment risk: It is the risk which an investor has to faceas a result of a fall in the interest rates at the time of reinvestingthe interest income flows from the fixed income security.197. Call risk: Call risk is associated with bonds have an embeddedcall option in them. This option hives the issuer the right to callback the bonds prior to maturity.198. Credit risk: Credit risk refers to the probability that aborrower could default on a commitment to repay debt or band loans.199. Inflation risk: Inflation risk reflects the changes in thepurchasing power of the cash flows resulting from the

fixed incomesecurity.200. Liquid risk: It is also called market risk; it refers to the easewith which bonds could be traded in the market.201. Drawings: Drawings denotes the money withdrawn by the proprietorfrom the business for his personal use.202. Equity: Any claim against the assets of the firm.203. O/S Expenses: The expenses which have become due during theaccounting period for which the Final Accounts have been prepared buthave not yet been paid.204. Methods of Depreciation:1. Uniform charge methods:A. Fixed installment method.B. Depletion method.C. Machine hour rate method.2. Decline charge methods:A. Diminishing balance method.B. Sum of years digits method.C. Double declining method.3. Other methods:A. Group depreciation method.B. Inventory system of depreciationC. Annuity method.D. Depreciation fund method.E. Insurance policy method.205. Gross profit ratio: It indicates the efficiency of

theproduction/trading operation.Formula: Gross profit X 100Net sales206. Net profit ratio: It indicates net margin on sales.Formula: Net profit X 100Net sales207. Return on share holders funds: It indicates measures earningpower of equity capital.Formula: Profits available for Equity share holders X 100Avg. Equity share holders funds208. Earning per Equity share (EPS): It shows the amount of earningsattributable to each equity share.Formula: profits available for E.S holdersNo. of Equity shares209. Dividend yield ratio: It shows the rate of return to shareholdersin the form of dividends based in the market price of the shareFormula: Dividend per share X 100Market price per share210. Price earning ratio: It is a measure for determining the value ofa share. May also be used to measure the rate of return expected byinvestors.Formula: Market price of share (MPS) X 100Earning per share (EPS)211. Current ratio: It measures short-term debt paying ability.Formula: Current AssetsCurrent Liabilities212. Debt-Equity ratio: It indicates the percentage of funds beingfinanced through borrowing; a measure of the extent of trading onequity.Formula: Total Long-term DebtShareholders funds213. Fixed Asset ratio: This ratio explains whether the firm hasraised adequate long-term funds to meet its fixed assets requirements.Formula: Fixed AssetsLong-term funds214. Quick ratio: The ratio termed as liquidity ratio. The ratio isascertained comparing the liquid assets to current liabilities.Formula: Liquid AssetsCurrent Liabilities215. Stock turnover ratio: The ratio indicates whether investment ininventory in efficiently used or not. It, therefore explains

whetherinvestment in inventory within proper limits or not.Formula: Cost of goods soldAvg. stock216. Debtors turnover ratio: The ratio the better it is, since itwould indicate that debts are being collected more promptly. Theration helps in cash budgeting since the flow of cash from

customerscan be worked out on the basis of sales.Formula: Credit SalesAvg. Accounts Receivable217. Creditors Turnover ratio: It indicates the speed with which thepayments for credit purchases are made to the creditors.Formula: Credit PurchasesAvg. Accounts Payable218. Working capital turnover ratio: It is also known as workingcapital leverage ratio. This ration indicates whether or not workingcapital has been effectively utilized in making sales.Formula: Net salesWorking capital219. Fixed assets turnover ratio: This ratio indicates the extent towhich the investments in fixed assets contribute towards sales.Formula: Net salesFixed Assets220. Payout ratio: This ratio indicates what proportion of earningper share has been used for paying dividend.Formula: Dividend per equity share X 100Earning per equity share221. Overall profitability ratio: It is also called as Return onInvestment (ROI) or Return on Capital Employed (ROCE). It indicatesthe percentage of return on the total capital employed in thebusiness.Formula: Operating profit X 100Capital employedThe term capital employed has been given different meaningsA. Sum total of all assets whether fixed or currentB. Sum total of fixed assetsC. Sum total of long-term funds employed in the business, i.e.Share capital + reserves + long term loans (non business assets +fictitious assets).Operating profit means profit before interest and tax222. Fixed interest cover ratio: The ratio is very important from thelenders point f view. It indicates whether the business would earnsufficient profits to pay periodically the interest charges.Formula: Income before interest and taxInterest charges223. Fixed dividend cover ratio: the ratio is important for preferenceshareholders entitled to get dividend at a fixed rate in priority toother shareholders.Formula: Net profit after Interest and TaxPreference dividend224. Debt service coverage ratio: This ratio is explained ability of acompany to make payment of principle amounts also on time.Formula: Net profit before interest and taxInterest + Principal payment installment1 Tax rate225. Proprietary ratio: It is a variant of debt-equity ratio. Itestablishes relationship between the proprietors funds and the totaltangible assets.Formula: Shareholder fundsTotal tangible assets226. Difference b/w joint venture and partnership: In joint venture the business is carried on without using a firm name,In the partnership, the business is carried on under a firm name. In the joint venture the business transactions are recoded under cash systemIn the partnership the business transactions are recorded undermercantile system. In the joint venture, profit and loss is ascertained on completionof the venture.In the partnership, profit and loss is ascertained at the end of each year. In the joint venture, it is confined to a particular operation andit is temporary.In the

partnership, it is confined to a particular operation and it ispermanent.227. Meaning of Working capital: The funds available for conductingday to day operations of an enterprise. Also represented by the excessof current assets current liabilities.228. Financial analysis: The process of interpreting the past,present, and future financial condition of a company.229. Income statement: An accounting statement which shows the levelof revenues, expenses and profit occurring for a given accountingperiod.230. Annual report: The report issued annually by a company, to itsshareholders. It contains financial statement like, trading and profit& loss a/c and balance sheet.231. Bankrupt: A statement in which a firm is unable to meets itsobligations and hence, its assets are surrendered to court foradministration.232. Lease: Lease is a contract b/w two parties under the contract;the owner of the asset gives the right to use that the asset to theuser over an agreed period of the time for a consideration.233. Opportunity cost: The cost associated with not doing something.234. Budgeting: The term budgeting is used for preparing budgets andother producer for planning, co-ordination, and control of businessenterprise.235. Capital: The term capital refers to the total investment ofcompany in money, tangible and intangible assets. It is the totalwealth of a company.236. Capitalization: It is the sum of the par values of stocks andbonds outstanding.237. Over capitalization: When a business is unable to earn fair rateon its outstanding securities.238. Under capitalization: When a business is able to earn fair rateor over rate on its outstanding securities.239. Capital gearing: The term capital gearing refers to therelationship b/w equity and long term debt.240. Cost of capital: It means the minimum rate of return expected byits investment.241. Cash dividend: The payment of dividend in cash.242. Accrual: Recognition of revenues and costs as they are earned orincurred. It includes recognition of transaction relating to assetsand liabilities as they occur irrespective of the actual receipts orpayments.243. Accrued expenses: An expense which has been incurred in anaccounting period but for which no enforceable claim has become due inwhat period against the enterprises.244. Accrued revenue: Revenue which has been earned in an accountingperiod but in respect of which no enforceable claim has become due toin that period by the enterprise.245. Accrued liability: A developing but not yet enforceable claim byan another person which accumulates with the passage of time or thereceipt of service or otherwise. It may rise from the purchase ofservices which at the date of accounting have been only partlyperformed and are not yet billable.246. Preliminary expenses: Expenditure relating to the formation of anenterprise. There include legal accounting and share issue expensesincurred for

formation of the enterprise.247. Charge: Charge means it is obligation to secure an indebt ness.It may be fixed charge and floating charge.248. Appropriation: It is application of profit towards Reserves andDividends.249. Absorption costing: A method where by the cost is determining soas to include the appropriate share of both variable and fixed costs.250. Marginal cost: Marginal cost is the additional cost to produce anadditional unit of a product. It is also called variable cost.251. What is the ex-ordinary item in P&L a/c: The transaction which isnot related to the business is termed as ex-ordinary transactions oritems. E.g. profit or loss on the sale of fixed assets, interestreceived from other company investments, profit or loss on foreignexchange, un expected dividend received.252. Share premium: The excess of issue of price of shares over theirface value. It will be should with the allotment entry in the journal;it will be adjusted in the balance sheet on the liabilities side underthe head of reserves & surplus.253. Accumulated Depreciation: The total to date of the periodicdepreciation charges on depreciable assets.254. Investment: Expenditure an asset held to earn interest, income,profit or other benefits.255. Capital work in progress: Expenditure on capital assets which arein the process of construction as completion.256. Convertible debenture: A debenture which gives the holder a rightto conversion wholly or partly in shares in accordance with term ofissues.256. Redeemable preference share: The preference share that isrepayable either after a fixed (or) determined period (or) at any timedividend by the management.257. Cumulative Preference shares: A class of preference sharesentitled to payment of cumulative dividends. Preference shares arealways deemed to be cumulative unless they are expressly madenon-cumulative preference shares.258. Debentures redemption reserve: A reserve created for theredemption of debentures at a future date.259. Cumulative dividend: A dividend payable as cumulative preferenceshares which it unpaid cumulates as a claim against the earnings of acorporate before any distribution is made to the other shareholders.260. Dividend Equalization reserve: A reserve created to maintain therate of dividend in future years.261. Opening Stock: The term opening stock means goods lying unsoldwith the businessman in the beginning of the accounting year. This isshown on the debit side of the trading account.262. Closing Stock: The term Closing Stock includes goods lyingunsold with the businessman at the end of the accounting year. Theamount of closing stock is shown on the credit side of the tradingaccount and as an asset in the balance sheet.263. Valuation of closing stock: The closing is valued on the basis ofCost or Market prices whichever is less principle.264. Contingency: A condition [or] situation the ultimate out comes

ofwhich gain or loss will be known as determined only as the occurrenceor non occurrence of one or more uncertain future events.265. Contingent Asset: An asset the existence ownership or value ofwhich may be known or determined only on the occurrence or nonoccurrence of one more uncertain future event.266. Contingent liability: An obligation to an existing condition orsituation which may arise in future depending on the occurrence of oneor more uncertain future events.Ex: Product warranty .267. Deficiency: The excess of liabilities over assets of anenterprise at a given date is called deficiency.268. Deficit: The debit balance in the profit and loss a\c is called deficit.269. Surplus: Credit balance in the profit & loss statement afterproviding for proposed appropriation & dividend, reserves.270. Appropriation Assets: An account sometimes included as a separatesection of the profit and loss statement showing application ofprofits towards dividends, reserves.271. Capital redemption reserve: A reserve created on redemption ofthe average cost: - the cost of an item at a point of time asdetermined by applying an average of the cost of all items of the samenature over a period. When weights are also applied in the computationit is termed as weight average cost.272. Floating Change: Assume change on some or all assets of anenterprise which are not attached to specific assets and are given assecurity against debt.273. Difference between Funds flow and Cash flow statement: A Cash flow statement is concerned only with the change in cashposition while a funds flow analysis is concerned with change inworking capital position between two balance sheet dates. A cash flow statement is merely a record of cash receipts anddisbursements. While studying the short-term solvency of a businessone is interested not only in cash balance but also in the assetswhich are easily convertible into cash.274. Difference between the funds flow and Income statement: A funds flow statement deals with the financial resource requiredfor running the business activities. It explains how were the fundsobtained and how were they used. Whereas an income statement disclosesthe results of the business activities, i.e. how much has been earnedand how it has been spent. A funds flow statement matches the funds raised and fundsapplied during a particular period. The source and application offunds may be of capital as well as of revenue nature. An incomestatement matches the incomes of a period with the expenditure of thatperiod, which are both of a revenue nature.275. What is Accounting Policies: Accounting policies are specificaccounting principles and the methods of applying those principlesadopted by an enterprise in the preparation and presentation offinancial statements.276. GAAP: Generally Accepted Accounting Principles. The standards ofaccounting practice which

guide the recording and reporting ofaccounting transactions.277. Gross profit: Sales Cost of goods sold.278. Operating profit: Gross profit Operating exp.279. Profit before tax: Operating profit + other income interest exp.280. Net profit or income: PBT tax liability.281. Current assets: Cash, marketable securities, accounts receivable,inventory, prepaid exp.282. Non current assets: Gross plant & equipment, accumulateddepreciation, other assets and liabilities, all assets with a lifeexceeding one year.283. Current liabilities: Accounts payable, notes payable, accruedsalaries and wage, accrued taxes, current portion of long term debt,all liabilities due in 1 year or less than 1 year.284. Non current liabilities: Bank term loan, mortgage, differedincome tax, all liabilities with maturity exceeding one year.285. Sunk cost: It is an expenditure that has previously been made,that has no bearing on the project being considered.286. Causes of under capitalization:1. Under estimation of capital requirements.2. Under estimation of future earnings.3. Promotion during depression.4. Conservative a dividend policy.287. Watered stock or capital: Water capital means that the realizablevalue of assets of a company is less than its books value. In the wordof Hoagland,288. Causes of watered stock:1. Adopting defective depreciation policy.2. Acquiring the assets of the company at too high (rate) price.3. Acquisition of intangible assets such as patents, copyrights,goodwill etc, at high values which later prove worthless.289. BITS:1. The real value of an under capitalized rate of return company ismore than book value.2. When the company is unable to earn affair rate of return on itsoutstanding securities, it is over capitalized.3. Issue of bonus shares is a remedial measure for under capitalized.290. Key terms and concepts: Financial analysis: Statement of change in financial. Income statement: Position. Revenue: Source of funds. Expense: Use of funds. Gross profit: Asset utilization rations. Balance sheet: Liquidity rations. Current liabilities: Common size financial statements. Non current liabilities: Dupont method. Share holders: Ratio-trend analysis gross sectional analysis. ACRS: Accelerated cost recovery system. FASB: Financial account standard board. Foreign exchange: The price of one currency expressed in terms of another.291. Bridge loan: Temporary finance provided to a project until longterm arrangement are need.292. Insolvency: The in-ability of firm to meets debt obligations.293. Extraordinary items: An income or expenses that arises fromevents that or clearly distinct from the ordinary activities of theenterprises and, therefore are not expected to recur frequently. It isas well as called exceptional items and prior period items. Eg: Lossdue to earthquake, fire accident, profit & loss on sale or rawmaterial, unclaimed dividend. Un expected dividend received etc.294.

Financial structure: It means the entire liabilities side of thebalance sheet. It refers to all the financial resources marshaled bythe firm short as well as long term, and all forms of debt as well asequity.295. Bonus shares: Bonus issue amounts to reduction in the amount of accumulatedprofits and reserves. The residual reserves after the proposed capitalization should be atleast 40% of the paid up capital of the company. The bonus issue is permitted to be made out of free reserves andpremium collected in cash. The notice to accept right shares should not be less than 15 days. Right issue is also known as pre emptive rights. Bonus issue is made to make the nominal value and the market valueof the shares of the company comparable.296. Dividend: Dividend is the distribution of profits of a company among its shareholders Dividend policy of a firm after both the long term financing andshare holders wealth. Scrip or bond dividend promises to pay the share holders at a future date. Cash dividend is usual method of paying dividend in cash. Stock dividend it means the issue of bonus shares to the existingshare holders.297. Sources of bonus issues: Balance in the P & L a/c. General reserve. Capital reserve. Balance in the sinking fund reserve for redemption of debenturesafter the debentures have been redeemed. Capital redemption reserve a/c. Premium received in cash.298. Stock split: The receipt by existing shareholders of a number ofshares of stock for each share they currently own.299. Pay out ratio: Corporations may choose to pay a stable orconstant % of earnings are called payout ratio.Key terms and concepts: Pay out ratio = Record date. Residual payment policies = Payment date. Cash dividend = ex-dividend date. Declaration date = dividend re-investment plans. Stock dividend = Differential taxation. Stock split = flotation and security transaction. Share re-purchase = costs. Dividends divide the pie they do not create it = Information costs clienteles.300. Warrant: It is an option to buy a specified number of new sharesof common stock at a predetermined price. It is a similar to calloption.301. Right Issue: A method of issuing new share of stock by firstissuing rights to current share holders.302. Portfolio Management: Portfolio refers to investment in differentkinds of securities such as shares, debentures or bonds issued bydifferent companies and securities issued by the government.Zerocoupon bond: A bond which does not pay any interest and is issuedat a low discount from its par value which will be paid at maturity.Bits: An investment which derives its value from an asset backing it iscalled derivative. Forward contracts are not at all standardized. The trader who promises to buy in a forward contract is said to bein long position In an options contacts the seller is referred to as a writer. Under financial derivates swaps are in the nature of long

term a seeking. Financial derivatives are mainly used for hedging risks. The instruments that are marked to the market are futures In an option contract, if the option can be exercised only at thetime of maturity it is called European option. The predetermined and price at which an underlying asset has to bebought or sold in an option contract is called exercise price. A combination of forwards by two counter parties with opposite butmatching needs is called. SWAPS.Key terms and concepts: IPE: International petroleum Exchange of London. FRC: Forward rate contract. OCT: Over the counter trading. MOP: Maximum offering price. IPO: Initial public offering. OTEL: Over the counter exchange of India. NSE: National stock exchange. ICSE: Inter connected stock exchange of India. WAP: Wireless application protocol. MPO: Minimum public offer. Stock index: It is a number that helps measure the levels of market.303. Profit & Loss A/C: The main purpose to prepare a P&L A/C is tofind how much profit or loss is gain in the operation of theenterprise304. Balance Sheet: Balance sheet is prepared to find a financialposition of firm at the end of the year.BSE SENSITIVE INDEX OF EQUITY SHARES.The equity shares of 30 companies from both specified and nonspecified groups have been selected on the basics of market activityit due representation to the major industries.COMPUTATION: The index of the day is calculated has they percentage ofthe aggregated market value of the equity shares of all companies inthe sample on that day to the average market value of the equityshares of the same companies during the basic period.INDEX SERVICE: India index service and products limited (IISE)promoted by NSE and CRISIL is the only specialized organization in thecountry to provide stock index service.COST INDEX: Total cost of customers purchases in terms of cost index.ADRS: American depository receipts.GDRS: Global depository receipts.ADS: Each unit of an ADR is called an American Depository Share.MUTUAL FUNDSDEF: A fund established in the form of a trust by a sponsor, to raisemonies by the trustees through the sale of units to the public, underone or more schemes, for investing in securities in accordance withthese regulations. It is started from 1964 in India, under the UTI.Classification: It is depends up on the two basis.1. On the basis of exclusion and operations: Again it is classified intwo types.A. Close-ended: Once the subscription reaches the pre-determinedlevel. The entry of investing is closed after the expiry of the fixedperiod, the entire corpus is disinvested and the proceeds aredistributed to the various unit holders in proportion to theirholding.Features: Once the period is over and/or the target is reached, the door isclosed for the investors. They can not purchase any more units. There is no repurchase

facility by the fund. There is no facility to the purchase and sales in the medial of period. The prices of closed ended scheme units are quoted at a discountof up to 40% below their net asset value.B. Open-ended: Any body can buy this unit at anytime and sell it alsoat any time at his discretion.Features: There is free entry and exit of investors in an open ended fund. There is no time limit. The investors can join in and come out from the fund as and when he desires. These units are ready to repurchase and resell their at any time. The listed prices are very close to their net asset value. The fund fixes a different price for their purchases and sales.2. On the basis of yield and investment pattern: Again it isclassified in to 6 types. Income fund Growth fund Balance fund Specialized mutual fund Money market Taxation fund.Bits: Many market investments are commercial paper. Banker acceptance certificates of deposits, treasury bills etc. The corpus of the fund and its duration are prefixed under close ended fund. Money market mutual fund (MMMF) invests in highly liquid securitieslike commercial paper. The company which sets up a mutual fund in called sponsor. The net asset value is nothing but the intrinsic value of each unitof a mutual fund. The small investors gate way to enter in to big companies is mutual fund. The best suited fund to the business people is growth fund. The facility offered to investors to shift from one schemed to andunder the save fund is called lateral shifting facing. Mutual funds are very popular in USA The pattern of investment of a mutual fund is oriented towards fixedincome yielding securities under income fund scheme. In India the company which actually deals with the corpus of themutual funds is called asset Management Company.DERIVATIVESDef: Derivatives are a special type of off balance sheet instrumentsin which no principal is ever paid. In other words, derivatives areinstruments which make payments calculated using price of invest ratesderived from on balance sheet or cash investment but do not actuallyemploy those cash instruments to fund payments.FINANCIAL DERIVATES:A. Forwards: It refers to an agreement between two parties to exchangean agreed quality of an asset for cash at a certain date in future ata predetermined spice specified in that agreement. In a forwardcontract, a user (holder) who promises to buy the specified asset atan agreed price at a fixed future date is said to be in the longposition.FEATURES:1. OVER THE COUNTER TRADING (OTC): They are traded over counter andnot in exchanges. There is much flexibility since the contract can bemodified according to the requirements of the parties to the contract.2. NO DOWN PAYMENTS: There must be a promise to supply or receive aspecified asset at an agreed price at a future date. The contractingparties need not pay any down payment at the time

of agreement.3. SETTLEMENT AT MATURITY: The important feature of a forward contractis that no money or commodity changes hand when the contract issigned. It takes place on the date of maturity only as given in thecontract.4. NO SECONDARY MARKET: A forward rate contract is a purely PVTcontract and it cannot be traded on an organized stock exchange.B. FUTURES: Future contract is one where there is an agreement betweentwo persons to exchange any asset or currency or commodity for cash ata certain future date an agreed price. The trader who promises to buyis said to be in long position and the one who promises to sell issaid to be in short position in future also.FEATURES:1. Futures are standardized and legally enforceable.2. Once the agreement is entered in to the chances of modifying it arevery remote.3. Down payment the contracting parties need not pay any down paymentat the time of agreement.4. Secondary market futures are dealt in organized exchange and assuch they have secondary market too.C. OPTIONS: Options are yet another tool to manage such risks. The types are:-1. CALL OPTION: A call option is one which gives the option holder theright to buy an underlying asset at a pre-determined price calledexcise price or strike price on or before a specified date in future.2. PUT OPTION: A put option is one which gives the option holder heright to sell an underlying asset at a predetermined price on orbefore a specified date in future.3. DOUBLE OPTION: The option holder both the rights either to by or tosell an underlying asset at a predetermined price on or before aspecified date in future.CREDIT CARDDef: A Credit card is a card which enables card holders to purchasegoods, travel and take dinner in a hotel with out making immediatepayments.Types of cards: Credit card Change card In store card Corporate credit card Business card Smart card Debit cardIn store card:1. The in store cards are issued by retailers or company.2. These cards have currently only at the issuers outlets forpurchasing product of the issuer company3 In India such cards are normally issued by 5 star hotels resorts andbig hotels.Corporate credit card:1. Its issued to pvt and public limited companies.2. Generally the directors, secretary of the company are eligible tothis card.Business cards:1. A business card is similar to a corporate card.2. It is meant for the use of proprietary concerns, firms of chartered a/c etc.3. It is issued to the person of business trips.4. The credit unit is depending on the status of company.Smart cards: It is a new generation card. In India the DENA BANKlaunched the smart card in MUMBAI