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 ascertainment 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 in such a way that will help
the management in taking decisions.

4. Concepts of Accounting:

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

(2)Going concern 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.

(3) Money measurement concept: This concept says that the accounting records only those
transactions which can be expressed in terms of money only.

(4) Cost concept: According to this concept, 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.

(5) Dual aspect concept: In every transaction, there will be two aspects the receiving aspect and
the giving aspect; both are recorded by debiting one accounts and crediting another account. This
is called double entry.

(6) Accounting period concept: It means the final accounts must be prepared on a periodic basis.
Normally accounting period adopted is one year, more than this period reduces the utility of
accounting data.

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

(8) Materiality concept: It is a one of the accounting principle, as per only important information
will be taken and unimportant information will be ignored in the preparation of the financial
statement.

(9) Matching Concept: 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.

(10) Accrual concept: The profit arises only when there is an increase in owners capital, which
is a result of excess of revenue over expenses 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 accounting statements should be honestly
prepared and to that end full disclosure of all significant information will be made.
(C) Consistency: According to this convention it is essential that accounting practices and
methods remain unchanged from one year top another.
(D) Materiality: it take only significant information

6. System of Book keeping:

(1) Diary system: Small proprietors of small business can keep their records in a small diary. All
purchase of goods, incurring of expenses, sale of goods and earning of other incomes can be
recorded directly in the diary.

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

(3) Double Entry system: Every business event or transaction has two aspects. The recording the
double effect of any transaction is known as double entry system.

7. System of Accounting:

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

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

(C)Hybrid system: Hybrid system of accounting is a combination of the cash and mercantile
system.
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 transaction.
10. Meaning of ledger: Ledger is a set of accounts. It contains all accounts of the business
enterprise whether real, nominal, personal.
11. Posing: 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. Object of trial balance to check the arithmetical accuracy of ledger accounting.
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 good 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. Promissory note: An instrument in writing containing an unconditional undertaking signed by
the maker, to pay certain sum ofmoney only to or to the order of a certain person or to the bare of
the 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 means more than six months the
cheque is not valid.
20. Bank Reconciliation Statement: It is a statement reconciling the balances 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 matching of 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 course of the regular business
transaction of a concern.
24. Capital expenditure: It means an expenditure which has been incurred for the purpose of
obtaining a long term advantage for the business.
25. Revenue expenditure: An expenditure that incurred in the course of regular business
transactions of a concern.
26. Deferred 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 decease 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. 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. Outstanding income: Outstanding income means income which has become 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 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. Dilapidation: The term dilapidation 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. Pre. 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 in revenue greater
changes in EBIT.
42. Financial leverage: It is nothing but a process of using debt capital to increase the rate of
return on equity.

43. Combine leverage: It is used to measure of the total risk of thefirm=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 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 capital gains is called capital reserve.
48. General reserve: The reserve which 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 on-recurring receipts from the owner of
the business or lender of the money crating a liability to either of them.
52. Revenue receipts: Revenue receipts may defined as a recurring receipts against sale of
goods in the normal course of business andwhich generally the result of the trading activities.
53. Meaning of Company: A company is an association of many persons who contribute money
or moneys worth to common stock and employs It for a common purpose. The common stock so
contributed is denoted in money and is the capital of the company.
54. Types of 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 companies
55. Private company: A private co. is which by its AOA: Restricts the right of the members to
transfer of shares Limits the no. of members 50. Prohibits any Invitation to the public to
subscribe for 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 business
59. Equity share capital: The total sum of equity shares is called equity share capital.
60. Authorized share capital: It is the maximum amount of the share capital which a company
can raise for the time being.
61. Issued capital: It is the part of the authorized capital which has been allotted to the public for
subscriptions.
62. Subscribed capital: It is the part of the issued capital which has been allotted to the public.
63. Called up capital: It has been portion of the subscribed capital which has been called up by
the company.
64. Paid up capital: It is the portion of the called up capital against which payment has been
received.
65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a
debt due by it to its holder.
66. Cash profits: Cash profit is the profit it is occurred from the cash 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 of which does not appear on the
face of balance sheet. In such a situation, net assets position of the business is stronger than that
disclosed by the balance sheet.
These reserves are 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 or retained by way of providing
depreciation, renewals or diminutions in the value of assets or retained by way of providing for

any know liability of which the amount cannot be determined with substantial accuracy. Or It is
charge against profit to meet unknown loss
70. Reserve: Reserves are the amounts which the businessman keeps aside 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 is invested outside the business.
72. 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 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 analysis
76. 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 be received in future.
77. Capital structure: It refers to the mix of sources from where thelong-term 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 adjusted 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 be compared.
86. IRR: internal rate is the rate at which the sum total of discounted cash inflows equals the
discounted cash out flow.
87. Treasury management: it means it is defined as the efficient management of liquidity and
financial risk in business.
88. Concentration banking: it means identify locations or 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 term instruments 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 give shape to their ideas.
95. Debt securitization: It is a mode of financing, where insecurities are issued on the basis of a
package of assets (called asset pool).Subprime: to get loans without any security
96. 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 source
103. 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 interest rate on such CDs it is based on the prevailing market
conditions.
107. Public deposits: It is very important source of short term and medium term finance. The
company can accept PD from members of the public and shareholders. It has the maturity period
of 6 months to 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 equivalent Cash flow statement
of activities1.Operating activity2.Investing activity3.Financing activity
117. 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 specific future 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 cash inflow and outflow over a
specified time period.
122. Master budget: A summary of budget schedules in capsule form made for the purpose of
presenting in one report the highlights of the budget forecast.
123. Fixed budget: It is a budget which is designed to remain unchanged irrespective of the level
of activity actually attained.
124. Zero-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 center: A center whose performance is measured in terms ofboth the expense incurs
and revenue it earns.

130. Cost center: 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, classifying and summarizing costs for
determination of costs of products or services planning, controlling and reducing such costs and
furnishingof information management for decision making.
133. Elements of cost: (A) Material (B) Labor (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 labor 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 laborand indirect expenses incurred in factory. This cost is also known
as works cost or production cost or manufacturing cost.
137. Cost of production: In office and administration overheads are added to factory cost, office
cost is arrived at.
138. Total cost: Selling and distribution overheads are added to 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 in relation to which costs may be
ascertained or expressed.
140. Methods of costing: (A) Job costing (B) Contract costing (C)Process costing (D) Operation
costing (E) Operating costing (F) Unit costing (G) Batch costing.
141. Techniques of costing: (A) Marginal costing (B) Direct costing(C) Absorption costing (D)
Uniform costing.
142. Standard costing: Standard costing is a system under which thecost of the product is
determined in advance on certain predetermined standards.
143. Marginal cost: It is a technique of costing in which allocation of expenditure to production
is restricted to those expenses which arise as a result of production, i.e. materials, labor, and
direct expenses and variable overheads.

144. Derivate: Derivative is a product whose value is derived from the value of one or more
basic variables of underlying asset.145. Forwards: A forward contract is customized contracts
between two entities were settlement takes place on a specific date in the future at todays pre
agreed price.
146. Futures: A future contract is an agreement b/w two parties to but or sell an asset at a certain
time in the future at a certain price. Future contracts are standardized exchange traded contracts.
147. Options: An option gives the holder of the option the right to do something. 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 expiration dateit 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 marginal/c at the time of first
entered into future contract is known as initial margin.
156. Maintenance margin: This is somewhat lower than initial margin.
157. Mark to market: In future market, at the end of the each trading day, the margin a/c is
adjusted to reflect the investors gains 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 exchange cash 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 different markets in order to profit
from price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by
price fluctuations of securities held in a portfolio.
166. Meaning of Ratio: Rations are relationships expressed in mathematical terms between
figures which are connected with each other in same manner.
167. Activity ratio: It is a measure of the level of activity attained over a period.
168. Mutual Fund: A mutual fund is a pool of money, collected from investors, 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 flexibility
171. 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 to investors for a specific
period, after which further sales are closed. Any further transaction for buying the units or
repurchasing them, happen, in the secondary markets.

174. Dividend option: Investors, who choose a dividend on their investments, will receive
dividends from the MF, as when such dividends are declared.
175. Growth option: Investors who do not require periodic income distributions can be choose
the growth option.
176. Equity funds: Equity funds are those that invest pre-dominantly in equity shares of
company.
177. Types of equity funds: Simple equity funds Primary market funds Sectorial funds Index
Funds
178. Sectorial funds: Sectorial funds choose to invest in one or more chosen sectors of the equity
markets.
179. Index funds: The fund manager takes a view on companies that are expected to perform
well, and invests in these companies.
180. Debt funds: The debt funds are those that are pre-dominantly invest in debt securities.
181. Liquid funds: The debt funds invest only in instruments with maturities less than one year.
182. Gilt funds: Gilt funds invest only in securities that are issued by the Govt. and therefore do
not carry any credit risk.
183. Balanced funds: Funds that invest both in debt and equity markets are called balanced
funds.
184. Sponsor: Sponsor is the promoter of the MF and appoints trustees, custodians and the AMC
with prior approval of SEBI.
185. Trustee: Trustee is responsible to the investors in the MF and appoints the AMC for
managing the investment portfolio.
186. AMC: The AMC describes Asset Management Company; it is the business face of the MF,
as it manages all the affairs of the MF.
187. R&T Agents: The R&T agents are responsible for the investor servicing functions, as they
maintain the records of investors in MF.
188. Custodians: Custodians are responsible for the securities held 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 of shares issued multiplies with
market price per share.
193. Price earning ratio: The ratio b/w the share price and the post tax earning of company is
called as price earning ratio.
194. Dividend yield: The dividend paid out by the company, is usually a percentage of the face
value of a share.
195. Market risk: It refers to the risk which the investor is exposed to as a result of adverse
movements in the interest rates. It also referred to as the interest rate risk.
196. Re-investment risk: It is the risk which an investor has to faces a result of a fall in the
interest rates at the time of reinvesting the interest income flows from the fixed income security.
197. Call risk: Call risk is associated with bonds have an embedded call option in them. This
option hives the issuer the right to callback the bonds prior to maturity.
198. Credit risk: Credit risk refers to the probability that borrower could default on a
commitment to repay debt or band loans.
199. Inflation risk: Inflation risk reflects the changes in the purchasing power of the cash flows
resulting from the fixed income security.
200. Liquid risk: It is also called market risk; it refers to the ease with which bonds could be
traded in the market.
201. Drawings: Drawings denotes the money withdrawn by the proprietor from 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 sales
206. Net profit ratio: It indicates net margin on sales.Formula: Net profit X 100Net sales
207. Return on shareholders funds: It indicates measures earningpower of equity
capital.Formula: Profits available for Equity share holders X 100Avg. Equity share holders funds
208. Earning per Equity share (EPS): It shows the amount of earning attributable to each equity
share.Formula: profits available for E.S holdersNo. of Equity shares
209. Dividend yield ratio: It shows the rate of return to shareholders in the form of dividends
based in the market price of the shareFormula: Dividend per share X 100Market price per share
210. 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 Assets /Current
Liabilities
212. 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 funds
213. Fixed Asset ratio: This ratio explains whether the firm hasraised adequate long-term funds
to meet its fixed assets requirements.Formula: Fixed Assets/ Long-term funds
214. Quick ratio: The ratio termed as liquidity ratio. The ratio isascertained comparing the
liquid assets to current liabilities.Formula: Liquid AssetsCurrent Liabilities
215. 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. stock

216. Debtors turnover ratio: The ratio the better it is, since itwould indicate that debts are being
collected more promptly. Theratio helps in cash budgeting since the flow of cash from customers
can be worked out on the basis of sales.Formula: Credit Sales/Avg. Accounts Receivable
217. Creditors Turnover ratio: It indicates the speed with which thepayments for credit purchases
are made to the creditors.Formula: Credit Purchases/Avg. Accounts Payable
218. 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 sales/Working capital
219. Fixed assets turnover ratio: This ratio indicates the extent towhich the investments in fixed
assets contribute towards sales.Formula: Net salesFixed Assets
220. Pay-out ratio: This ratio indicates what proportion of earning per 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 indicates the 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 tax
222. 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 charges
223. 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 dividend
224. 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 rate
225. Proprietary ratio: It is a variant of debt-equity ratio. Itestablishes relationship between the
proprietors funds and the totaltangible assets.Formula: Shareholder fundsTotal tangible assets
226. 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 under mercantile system. In the joint venture, profit and loss
is ascertained on completion of 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 and it is
temporary.In the partnership, it is confined to a particular operation and it ispermanent.
227. Meaning of Working capital: The funds available for conducting day to day operations of an
enterprise. Also represented by the excess of 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 accounting period.
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 its obligations and hence, its assets
are surrendered to court for administration.
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 the user 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 another producer for planning,
co-ordination, and control of business enterprise.
235. Capital: The term capital refers to the total investment of company in money, tangible and
intangible assets. It is the total wealth 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 the relationship 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 or incurred. It includes
recognition of transaction relating to assets and liabilities as they occur irrespective of the actual
receipts or payments.
243. 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.
244. Accrued revenue: Revenue which has been earned in an accounting period but in respect of
which no enforceable claim has become due toxin that period by the enterprise.
245. Accrued liability: A developing but not yet enforceable claim byanother person which
accumulates with the passage of time or the receipt of service or otherwise. It may rise from the
purchase of services which at the date of accounting have been only partly performed and are not
yet billable.
246. Preliminary expenses: Expenditure relating to the formation of an enterprise. There include
legal accounting and share issue expenses incurred 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 or items. E.g. profit or loss on the sale of fixed assets,
interest received from other company investments, profit or loss on foreign exchange, un
expected dividend received.
252. Share premium: The excess of issue of price of shares over their face value. It will be
should with the allotment entry in the journal;it will be adjusted in the balance sheet on the
liabilities side under the head of reserves & surplus.
253. Accumulated Depreciation: The total to date of the periodic depreciation 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 righto conversion wholly or
partly in shares in accordance with term of issues.
256. Redeemable preference share: The preference share that is repayable either after a fixed (or)
determined period (or) at any time dividend by the management.
257. Cumulative Preference shares: A class of preference shares entitled to payment of
cumulative dividends. Preference shares are always deemed to be cumulative unless they are
expressly made on-cumulative preference shares.
258. Debentures redemption reserve: A reserve created for the redemption of debentures at a
future date.
259. Cumulative dividend: A dividend payable as cumulative preference shares which it unpaid
cumulates as a claim against the earnings of corporate 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 unsold with 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 occurrence or 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 separate section of the profit and
loss statement showing application of profits 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
same nature over a period. When weights are also applied in the computation it is termed as
weight average cost.
272. 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.
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
business one 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
funds obtained and how were they used. Whereas an income statement discloses the results of
the business activities, i.e. how much has been earned and how it has been spent. A funds flow
statement matches the funds raised and funds applied during a particular period. The source
and application offunds may be of capital as well as of revenue nature. An income statement
matches the incomes of a period with the expenditure of that period, which are both of a revenue
nature.
275. What is Accounting Policies: Accounting policies are specific accounting principles and the
methods of applying those principles adopted by an enterprise in the preparation and presentation
of financial statements.

276. GAAP: Generally Accepted Accounting Principles. The standards of accounting 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, accumulated depreciation, other assets and
liabilities, all assets with a life exceeding one year.
283. Current liabilities: Accounts payable, notes payable, accrued salaries 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, differed income 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 realizable value 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 its outstanding securities, it
is over capitalized.3. Issue of bonus shares is a remedial measure for undercapitalized.
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. Shareholders: 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 long-term 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 the enterprises 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 accumulated profits 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 emotive 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 debentures after 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 first issuing 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.Zero-coupon 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 derivate 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 theenterprise
304. 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 non-specified groups have been selected on the basics of market activity it due
representation to the major industries.COMPUTATION: The index of the day is calculated has
the 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 raise monies by the trustees through the sale of units to the public,
undergone or more schemes, for investing in securities in accordance with these 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 cannot 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: Anybody 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 unit of 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.
DERIVATIVES : Derivatives are a special type of off balance sheet instruments in 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 be modified according to the
requirements of the parties to the contract.
2. NO DOWN PAYMENTS: There must be a promise to supply or receive specified asset at an
agreed price at a future date. The contracting parties need not pay any down payment at the time
of agreement.
3. SETTLEMENT AT MATURITY: The important feature of a forward contracts 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 between two 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 CARDef: 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

What is book building? ----Book building is a process where by the company seeks bids from
prospective investors for its Public offer. Based upon the bids received the offer price is fixed.

What is an IPO? ----IPO stands for Initial Public offering. The shares are issued for the first
time to the public as opposed to the secondary market.

What is an ADR? ----ADR is American Depository Receipt. A non US company issues ADRs in
US in order to rise capital. An ADR will normally be in multiples of Equity shares of that
company.

What are the various investing opportunities you have?

Real Estate, Government securities, Debentures, Equity Shares, Preference shares, tax saving
Bonds, Mutual funds, Insurance etc.

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.

What is a subsidiary company? ----A company which is controlled by its holding company.
The control could be because of any of the following factors.
More than 50% of capital being owned by holding company.
Majority of the Board of directors of subsidiary are from holding company.

Who are promoters? ----Promoters are the people who initiates the idea of creating the
company. They may/may not join the Board of directors after the company is formed.

What are consolidated statements? ----These are the financial statements reported by a holding
company and these statements include the financial performance of its subsidiaries.

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. Normally issued to the employees of the
companies to motivate and retain them.

What is the rule of Nominal accounts? ---Debit all expenses and losses.
Credit all incomes and gains.

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.

What is the financial year in India?

Jan-Dec or Apr-mar or July-June?-----Apr1-Mar31

Give exmaple for the following:

Non Cash Expenditures : Depreciation, Write down of investments, Provisions.
Intangible assets : Goodwill, PATENTS, TRADEMARKS
Adjustments after Net Income : Dividends, Interest on capital in case of partnerships
Contingent liabilities : Guarantees
Fixed expenses : Rent, Insurance

All Items which are in Bold are important

1.all accounting concepts

2.revenue expendatures/deffered revenue expenditures/capital expenditure
3.pvt ltd company,public ltd comp
4.Types of shares
5.share premium/discount on issue of shares
6.memorentum of association
7.ariticles of association
8.subsidary company or holding company
9.minority interst
10.primary market or secondary market

11.stock exchanges in india and abroad

12.depriciation-Acounting standard-6
13.depletion/amortization
14.SEBI(security exchange board india)
15.provision/reserve
16.general reserve or capital reserve
17.debentures and bonus shares
18.divedend-interium and final dividend
19.inventory valution and methods
20.goodwill valution and methods
21.cashflow and funds flow
22.working capital
23.marginal cost/margin of safety/break evenpoint/vairiable cost/semi varible cost/fixed
cost
24.jointventure and partnership
25.non recurring items in p&l account
Ex:sale of investment
26.non cash expenditure acoount in p&l account
ex:depiriciatiaon

27.diff. between revenue and income

28.accrued income
29.debtor/creditor defenations
30.write entry and posting
outstanding salaries
31.accounting treatment:
loss of inventory---no insurance coverage
partly insurance coverage
fully insurance coverage
32. ratio analysis----all ratios are prepared33. form of balance sheet---horizontal\vertical--schedule 6 very important fully covered
34.capital profit and revenue profit
35.rebate u/s 88 of income tax act
36.mutual fund/ trade discount/cash discount
37.duties of finance manager
38.interim audit/statutory audit
39.Sensex
Questions asked in Earlier interviews collected from frineds

Provisions Vs Reserves

What is Balance sheet and Cash flow

Schedule 6 format

Trading A/c Vs P&L A/c

Exampls of Non Recurring Expenditure

Revenue Vs Income

Ratio Analysis All formulas

(Imp debt equity , optimim stage of debt equity)

what is cost of goods sold

Finance Manager Duties

Capital expenditure and Fixed expenditure

What is IPO

What is ADR

Tell about Credit Rating agencies

Diff b/w Gross profit and Net Profit

Leverages (operating and financial )

Leverages usage

Closing stock ( Cost or Market value which is less)

PortFolio Management

Mutual funds

What is Limited in company names means

Prospectues

Qurom

Diff b/w Pvt and Public Limited Company

Income Tax Paid is not treated as Expenditure for Income Tax

Time Value of Money, how it will useful in Capital Budgeting

Father of Economics -- Adam Smith

Father of Scientific MgtFW Taylor

Integrated and Non Integrated Accounts

Holding Vs subsidiary companies

Revaluation Reserve

Recurring and Non Recurring Items in P&l a/c

Association not for profit

Deductions

Accrual Basis and Cash Basis

GodWill

Working Capital

Costing Basics and important topics

What is meant by B/sheet, Cashflow

How going concern concept reflects in B.sheet

(Like margin of safety, variable cost, semi-variable cose)

Q)depreciation,Amortization and Impairment?
Q)cap expr and rev.expr
Q)tangible-intangible
Q)associate & holding ---subsiif we r having 20 to 50% interest more than 50% subsi
Q)What is appropriation account and what are thecomponents of appr.a/c?from Net profit
--------toprovide reserves.
Q)what is EPS and DPS?
Q)Asset write-down arises, when on review by acompany, circumstances indicate that the
carryingvalue of an asset, that an entity holds for usagemay not be recoverable, and if the sum of
expectedfuture cash flows is less than the carrying value ofthe asset, an impairment is recognized
to the extentthe carrying value exceeds the fair value of theasset.Note: Asset write-down is not to
be confused withdepreciation or amortization (which is a regularcharge of the cost of an asset
over its estimateduseful life). Asset impairment arises as result ofreview of the longlived assets
by an entity, whereas depreciation is a uniform charge of the cost ofthe asset over its estimated
useful life.
Diff between Capital Resv and Revenue Resrv?

What are the components of B/S?What is net-worth?

What is differed Expenditure?Where can u find iton B/S?
what is liquid ratio and acid ratio? Debt-Equity ratio?
What is unearned revenue?Ex: Advanced income
What is Working Capital?Structure of cost sheet?
Functions of financial Mgt?
What is Primary market and Secondary market?
SEBI?
capital expenditure -- money spent for additionsor improvements to structures or equipment that
areused to carry on the activities of an organizationor individual.
Q)capital gain or loss -- the gain or loss incurredfrom the sale or disposition of assets
includingsecurities and real estate.Q)accounting equation -- the basic equation ofdouble-entry
accounting that reflects therelationship of assets, liabilities and net worth(reserves + stockholders
equity + retainedearnings). The equation may be expressed in itssimplest form as: assets =
liabilities + net worth.
Q)accounts payable -- amounts recorded asliabilities on the books of a company, institutionor
individual that are owed, but have not yet beenpaid, to a creditor for previously
purchasedmerchandise or services.
Q)accounts receivable -- amounts recorded as assetson the books of a company, institution or
individualthat are due, but have not yet been collected, froma debtor for the previous purchase of
merchandise orservices.employee stock optionsminority interestconsolidated accountskinds of
depreciation charge , employee stock optionsMergers and Amalgamations
********Derivatives

mutual funds
open end and close end
option and warrants

Recently asked questions:What is letter of credit,spin off,What is the process to get ADR, Influence of Going concern
concept on B/s,
Market capitalization/