Accounts interview questions

7/23/2019 Accounts interview questions

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Meaning of journal:Journal means chronological record of transactions.

9. Meaning of ledger:Ledger is a set of accounts. It contains all accounts of the business

enterprise whether real, nominal, personal.

10. Posting:It means transferring the debit and credit items from the journal to their respective

accounts in the ledger.

11. Trial balance:Trial balance is a statement containing the various ledger balances on aparticular date.

12. 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 ofthe goods returned.

13. 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.

14. Contra entry:Which accounting entr is recorded on both the debit and credit side of thecashboo! is !nown as the contra entr.

1. Petty cas! boo":"ett cash is maintained b business to record pett cash e#penses of the

business, such as postage, cartage, stationer, etc.

1#. Pro$isory note:an instrument in writing containing an unconditional underta!ing signed bthe ma!er, to pa certain sum of mone onl to or to the order of a certain person or to the barer

of the instrument.

1%. C!e&ue:A bill of e#change drawn on a specified ban!er and paable on demand.

1'. (tale C!e&ue:A stale che$ue means not valid of che$ue that means more than si# months

the che$ue is not valid.

20. )an" reconciliation state$ent:It is a statement reconciling the balance as shown b the

ban! passboo! and the balance as shown b the %ash &oo!. 'bj( to !now the difference ) pass

necessar correcting, adjusting entries in the boo!s.

21. Matc!ing conce*t:*atching means re$uires proper matching of e#pense with the revenue.

22. Ca*ital inco$e:The term capital income means an income which does not grow out of or

pertain to the running of the business proper.23. +e,enue inco$e:The income, which arises out of and in the course of the regular businesstransactions of a concern.

24. Ca*ital e-*enditure:It means an e#penditure which has been incurred for the purpose of

obtaining a long term advantage for the business.

2. +e,enue e-*enditure:An e#penditure that incurred in the course of regular business

transactions of a concern.

2#. Differed re,enue e-*enditure:An e#penditure, which is incurred during an accounting

period but is applicable further periods also. +g( heav advertisement.

2%. )ad debts:&ad debts denote the amount lost from debtors to whom the goods were sold oncredit.

2'. De*reciation: Depreciation denotes graduall and permanent decrease in the value of asset

due to wear and tear, technolog changes, laps of time and accident.

29. ictitious assets: These are assets not represented b tangible possession or propert.

+#amples of preliminar e#penses, discount on issue of shares, debit balance in the profit And

loss account when shown on the assets side in the balance sheet.

30. /ntanglbe ssets:Intangible assets mean the assets which is not having the phsicalappearance. And its have the real value, it shown on the assets side of the balance sheet.


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31. ccrued /nco$e:Accrued income means income which has been earned b the business

during the accounting ear but which has not et been due and, therefore, has not been received.

32. utstanding /nco$e:'utstanding Income means income which has become due during theaccounting ear but which has not so far been received b the firm.

33. (us*ense account:The suspense account is an account to which the difference in the trial

balance has been put temporaril.34. De*letion:It implies removal of an available but not replaceable source, -uch as e#tracting

coal from a coal mine.

3. $ortiation:The process of writing of intangible assets is term as amortiation.

3#. Dila*idations:The term dilapidations to damage done to a building or other propert during

tenanc.

3%. Ca*ital e$*loyed:The term capital emploed means sum of total long term funds emploed

in the business. i.e.

(!are ca*ital reser,es 5 sur*lus long ter$ loans 6 non business assets fictitious

assets7

3'. 8&uity s!ares:Those shares which are not having pref. rights are called e$uit shares.

39. Pref.s!ares:Those shares which are carring the pref.rights are called pref. shares"ref.rights in respect of fi#ed dividend. "ref.right to repament of capital in the event of

compan winding up.

40. e,erage:It is a force applied at a particular wor! to get the desired result.

41. *erating le,erage:the operating leverage ta!es place when a changes in revenue greater

changes in +&IT.

42. inancial le,erage:it is nothing but a process of using debt capital to increase the rate of

return on e$uit43. Co$bine le,erage:It is used to measure of the total ris! of the firm operating ris! 0 financial ris!.

44. oint ,enture:A joint venture is an association of two or more the persons who combined

for the e#ecution of a specific transaction and divide the profit or loss their of an agreed ratio.4. Partners!i*:"artnership is the relation b/w the persons who have agreed to share the profitsof business carried on b all or an of them acting for all.

4#. actoring:It is an arrangement under which a firm 1called borrower2 receives advances

against its receivables, from financial institutions 1called factor2

4%. Ca*ital reser,e:The reserve which transferred from the capital gains is called capital

reserve.

4'. ;eneral reser,e:the reserve which is transferred from normal profits of the firm is calledgeneral reserve

49. ree Cas!:The cash not for an specific purpose free from an encumbrance li!e surplus

cash.

0. Minority /nterest:*inorit interest refers to the e$uit of the minorit shareholders in asubsidiar compan.

1. Ca*ital recei*ts: %apital receipts ma be defined as 3non4recurring receipts from the owner

of the business or lender of the mone crating a liabilit to either of them.

2. +e,enue recei*ts:5evenue receipts ma defined as 3A recurring receipts against sale of

goods in the normal course of business and which generall the result of the trading activities6.


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3. Meaning of Co$*any:A compan is an association of man persons who contribute mone

or mones worth to common stoc! and emplos it for a common purpose. The common stoc! so

contributed is denoted in mone and is the capital of the compan.

4. Ty*es of a co$*any:

7. -tatutor companies

8. 9overnment compan:. ;oreign compan

4. +egistered co$*anies:

A. %ompanies limited b shares&. %ompanies limited b guarantee

%. ?. "rohibits an Invitation to the public tosubscribe for its shares or debentures.

#. Public co$*any:A compan, the articles of association of which does not contain the

re$uisite restrictions to ma!e it a private limited compan, is called a public compan.

%. C!aracteristics of a co$*any:

@ oluntar association

@ -eparate legal entit

@ ;ree transfer of shares@ Limited liabilit

@ %ommon seal

@ "erpetual e#istence.

'. or$ation of co$*any:

@ "romotion

@ Incorporation@ %ommencement of business

9. 8&uity s!are ca*ital:The total sum of e$uit shares is called e$uit share capital.

#0. ut!oried s!are ca*ital:It is the ma#imum amount of the share capital, which a compan

can raise for the time being.

#1. /ssued ca*ital:It is that part of the authoried capital, which has been allotted to the public

for subscriptions.

#2. (ubscribed ca*ital:it is the part of the issued capital, which has been allotted to the public

#3. Called u* ca*ital:It has been portion of the subscribed capital which has been called up b

the compan.

#4. Paid u* ca*ital:It is the portion of the called up capital against which pament has beenreceived.

#. Debentures:=ebenture is a certificate issued b a compan under its seal ac!nowledging a

debt due b it to its holder.

##. Cas! *rofit:cash profit is the profit it is occurred from the cash sales.


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#%. Dee$ed *ublic td. Co$*any:A private compan is a subsidiar compan to public

compan it satisfies the following terms/conditions -ec :172:(

7. Baving minimum share capital > la!hs8. Accepting investments from the public

:. Co restriction of the transferable of shares

D. Co restriction of no. of members.>. Accepting deposits from the investors

#'. (ecret reser,es:-ecret reserves are reserves the e#istence of which does not appear on theface of balance sheet. In such a situation, net assets position of the business is stronger than that

disclosed b the balance sheet.

T!ese reser,es are created by:

7. +#cessive depot an asset, e#cessive over4valuation of a liabilit.8. %omplete elimination of an asset, or under valuation of an asset.

#9. Pro,ision:provision usuall means an amount written off or retained b wa of providing

depreciation, renewals or diminutions in the value of assets or retained b wa of providing foran !nown liabilit of which the amount cannot be determined with substantial accurac.

%0. +eser,e:The provision in e#cess of the amount considered necessar for the purpose it wasoriginall made is also considered as reserve "rovision is charge against profits while reserves is

an appropriation of profits %reation of reserve increase proprietors fund while creation of

provisions decreases his funds in the business.

%1. +eser,e fund:The term reserve fund means such reserve against which clearl investment

etc.,

%2.


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%%. Ca*ital structure:It refers to the mi# of sources from where the long4term funds re$uired in

a business ma be raisedE in other words, it refers to the proportion of debt, preference capital

and e$uit capital.

%'. *ti$u$ ca*ital structure: %apital structure is optimum when the firm has a combination

of e$uit and debt so that the wealth of the firm is ma#imum.

%9. =acc:It denotes weighted average cost of capital. It is defined as the overall cost of capitalcomputed b reference to the proportion of each component of capital as weights.

'0. inancial brea">e,en *oint:It denotes the level at which a firms +&IT is just sufficient to

cover interest and preference dividend.

'1. Ca*ital budgeting: %apital budgeting involves the process of decision ma!ing with regard

to investment in fi#ed assets. 'r decision ma!ing with regard to investment of mone in

longterm projects.

'2. Paybac" *eriod:"abac! period represents the time period re$uired for complete recoverof the initial investment in the project.

'3. ++:Accounting or average rates of return means the average annual ield on the project.

'4. ?P@: The Cet present value of an investment proposal is defined as the sum of the present

values of all future cash inflows less the sum of the present values of all cash out flowsassociated with the proposal.

'. Profitability inde-:Where different investment proposal each involving different initial

investments and cash inflows are to be compared.

'#. /++:Internal rate of return is the rate at which the sum total of discounted cash inflows

e$uals the discounted cash out flow.

'%. Treasury $anage$ent:It means it is defined as the efficient management of li$uidit and

financial ris! in business.

''. Concentration ban"ing: It means identif locations or places where customers are placedand open a local ban! a/c in each of these locations and open local collection canter.

'9. Mar"etable securities:-urplus cash can be invested in short term instruments in order to

earn interest.

90. geing sc!edule:In an ageing schedule the receivables are classified according to their age.

91. Ma-i$u$ *er$issible ban" finance MP)7:It is the ma#imum amount that ban!s can

lend a borrower towards his wor!ing capital re$uirements.

92. Co$$ercial *a*er: cp is a short term promissor note issued b a compan, negotiableb endorsement and deliver, issued at a discount on face value as ma be determined b the

issuing compan.

93. )ridge finance:It refers to the loans ta!en b the compan normall from commercial ban!sfor a short period pending disbursement of loans sanctioned b the financial institutions.

94. @enture ca*ital:It refers to the financing of high4ris! ventures promoted b new $ualified

ntrepreneurs who re$uire funds to give shape to their ideas.9. Debt securitiation:It is a mode of financing, where in securities are issued on the basis of a

pac!age of assets 1called asset pool2.

9#. ease financing:Leasing is a contract where one part 1owner2 purchases assets and permitsits views b another part 1lessee2 over a specified period

9%. Trade Credit:It represents credit granted b suppliers of goods, in the normal course of

business.


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9'. ,er draft:


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112. De,elo*$ent ban"s:It offers long4term and medium term loans including foreign currenc

loans

113. /nternational agencies:International agencies li!e the I;%,I&5=,A=&,I*; etc. provideindirect assistance for obtaining foreign currenc.

114. (eed ca*ital assistance:The seed capital assistance scheme is desired b the I=&I for

professionall or technicall $ualified entrepreneurs and persons possessing relevante#perienceand s!ills and entrepreneur traits.

11.

1a2Issue of new shares

1b25aising long term loans

1c2-hort4term borrowings1d2-ale of fi#ed assets, investments

11'. **lication of cas!:

1a2 "urchase of fi#ed assets

1b2 "ament of long4term loans1c2 =ecrease in deferred pament liabilities

1d2 "ament of ta#, dividend

1e2 =ecrease in unsecured loans and deposits

119. )udget:It is a detailed plan of operations for some specific future period. It is an estimate

prepared in advance of the period to which it applies.

120. )udgetary control:It is the sstem of management control and accounting in which alloperations are forecasted and so for as possible planned ahead, and the actual results compared

with the forecasted and planned ones.

121. Cas! budget:It is a summar statement of firms e#pected cash inflow and outflow over aspecified time period.

122. Master budget: A summar of budget schedules in capsule form made for the purpose of

presenting in one report the highlights of the budget forecast.123. i-ed budget:It is a budget, which is designed to remain unchanged irrespective of the

level of activit actuall attained.

124. Bero> base> budgeting:It is a management tool which provides a sstematic method forevaluating all operations and programmes, current of new allows for budget reductions and

e#pansions in a rational inner and allows reallocation of source from low to high priorit

programs.

12. ;oodAill:The present value of firms anticipated e#cess earnings.


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12#. )+(:It is a statement reconciling the balance as shown b the ban! pass boo! and balance

shown b the cash boo!.

12%. bjecti,e of )+(:The objective of preparing such a statement is to !now the causes ofdifference between the two balances and pass necessar correcting or adjusting entries in the

boo!s of the firm.

12'. +es*onsibilities of accounting:It is a sstem of control b delegating and locating the5esponsibilities for costs.

129. Profit centre:A centre whose performance is measured in terms of both the e#pense incurs

and revenue it earns.

130. Cost centre:A location, person or item of e$uipment for which cost ma be ascertained and

used for the purpose of cost control.

131. Cost:The amount of e#penditure incurred on to a given thing.

132. Cost accounting:It is thus concerned with recording, classifing, and summariing costsfor determination of costs of products or services planning, controlling and reducing such costs

and furnishing of information management for decision ma!ing.

133. 8le$ents of cost:

1A2 *aterial

1&2 Labour1%2 +#penses

1=2 'verheads

134. Co$*onents of total costs:1A2 "rime cost 1&2 ;actor cost

1%2Total cost of production 1=2 Total c?st

13. Pri$e cost:It consists of direct material direct labour and direct e#penses. It is also !nown

as basic or first or flat cost.

13#. actory cost:It comprises prime cost, in addition factor overheads which include cost ofindirect material indirect labour and indirect e#penses incurred in factor. This cost is also

!nown as wor!s cost or production cost or manufacturing cost.

13%. Cost of *roduction:In office and administration overheads are added to factor cost, officecost is arrived at.

13'. Total cost:-elling and distribution overheads are added to total cost of production to get

the total cost or cost of sales.

139. Cost unit:A unit of $uantit of a product, service or time in relation to which costs ma beascertained or e#pressed.

140.Met!ods of costing:1A2Job costing 1&2%ontract costing 1%2"rocess costing 1=2'peration

costing 1+2'perating costing 1;2


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14. orAards:a forward contract is customied contracts between two entities were settlement

ta!es place on a specific date in the future at todas pre agreed price.

14#. utures:A future contract is an agreement between two parties to bu or sell an asset at a

certain time in the future at a certain price. ;uture contracts are standardied e#change traded

contracts.14%. *tions:An option gives the holder of the option the right to do something. The option

holder option ma e#ercise or not.

14'. Call o*tion: call option gives the holder the right but not the obligation to bu an asset ba certain date for a certain price.

149. Put o*tion: A put option gives the holder the right but not obligation to sell an asset b a

certain date for a certain price.

10. *tion *rice: 'ption price is the price which the option buer pas to the option seller. It isalso referred to as the option premium.

11. 8-*iration date:The date which is specified in the option contract is called e#piration

date.

12. 8uro*ean o*tion:It is the option at e#ercised onl on e#piration date itself.13. )asis:&asis means future price minus spot price.

14. Cost of carry: The relation between future prices and spot prices can be summaried interms of what is !nown as cost of carr.

1. /nitial $argin:The amount that must be deposited in the margin a/c at the time of first

entered into future contract is !nown as initial margin.

1# Maintenance $argin: This is somewhat lower than initial margin.

1%. Mar" to $ar"et:In future mar!et, at the end of the each trading da, the margin a/c is

adjusted to reflect the investors gains or loss depending upon the futures selling price. This is

called mar! to mar!et.

1'. )as"ets:bas!et options are options on portfolio of underling asset.

19. (Aa*s:swaps are private agreements between two parties to e#change cash flows in the

future according to a pre agreed formula.

1#0. /$*act cost:Impact cost is cost it is measure of li$uidit of the mar!et. It reflects the costs

faced when actuall trading in inde#.

1#1. edging:Bedging means minimie the ris!.

1#2. Ca*ital $ar"et:%apital mar!et is the mar!et it deals with the long term investment funds.

It consists of two mar!ets 7.primar mar!et 8.secondar mar!et.

1#3. Pri$ary $ar"et:Those companies which are issuing new shares in this mar!et. It is also

called new issue mar!et.

1#4. (econdary $ar"et: (econdar mar!et is the mar!et where shares buing and selling. In

India secondar mar!et is called stoc! e#change.

1#. rbitrage:It means purchase and sale of securities in different mar!ets in order to profit

from price discrepancies. In other words arbitrage is a wa of reducing ris! of loss caused b

price fluctuations of securities held in a portfolio.

1##. Meaning of ratio:5atios are relationships e#pressed in mathematical terms between

figures which are connected with each other in same manner.

1#%. cti,ity ratio: It is a measure of the level of activit attained over a period.


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1#'. Mutual fund: A mutual fund is a pool of mone, collected from investors, and is invested

according to certain investment objectives.

1#9. C!aracteristics of $utual fund:'wnership of the *; is in the hands of the of theinvestors *; managed b investment professionals The value of portfolio is updated ever da

1%0. d,antage of M to in,estors: "ortfolio diversification "rofessional management

5eduction in ris! 5eduction of transaction casts Li$uidit %onvenience and fle#ibilit1%1. ?et asset ,alue: the value of one unit of investment is called as the Cet Asset alue

1%2. *en>ended fund:open ended funds means investors can bu and sell units of fund, at

CA related prices at an time, directl from the fund this is called open ended fund.

1%3. Close ended funds:close ended funds means it is open for sale to investors for a specific

period, after which further sales are closed. An further transaction for buing the units or

repurchasing them, happen, in the secondar mar!ets.

1%4. Di,idend o*tion:investors who choose a dividend on their investments, will receivedividends from the *;, as when such dividends are declared.

1%. ;roAt! o*tion:investors who do not re$uire periodic income distributions can be choose

the growth option.

1%#. 8&uity funds: e$uit funds are those that invest pre4dominantl in e$uit shares ofcompan.

1%%. Ty*es of e&uity funds:-imple e$uit funds "rimar mar!et funds -ectoral funds Inde#funds

1%'. (ectoral funds:-ectoral funds choose to invest in one or more chosen sectors of the e$uit

mar!ets.

1%9. /nde- funds:The fund manager ta!es a view on companies that are e#pected to perform

well, and invests in these companies

1'0. Debt funds:the debt funds are those that are pre4dominantl invest in debt securities.

1'1. i&uid funds:the debt funds invest onl in instruments with maturities less than one ear.

1'2. ;ilt funds:gilt funds invests onl in securities that are issued b the 9'T. and therefore

does not carr an credit ris!.

1'3. )alanced funds:;unds that invest both in debt and e$uit mar!ets are called balanced

funds.

1'4. (*onsor: sponsor is the promoter of the *; and appoints trustees, custodians and the A*%

with prior approval of -+&I.

1'. Trustee:Trustee is responsible to the investors in the *; and appoint the A*% for

managing the investment portfolio.

1'#. MC:the A*% describes Asset *anagement %ompanE it is the business face of the *;,as it manages all the affairs of the *;.

1'%. + 5 T gents:the 5)T agents are responsible for the investor servicing functions, as the

maintain the records of investors in *;.1''. Custodians:%ustodians are responsible for the securities held in the mutual funds

portfolio.

1'9. (c!e$e ta"es o,er:if an e#isting *; scheme is ta!en over b another A*%, it is called asscheme ta!e over.

190. Meaning of load:Load is the factor that is applied to the CA of a scheme to arrive at the

price.


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192. Mar"et ca*italiation: mar!et capitaliation means number of shares issued multiplied

with mar!et price per share.

193. Price earnings ratio:The ratio between the share price and the post ta# earnings ofcompan is called as price earnings ratio.

194. Di,idend yield:The dividend paid out b the compan, is usuall a percentage of the face

value of a share.19. Mar"et ris": It refers to the ris! which the investor is e#posed to as a result of adverse

movements in the interest rates. It also referred to as the interest rate ris!.

19#. +e>in,est$ent ris":It the ris! which an investor has to face as a result of a fall in theinterest rates at the time of reinvesting the interest income flows from the fi#ed income securit.

19%. Call ris":%all ris! is associated with bonds have an embedded call option in them. This

option hives the issuer the right to call bac! the bonds prior to maturit.

19'. Credit ris":%redit ris! refers to the probabilit that a borrower could default on acommitment to repa debt or band loans

199. /nflation ris":Inflation ris! reflects the changes in the purchasing power of the cash flows

resulting from the fi#ed income securit.200. i&uid ris":It is also called mar!et ris!, it refers to the ease with which bonds could be traded in the

mar!et.

201. DraAings: =rawings denotes the mone withdrawn b the proprietor from the business forhis personal use.

202. utstanding /nco$e:'utstanding Income means income which has become due during

the accounting ear but which has not so far been received b the firm.

203. utstanding 8-*enses:'utstanding +#penses refer to those e#penses which have become

due during the accounting period for which the ;inal Accounts have been prepared but have not

et been paid.

204. Closing stoc":The term closing stoc! means goods ling unsold with the businessman at

the end of the accounting ear.20. Met!ods of de*reciation:

1.


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20%. ;ross *rofit ratio:it indicates the efficienc of the production/trading operations.

;ormula ( 9ross profit

4444444444444444444H7?? Cet sales

20'. ?et *rofit ratio:it indicates net margin on sales

;ormula( Cet profit 444444444444444 H 7??

Cet sales

209. +eturn on s!are !olders funds:it indicates measures earning power of e$uit capital.

;ormula("rofits available for +$uit shareholders

44444444444444444444444444444444444444444444444H 7??

Average +$uit -hareholders ;unds

210. 8arning *er 8&uity s!are 8P(7:it shows the amount of earnings attributable to eache$uit share.

;ormula("rofits available for +$uit shareholders

4444444444444444444444444444444444444444444444

Cumber of +$uit shares

211. Di,idend yield ratio:it shows the rate of return to shareholders in the form of dividends

based in the mar!et price of the share

;ormula(=ividend per share

4444444444444444444444444444 H7??

*ar!et price per share

212. Price earnings ratio:it a measure for determining the value of a share. *a also be used to

measure the rate of return e#pected b investors.

;ormula( *ar!et price of share 1*"-2 444444444444444444444444444444444444H 7??

+arnings per share 1+"-2

213. Current ratio:it measures short4term debt paing abilit.

;ormula(

%urrent Assets444444444444444444444444

%urrent Liabilities

214. Debt>8&uity +atio:it indicates the percentage of funds being financed through

borrowingsE a measure of the e#tent of trading on e$uit.

;ormula( Total Long4term =ebt

444444444444444444444444444


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-hareholders funds

21. i-ed ssets ratio:This ratio e#plains whether the firm has raised ade$uate long4termfunds to meet its fi#ed assets re$uirements.

;ormula( ;i#ed Assets

4444444444444444444 Long4term ;unds

21#. Euic" +atio:The ratio termed as li$uidit ratio. The ratio is ascertained comparing theli$uid assets to current liabilities.

;ormula(

Li$uid Assets

444444444444444444444444%urrent Liabilities

21%. (toc" turno,er +atio:The ratio indicates whether investment in inventor in efficientl

used or not. It, therefore e#plains whether investment in inventor within proper limits or not.;ormula( cost of goods sold

444444444444444444444444444444 Average stoc!

21'. Debtors Turno,er +atio:The ratio the better it is, since it would indicate that debts arebeing collected more promptl. The ration helps in cash budgeting since the flow of cash from

customers can be wor!ed out on the basis of sales.

;ormula( %redit sales

4444444444444444444444444444 Average Accounts 5eceivable

219. Creditors Turno,er +atio:It indicates the speed with which the paments for creditpurchases are made to the creditors.

;ormula( %redit "urchases

44444444444444444444444 Average Accounts "aable

220. =or"ing ca*ital turno,er ratio:It is also !nown as Wor!ing %apital Leverage 5atio. This

ratio indicates whether or not wor!ing capital has been effectivel utilied in ma!ing sales.;ormula( Cet -ales

4444444444444444444444444444

Wor!ing %apital

221. i-ed ssets Turno,er ratio:This ratio indicates the e#tent to which the investments in

fi#ed assets contribute towards sales.;ormula( Cet -ales

44444444444444444444444444

;i#ed Assets


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222 .Pay>outs +atio:This ratio indicates what proportion of earning per share has been used for

paing dividend.

;ormula( =ividend per +$uit -hare 44444444444444444444444444444444444444444444H7??

+arning per +$uit share

223. ,erall Profitability +atio:It is also called as 35eturn on Investment6 15'I2 or 5eturn on

%apital +mploed 15'%+2. It indicates the percentage of return on the total capital emploed in

the business.;ormula( 'perating profit

444444444444444444444444H 7??

%apital emploed

The term capital emploed has been given different meanings a.sum total of all assets Whether

fi#ed or current b.sum total of fi#ed assets, c.sum total of long4term funds emploed In the

business, i.e., share capital 0reserves )surplus 0long term loans 1non business assets 0

fictitious assets2. 'perating profit means profit before interest and ta#224. i-ed /nterest Co,er ratio: The ratio is ver important from the lenders point of view. It

indicates whether the business would earn sufficient profits to pa periodicall the interestcharges.

;ormula( Income before interest and Ta#

444444444444444444444444444444444444444 Interest %harges

22. i-ed Di,idend Co,er ratio:This ratio is important for preference shareholders entitled to get

dividend at a fi#ed rate in priorit to other shareholders.

or$ula: Cet "rofit after Interest and Ta#

444444444444444444444444444444444444444444"reference =ividend

22#. Debt (er,ice Co,erage ratio:This ratio is e#plained abilit of a compan to ma!e pament of

principal amounts also on time.

or$ula: Cet profit before interest and ta#

44444444444444444444444444444444444444444444444 74Ta# rate

Interest 0 "rincipal pament installment

22%. Pro*rietary ratio:It is a variant of debt4e$uit ratio . It establishes relationship between the

proprietors funds and the total tangible assets.

or$ula: -hareholders funds

444444444444444444444444444444

Total tangible assets

22'. Difference betAeen joint ,enture and *artners!i*: 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 jointventure, the business transactions are recorded under cash sstem In the partnership, the business transactions

are recorded under mercantile sstem. 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 ear. In the joint venture, it is

confined to a particular operation and it is temporar. In the partnership, it is confined to a particular operation

and it is permanent.

229. Meaning of =or"ing ca*ital:The funds available for conducting da to da operations of an

enterprise. Also represented b the e#cess of current assets over current liabilities.

230. Conce*ts of accounting:


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7. &usiness entit concepts( 4 According to this concept, the business is treated as a separate entit

distinct from its owners and others.

8. 9oing concern concept (4 According to this concept, it is assumed that a business has a reasonable

e#pectation of continuing business at a profit for an indefinite period of time.

:. *one measurement concept (4 This concept sas that the accounting records onl those transactions

which can be e#pressed in terms of mone onl.

D. %ost concept( 4 According to this concept, an asset is recorded in the boo!s at the price paid toac$uire it and that this cost is the basis for all subse$uent accounting for the asset.

>. =ual aspect concept( 4 In ever transaction, there will be two aspects the receiving aspect and the

giving aspectE both are recorded b debiting one accounts and crediting another account. This is called double

entr.

F. Accounting period concept( 4 It means the final accounts must be prepared on a periodic basis.

Cormall accounting period adopted is one ear, more than this period reduces the utilit of accounting data.

K. 5ealiation concept( 4 According to this concepts, revenue is considered as being earned on the data

which it is realied, i.e., the date when the propert in goods passes the buer and he become legall liable to

pa.

. *aterialit concepts( 4 It is a one of the accounting principle, as per onl important information will

be ta!en, and


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24%. ccrued liability:A developing but not et enforceable claim b another person which

accumulates with the passage of time or the receipt of service or otherwise. It ma rise from the purchase of

services which at the date of accounting have been onl partl performed and are not et billable.

24'. Con,ention of ull disclosure:According to this convention, all accounting statements should be

honestl prepared and to that end full disclosure of all significant information will be made.

249. Con,ention of consistency:According to this convention it is essential that accounting practices

and methods remain unchanged from one ear to another.20. Define t!e ter$ *reli$inary e-*enses:+#penditure relating to the formation of an enterprise.

There include legal accounting and share issue e#penses incurred for formation of the enterprise.

21. Meaning of C!arge:charge means it is a obligation to secure an indebt ness. It ma be fi#ed

charge and floating charge.

22. **ro*riation:It is application of profit towards 5eserves and =ividends.

23. bsor*tion costing:A method where b the cost is determine so as to include the appropriate

share of both variable and fi#ed costs.

24. Marginal Cost:*arginal cost is the additional cost to produce an additional unit of a product. It

is also called variable cost.

2. =!at are t!e e->ordinary ite$s in t!e P5 aFc: The transaction which is not related to the

business is termed as e#4ordinar transactions or e#4ordinar items. +gg(4 profit or losses on the sale of fi#ed

assets, interest received from other compan investments, profit or loss on foreign e#change, une#pecteddividend received.

2#. (!are *re$iu$:The e#cess of issue of price of shares over their face value. It will be showed

with the allotment entr in the journalE it will be adjusted in the balance sheet on the liabilities side under the

head of 3reserves ) surplus6.

2%. ccu$ulated De*reciation:The total to date of the periodic depreciation charges on depreciable

assets.

2'. /n,est$ent:+#penditure on assets held to earn interest, income, profit or other benefits.

29. Ca*ital:9enerall refers to the amount invested in an enterprise b its owner. +#E paid up share

capital in corporate enterprise.

2#0. Ca*ital =or" /n Progress:+#penditure on capital assets which are in the process of construction

as completion.

2#1. Con,ertible Debenture:A debenture which gives the holder a right to conversion wholl orpartl in shares in accordance with term of issues.

2#2. +edee$able Preference (!are:The preference share that is repaable either after a fi#ed 1or2

determinable period 1or2 at an time dividend b the management.

2#3. Cu$ulati,e *reference s!ares:A class of preference shares entitled to pament of emulates

dividends. "reference shares are alwas deemed to be cumulative unless the are e#pressl made non4

cumulative preference shares.

2#4. Debenture rede$*tion reser,e:A reserve created for the redemption of debentures at a future

date.

2#. Cu$ulati,e di,idend:A dividend paable as cumulative preference shares which it unpaid

+mulates as a claim against the earnings of a corporate before an distribution is made to the other

shareholders.

2##. Di,idend 8&ualiation reser,e:A reserve created to maintain the rate of dividend in future

ears.2#%. *ening (toc":The term opening stoc! means goods ling unsold with the businessman in the

beginning of the accounting ear. This is shown on the debit side of the trading account.

2#'. Closing (toc":The term %losing -toc! includes goods ling unsold with the businessman at the

end of the accounting ear. The amount of closing stoc! is shown on the credit side of the trading account and

as an asset in the balance sheet.

2#9. @aluation of closing stoc":The closing stoc! is valued on the basis of 3%ost or *ar!et prices

whichever is less6 principle.


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2%2. Contingency:A condition 1or2 situation the ultimate out comes of which gain or loss will be

!nown as determined onl as the occurrence or non occurrence of one or more uncertain future events.

2%3. Contingent sset:An asset the e#istence ownership or value of which ma be !nown or

determined onl on the occurrence or non occurrence of one more uncertain future event.

2%4. Contingent liability:An obligation to an e#isting condition or situation which ma arise in future

depending on the occurrence of one or more uncertain future events.

2%. Deficiency:the e#cess of liabilities over assets of an enterprise at a given date is called deficienc.2%#. Deficit:The debit balance in the profit and loss a/c is called deficit.

2%%. (ur*lus:%redit balance in the profit ) loss statement after providing for proposed appropriation

) dividend, reserves.

2%'. **ro*riation ssets:An account sometimes included as a separate section of the profit and loss

statement showing application of profits towards dividends, reserves.

2%9. Ca*ital rede$*tion reser,e:A reserve created on redemption of the average cost( 4 the cost of

an item at a point of time as determined b appling 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.

2'0. loating C!ange:Assume change on some or all assets of an enterprise which are not attached to

specific assets and are given as securit against debt.

2'1. Difference betAeen unds floA and Cas! floA state$ent: A %ash flow statement is concerned

onl with the change in cash position while a funds flow analsis is concerned with change in wor!ing capital

position between two balance sheet dates. A cash flow statement is merel a record of cash receipts anddisbursements. While studing the short4term solvenc of a business one is interested not onl in cash balance

but also in the assets which are easil convertible into cash.

2'2. Difference betAeen t!e unds floA and /nco$e state$ent:

A funds flow statement deals with the financial resource re$uired for running the business activities. It

e#plains how were the funds obtained and how were the 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 3funds raised6 and 3funds applied6 during a particular period. The source and

application of funds ma be of capital as well as of revenue nature. An income statement matches the incomes

of a period with the e#penditure of that period, which are both of a revenue nature.

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