GLOSSARY OF ACCOUNTING TERMS - PART 2

Balance Sheet: Balance sheet is a financial statement that reports an entity's assets, liabilities & equity as on a particular date.

Bank Overdraft: Bank overdraft indicates a situation where a bank allows payments in excess of the available bank balance up to a prescribed limit. This results in a negative or credit bank balance.

Bill of Exchange: Bill of exchange is a negotiable instrument where one party promises to pay another party a fixed sum of money on a pre-determined date.

Bill of Lading: Bill of lading is a legal document indicating the quantity & description of goods being transported through a ship.

Bonus issue: Bonus issue is the issue of shares or securities by a company to its shareholders without any receipt of consideration.

Book Value: Book value is the carrying value of an asset after reducing the accumulated depreciation from the cost of the asset. It is the net value of an asset reflected in the Balance Sheet. It is also known as ‘Written Down Value’.

Borrowed funds: Borrowed funds indicate the total of amount borrowed by a company through banks, financial institutions, debenture holders, depositors, etc.

Branch accounting: Branch accounting is a system of accounting where accounts of different branches of an enterprise located at different places are maintained separately to determine the business performance of each branch.

Break-even point: Break-even point (BEP) is the level of output at which total sales is equal to the total cost. At this point, profit earned by a business is zero & contribution is equal to fixed cost. If output is more than BEP, the business will earn a profit & if it is less than BEP, the business will incur a loss.

Budget: A budget is an estimation of the incomes or expenses based upon projected level of activity.

Buyback: Buyback is a process by which a Company buys back (and cancels) its own shares from the shareholders.

Calls in arrears: Calls in arrears are the amounts called up or receivable from the shareholders against the shares applied or purchased by them.

Capital expenditure: Capital expenditure is the expenditure incurred by a business resulting in long term benefits, either through an addition of a long-term asset or repayment of a long- term liability. Eg. Purchase of Machinery, Repayment of bank loan.

Capital gains: Capital gains is the profit arising on the sale of a capital asset, computed as per the provisions of the Income Tax Act, 1961.

Capital profit / loss: Capital profit is the profit arising on the sale of a long term / capital asset. Similarly, a capital loss is the loss arising on the sale of a long term / capital asset.

Capital receipt: Capital receipt is the amount received by a business either on the sale or disposal of a long-term asset or which results in an inflow of capital or borrowings for the business. Eg, Addition to capital, Loan taken from bank, Sale of Building.

Capital Redemption Reserve: Capital redemption reserve is a type of capital reserve created through transfer of divisible profits & can be utilized only for issue of bonus securities.

Capital Reserve: Capital reserve indicates the accumulated capital profits of a company & is shown under Reserves & Surplus in the balance sheet of a Company.

Capital work in progress: Capital work in progress indicates cost of fixed assets which a Company has acquired or is in the process of acquiring & which have not been put to use.

Cash Credit Account: A cash credit account is a type of bank account through which a bank allows payments in excess of the available bank balance, up to a certain specified limit resulting in a negative or credit bank balance.

Cash Flow Statement: Cash flow statement is a financial statement which shows the aggregate cash inflows, cash outflows & changes in cash & cash equivalents. It is divided into three sections, namely a) cash flow from operating activities, b) cash flow from investing activities & c) cash flow from financing activities. The format of the cash flow statement is defined as per Accounting Standard 3.

Common-Size Statement: Common size statement is a statement in which each item of a profit & loss statement is expressed as a percentage of a sales & each item in a balance sheet is expressed as a percentage of the balance sheet total or comparative or analytical use.

Consignee: Consignee is a person who acts as an agent on behalf of the consignor & is responsible for selling goods on his behalf.

Consignment: Consignment is a process of sending of goods from the principal (consignor) to the agent (consignee) for sale.

Consignor: Consignor is a person who owns & sends goods to his agent for sale.

Contingent Liability: A contingent liability is a liability that may, or may not arise depending upon the outcome of an uncertain event. Contingent liability is disclosed as a note to the financial statements describing the nature of the liability & the estimated amount likely to be payable. Eg. An on-going court case, A discounted bill of exchange

Contract Costing: Contract costing is a method of cost accounting used in construction contracts. Accounting for construction contracts is defined in Accounting Standard 7.

Contractee: Contractee is the party for whom a construction contract is being executed. The contractee is in the nature of a debtor or a customer for the contractor.

Contractor: Contractor is a party who executes a construction contract.

Conversion: Conversion refers to changing a nature of an entity into a different entity. Eg. A partnership firm can be converted into a private limited company.

Cost Accounting: Cost accounting is a form of accounting which measures & records the cost incurred for a business activity.

Cost of goods sold: Cost of goods sold indicates cost of the goods sold by a business. This is computed as: Opening Stock + Purchase - Purchase Returns - Closing Stock

Creditor: Creditor is a party to whom amount is payable by the business for the goods or services purchased from it.

Current Assets: Current assets are assets which are expected to be realised by a company within one year or within a normal operating cycle.

Current Liabilities: Current liabilities are liabilities which are payable by a company within one year or within a normal operating cycle.

Current Ratio: Current ratio is the ratio of the current assets to the current liabilities. It measures the ability of a business to pay its short-term obligations. A current ratio of 2:1 or greater is considered to be desirable for a business.

Current Tax: Current tax indicates the provision made for income tax by a company for a financial year and is disclosed in its Profit & Loss statement.

Custom Duty: Customs duty is an indirect tax paid on import of goods into the country.