Financial Terms
1)Commercial paper:
These are the short term obligations issued by the
corporation or a bank to meet the short term needs like b/r,accurued exp.
2)Money market:
The money
market is the financial market for short-term borrowing and
lending, typically up to one year.
This contrasts
with the capital market for longer-term funds. In the money
markets, banks lend
to and borrow from each other,
short-term financial instruments such as certificates of deposit
3)Intangible assest
Something
of value that cannot be physically touched, such as a brand, franchise, trademark, or patent. opposite of tangible asset.
4)operating asset
Asset which contributes
to the regular income from a company's operations
5)Fictitious assest
FICTITIOUS
ASSET is debit balance
includes on balance sheets as assets that do not conform to the definition of
an asset.
6)Fixed asset
FIXED ASSETS are those
assets of a permanent nature required for the normal conduct of a business, and
which will not normally be converted into cash
during the ensuring fiscal period.
7)Wasting asset
A fixed asset, such as a mine or an oil well, that
diminishes in value over time
8)Contingent
liability
It is a type of liability the ultimate outcome of which
depends upon the occurrence or non-occurrence of some future event
9)Earnings per share
Earnings available to the equity share holders divided by no
of share
10)Good will
It is excess of consideration paid over net worth of the
assets acquired
11)Capital
expenditure
Any expenditure incurred for acquiring fixed asset, for
reducing the cost of production and
increasing the earning capacity of a business
12) Revenue
expenditure
Any expenditure incurred for day to day running of the
business and the maintaining the life of
capital asset.
13) Deferred revenue
expenditure:
It is basically a form of revenue expenditure but the
benefit from it continues more than a year
14) Holding company
A company is said to be the holding company of other if it
holds more than 50% of the total voting power, controls the
composition of board of directors
further for the subsidiary of subsidiary company
15) Public company
A company which has a minimum paid up share capital of RS 5
lakhs and which is not a pvt company is called a public company.
Further the subsidiary of a public company is also a public
company even though it is incorporated as a pvt company
16) Private company
A company
which has a minimum paid up share capital of RS 1lakhs,
which
restricts the right to transfer the shares, which limits the number of members
to 50,which prohibits from making an invitation
for the
acceptance of shares or debentures,
17) Minority
interest:
Minority
interest in business is ownership of a company that is less than 50% of
outstanding shares.
18) Earnings per
share
Calculated
by dividing a company’s net profit by the number of common shares outstanding. EPS = net profit after taxes – preferred dividends / number of common shares outstanding.
19) Diluted EPS
Diluted EPS is a company's EPS figure as calculated using fully diluted shares outstanding
20)current asset
Cash
and other assets that are capable of being converted into cash within a
relatively short time period, usually one year or less.
21)cost of capital
The
cost of capital for a firm is a weighted sum of the cost of equity and the cost
of debt.
22)reserve:
that
portion of current earnings set aside to take care of possible future losses or
for other specified purposes.
23) cash flow
statement
a part of a company's financial reports that records the
amounts of cash and equivalents
entering and leaving a company.
24)
Deferred taxes
Deferred taxes
arise from temporary differences, due to differences between accounting methods for tax and
financial
statement
purposes.
25)Financial
statement
A report of basic accounting data that helps investors understand a firm's financial history and activities.
A report of basic accounting data that helps investors understand a firm's financial history and activities.
26)Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time.
A statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time.
27)Balance sheet
Also called the statement of financial condition, it is a summary of a company's assets, liabilities, and owners' equity.
Also called the statement of financial condition, it is a summary of a company's assets, liabilities, and owners' equity.
28)Explanatory notes
The
explanatory notes communicate additional information regarding items included
and excluded from the body of the statement. These normally include:
Ex:Accounting
policies ,Detailed disclosure regarding individual elements ,Commitments and contingencies
29)Funds from
opearations
A figure used by real estate investment trusts (REITS) to
define the cash flow from their operations. It is calculated by adding
depreciation and amortization expenses to earnings, and sometimes quoted on a
per share basis
30)Under writer:
One that guarantees the purchase of a full issue of stocks
or bonds.
31)Prepaid
expenditure:
An asset that arises on a balance sheet because of the
payment of something in advance
32)Accured expenses or
outstanding exp:
Costs that
have been incurred during an accounting period but have not yet been paid.33)Price earnings ratio:
P/E
Ratio is calculated by dividing the market price of common stock by its annual
earnings per share.
p/e ratio = market value/earnings per
share
34)Market price:
The
actual reported price at which the stock or bond is currently sold in the open
market
35)Market value:
The
total value of a company’s outstanding shares, which is computed by multiplying
the market price of the stock by the number of shares outstanding
36)Opportunity
cost:
The cost of an alternative that must be forgone in order to
pursue a certain action.
37)Sunk cost:
A cost that has been incurred and cannot be reversed. Also
referred to as "stranded cost."
38)Share:
39)Mutual fund:
40)Ordinary
resolution:
A
resolution passed by a majority vote by shareholders at a general meeting
41)Special resolution:
A
resolution passed by a majority of not less than three-fourths of members or
share holders.
42)Variable
overheads:
These are the expenditures that changes according to the
volume of production.
43)Fixed exp:
These are the expenditures that do not change according to
the volume of production.
44)Semivariable exp:
A cost composed of a mixture of fixed
and variable components. Costs are fixed for a set level of production or
consumption, becoming variable after the level is exceeded. Also known as a
"semi-fixed cost." Labor costs in a factory are semi-variable. The
fixed portion is the wage paid to workers for their regular hours. The variable
portion is the overtime pay they receive when they exceed their regular hours.
45)Capital: Money or other assets owned or used in operating a business.
46)Asset: Anything
an individual or corporation owns is considered an asset.
49)sensex-sensitive
index
50)NCLT- national
company law tribunal
51)CLB-Company law
board
52)IRDA- insurance
regulatory development authority
53)NIFTY-
54)BSE-bombay stock
exchange
55)NSE-national stock
exchange
56)preliminary expenditure:
Expenditure incurred before the incorporation of a company
57)Debenture:a
document issued in acknowledgement of a debt.
58)LIBOR: London
59)MIBOR :Mumbai
inter bank offer rate
60)Book value: The
value at which an asset is carried on a balance sheet. In other words, the cost
of an asset minus accumulated depreciation.
61)Net-worth: Net worth (sometimes "net
assets") is the total assets minus total liabilities of an individual or company. For a company, this is called shareholders' equity or net assets.
62) Assets =
Liabilities + Shareholders' Equity
63) assets -
liabilities = shareholders' equity
64)Bills receivable:
Money which
is owed to a company by customers who have bought goods and services on credit.
It is a current asset that will repeatedly turn into cash as customers pay
their bills. Also known as receivables.
65)Bills payable:
The money a
company owes for goods, services and supplies purchased for use in a company’s
operations.
1)Certificate required for
incorporation of a pvt company is CERTIFICATE OF INCORPORATION
2)Certificate required for
incorporation of a public company is CERTIFICATE OF COMMENCEMENT OF BUSINESS
3)Maximum number of directors in
a pvt ltd company is SEVEN
4)Maximum number of directors in
Public Ltd Company is NO LIMIT
5)The persons who form the
company are called PROMOTERS
6)Articles of association:
It is a document containing rules and
regulations for internal management of a company.
7)Prospectus:
Any document issued as a
prospectus and includes any notice or advertisement inviting applications from public
for subscription of shares and debentures of a company.(chapter: 6 page no:1)
8)Red herring prospectus:
It is a prospectus issued before the issue of final prospectus to test
and finalise ISSUE SIZE and ISSUE
PRICE.
9)Book building:
It is a process under which investor has given an option to choose the
price from the given price band.
10)Shelf prospectus:
It means a prospectus issued by financial
institution or bank for one or more issues of the securities mentioned in
prospectus.
11)Information memorandum(tell in your own words):
At the second and subsequent stages of
issue of securities the company will have to file information memorandum to explain the new charges created and to show the
change in financial position.
12)Allotment of share:
When a share application is accepted it is
called allotment.
13)Equity shares:
Equity shares are those which are not
preference shares.
14)Preference shares:
Preference shares means the shares which
has preference in respect of payment of dividends and repayment of share capital in case of winding up of a company.
15)Equity shares VS preference shares:
Equity shares have voting rights but
preference shares have no voting rights.
Preference shares are repaid
after certain period but equity shares are repaid at the time winding up
of the company only.
Preference share holders are given
priority in case of payment of dividend and repayment of capital.
16)Sweat equity shares:
Equity shares issued by the company to
the employees or the directors at a discount or for a consideration other than
cash.
17)Accounting assumptions:
a) going concern: as per this it is
assumed that the company has no necessity or intention of closing the business
in a near future.
b)consistency: as per this it is assumed
that the accounting policies are followed consistently(with out any change)
c)accrual:costs and revenues are
recognized when they are incurred or earned but not when the money is received.
18)Reserve:
It is the amount set aside from the
current profits to meet any unforeseen contingencies. No amount is transferred
to reserves incase the company is in losses.
19)Provision:
It is a charge against the profits to
meet
20)Quoram:
Minimum number of persons required to
conduct a meeting. Quoram for Pvt Ltd Co
is 2 members and for a public company is 5 members.
21) Minimum number of members for
a pvt ltd company is 2 and for public
ltd company is 3.
22)Maximum number of members for
a pvt ltd company is 50 and for public ltd company there is no limit.
23)Minimum number of directors
for a pvt ltd company is 2 and for public ltd company is 3.
24)Minimum subscription:
It is minimum amount that must be raised
through the issue of shares for meeting preliminary expenses,underwriting
commission, Working capital etc.
25)Proxy:
Proxy refers to the person representing
a member and also the form in which the person is appointed.
26)Minutes:
It is official recording of the
proceedings of the meeting.
27) Capital reserve:
Capital reserve means any reserve other
than the revenue reserve.EX: premium on issue of shares,profit on redemption of
debentures, Premium on issue of debentures.
28)Reserve capital:
It is the part of the uncalled capital of
the company which can be called up in the event of winding up of the company.
29)Revenue reserve:
A reserve which is available for distribution as a dividend through profit and
loss a/c.
30)Minority interests:
Minority interest is the ownership in a
company that is less than 50% of outstanding shares.
Understand this line: revenue and expenses
from the minority interest is shown in the income statement.
31)Depriciation:
Decrease in the value of an asset due to
wear & tear, usage and passage of time.
32)Amortization:
Write off of the intangible assets.
Materiality concept:
The term materiality means important. An item is considered
material if it’s omission or mis-statement will misrepresent the view given by
the financial statement.
Conservatism
principle:
Anticipate no profits but anticipate every loss.
Deferred revenue
expenditure:
Deferred revenue expenditure is an expenditure which is
basically revenue in nature but the benefit from it continues even after the
expiry of period in which it is incurred.
Treatment: It should be written off over the period during
which the benefit will araise.
ii)Exceptional losses suffered due to natural calamities,
social disturbances etc.
Treatment: carried
forward and written off against future profits.
Depreciation:
Depreciation means decrease in the value of an asset due to
wear & tear,obsolescence and
Passage of time. It is related to fixed assets. It is a
non-cash revenue expenditure.
General reserve:
A reserve which is created out of revenue profits is a
general reserve. It is appropriation of the profits. Therefore no transfer is
made to this in the year of loss.
Objectives:
To strengthen the financial position of a company.
To meet any unknown expenditure.
For the expansion of the business.
Capital reserve:
A reserve which is created out of capital profits is a
capital reserve.
Ex: premium received on issue of debentures and shares.
Specific reserve:
A reserve which is created for meeting any specific need is
called specific reserve.
Ex:Debenture redemption reserve, business expansion reserve
etc.
Reserve VS provision:
i) reserve is created by
debiting profit & loss appropriation
account whereas provision is created
by debiting profit & loss a/c.
ii)reserve is appropriation of
profits where as provision is charge against profits.
iii)Creations of the reserves
depend up on the profits where as
provision does not depend up on the profits. So provision must be created in
the year of loss.
iv)Reserves are shown under
reserves and surplus head on the liability side of balance sheet where as the
provisions are shown under current liabilities.
Voucher:
A voucher is defined as any documentary evidence in support
of a transaction.
Ø Non
cash expenditure:depreciation,amotization.
Ø Schedule
vi contains the form of balance sheet.
Ø Contribution=sales
– variable expenditure OR profit + fixed expenditure.
Matching concept:
Income should be properly matched with the expenses of a
given accounting period.
Break even point:
The point at which there are no profits or loss OR value of
the sales necessary to cover the fixed
costs
Direct costs:
The costs that are traceable to a particular product.
Indirect costs:
The costs that are not traceable to a particular product.
Memorandum of
association:
It is constitutional document of a company that deals with
the matters like company name, registered office, capital etc.
Retained profits:
Retained profits are those profits that not have been paid
as dividends but retained for future investment of the company.
Sunk cost:
Sunk costs are those costs that are already incurred.
Working capital
cycle:
Cash à work in progress àfinished goods àdebtors
àcash
Accounting policies:
Accounting
principles:
Cash profit:
It is the profit before deducting non cash expenditure such
as depreciation,amortisation.
Cash profit=net
profit+non cash expenditure OR gross profit-cash expenses.
Share premium:
It is the excess of the consideration paid or payable over
the face value of the share.
Cash discount:
Trade discount:
A discount on the list price granted by a manufacturer or
wholesaler to buyers in the same trade.
Operating income:
The profit realised from a business own operations.It does
not include income from things such as investments in other firms.
Bad debts:
Three main type of
accounts:
Personal account:debit the receiver
Credit the
giver
Real account:debit
what comes in
Credit what goes out
Nominal
account:expenses &losses debit
Income &
profits credit
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