Definition of 'Fixed Asset'

A long-term tangible piece of property that a firm owns and uses in the production of its
income and is not expected to be consumed or converted into cash any sooner than at least
one year's time.

Definition of 'Current Assets'

1. A balance sheet account that represents the value of all assets that are reasonably
expected to be converted into cash within one year in the normal course of business.
Current assets include cash, accounts receivable, inventory, marketable securities, prepaid
expenses and other liquid assets that can be readily converted to cash.

2. In personal finance, current assets are all assets that a person can readily convert to cash
to pay outstanding debts and cover liabilities without having to sell fixed assets.

In the United Kingdom, current assets are also known as "current accounts."

Definition of 'Contingent Liability'

1. The possibility of an obligation to pay certain sums dependent on future events.

2. Defined obligations by a company that must be met, but the probability of payment is
minimal.

Definition of 'Bank Reconciliation Statement'

A form that allows individuals to compare their personal bank account records to the bank's
records of the individual's account balance in order to uncover any possible discrepancies.

Definition of 'Accrual’
Accounts on a balance sheet that represent liabilities and non-cash-based assets used in
accrual-based accounting. These accounts include, among many others, accounts payable,
accounts receivable, goodwill, future tax liability and future interest expense.

Definition of 'General Ledger'

A company's main accounting records. A general ledger is a complete record of financial
transactions over the life of a company. The ledger holds account information that is needed
to prepare financial statements, and includes accounts for assets, liabilities, owners' equity,
revenues and expenses.

A general ledger is typically used by businesses that employ the double-entry bookkeeping
method - where each financial transaction is posted twice, as both a debit and a credit, and
where each account has two columns. Because a debit in one account is offset by a credit in
a different account, the sum of all debits will be equal to the sum of all credits.

Definition of 'Amortization'
 1. The paying off of debt in regular installments over a period of time.

2. The deduction of capital expenses over a specific period of time (usually over the
asset's life). More specifically, this method measures the consumption of the value
of intangible assets, such as a patent or a copyright.

Definition of 'Provision'
In general words provision means system to complete any work . But accounting provides very
technical definition of provision . In small business like shop , general store , there is no need to
make any provision , so you will find minimum reference in basic accounting books but from time
to time business expands and reaches at corporate level . It needs to understand the real
meaning of provision and what is its importance and how can it implement in business
accounting .
In very simple accounting term , " Provision is that action of business in which business
organisation reserves his money for future losses for safeguarding business ."

Definition of 'Cost Center'

A department within an organization that does not directly add to profit, but which still costs
an organization money to operate. Cost centers only contribute to a company's profitability
indirectly, unlike a profit center which contributes to profitability directly through its actions.
This type of department is likely to be one of the first targets for downsizing because, on the
surface, it has a negative impact on profits.

Definition of 'Profit Center'

A branch or division of a company that is accounted for on a standalone basis for the
purposes of profit calculation. A profit center is responsible for generating its own results
and earnings, and as such, its managers generally have decision-making authority related to
product pricing and operating expenses. Profit centers are crucial in determining which units
are the most and least profitable within an organization.

What is ‘BOM’
A bill of materials (sometimes bill of material or BOM) is a list of the raw materials, sub-
assemblies, intermediate assemblies, sub-components, components, parts and the
quantities of each needed to manufacture an end product. No physical dimension is
described in a BOM.

Definition of 'Accrued Income'

Income that is earned in a fund or by company by providing a service or selling a product,
but has yet to be received. Mutual funds or other pooled assets that accumulate income
over a period of time but only pay it out to shareholders once a year are, by definition,
accruing their income. Individual companies can also accrue income without actually
receiving it, which is the basis of the accrual accounting system.

Definition of 'Accumulated Depreciation'

The cumulative depreciation of an asset up to a single point in its life. Regardless of the
method used to calculate it, the depreciation of an asset during a single period is added to
the previous period’s accumulated depreciation to get the current accumulated
depreciation.

An asset’s carrying value on the balance sheet is the difference between its purchase price
and accumulated depreciation.

What is the difference between “Gross profit and Net

profit”
Gross profit is sales revenues minus the cost of goods sold.

The term net profit might have a variety of definitions. I assume that net profit means all
revenues minus all expenses including the cost of goods sold, the selling, general, and
administrative (SG&A) expenses, and the nonoperating expenses. At a corporation it may also
mean after income tax expense.

What is “Sub Ledger”

The subledger, or subsidiary ledger, is a subset of the general ledger used in accounting. The
subledger shows detail for part of the accounting records such as property and equipment,
prepaid expenses, etc.

What is “General Ledger”

General Ledger is the final repository of the accounting records and data. In modern accounting
softwares or ERP, the general ledger works as a central repository for accounting data transferred
from all sub-ledgers or modules like accounts payable, accounts recievable, cash management,
fixed assets, purchasing and projects. General ledger is the backbone of any accounting system
which holds financial and non-financial data for an organization.

“Prudence concept”
An accounting principle that requires recording expenses and liabilities as soon as possible, but
the revenues only when they are realized or assured. Also called conservatism principle.

“Asset impairment”
An unexpected or sudden decline in the service utility of a capital asset, such as a factory,
property or vehicle. This could be the result of physical damage to the asset, obsolescence due to
technological innovation, or changes to the legal code. Impairments can be written off.

“Golden Rule”

1. Personal Accounts - Dr Receiver , Credit the Giver

2. Real Account - Dr What comes in, Credit what goes out.
3. Nominal Account - Dr All expenses, Credit All Gain and profit.

“Definition of 'Deferred Tax Asset”

An asset on a company's balance sheet that may be used to reduce any subsequent period's
income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only
recorded as assets if it is deemed more likely than not that the asset will be used in
future fiscal

If, for example, a company has a deferred tax asset of $25,000 on its balance sheet, and
then the company earns $75,000 in before-tax accounting income, accounting tax expense
will be applied to $50,000 ($75,000 - $25,000), instead of $75,000.

Definition of 'Accumulated Depreciation'

The cumulative depreciation of an asset up to a single point in its life. Regardless of the
method used to calculate it, the depreciation of an asset during a single period is added to
the previous period’s accumulated depreciation to get the current accumulated
depreciation.

An asset’s carrying value on the balance sheet is the difference between its purchase price
and accumulated depreciation.

Investopedia explains 'Accumulated Depreciation'

A company buys an asset for $5,000 that has a five-year lifespan and zero salvage
value. The company uses straight-line depreciation, and the asset depreciates at a rate
of $1,000 per year.

In year one, depreciation will be $1,000, as will accumulated depreciation, and carrying
value of the asset will be $4,000.
In year two, depreciation will be $1,000, accumulated depreciation will be $2,000 ($1,000
from the current year + $1,000 accumulated from previous years) and carrying value will be
$3,000.

Each subsequent year will follow the same process.

Budget  The financial expression of your target.

 This is the course you have actively decided upon and set
for yourself; it is your intention.
 It is where you want to go.
 It is normally prepared just once for each financial year.

Forecast  This is your latest expectation of what really will happen

over the next few months, based on what is happening in
your business now.
 It is where you are going.
 It is your financial radar.
 Is most useful if prepared every month

What are the different Types of Budgets?

6 Different Types of Budgets are given below:

1. Materials and Utilities Budget:

This budget also known as operations budget includes budgeting for raw material
required for production, spare parts for maintenance, labour time, machine time,
energy consumption etc. The labour time and machine time is usually related to what
a unit of time is budgeted to yield. It is the output per unit of time.

2. Control of Liquidity:

This involves cash flow and is very important in controlling cash and meeting current
financial obligations. This budget forecasts cash receipts and outlays on a set time
basis and is necessary to control the income and expenses, so that
there is no shortage of cash to pay bills and also there is no excessive unused cash
which may be unproductive.

3. Revenue and Expense Budgets:

The revenue budgets should show anticipated sales by product or by geographical
territory or department etc. The expense budgets should cover all necessary and
relevant areas such as rent, utilities, supplies, security etc.

4. Capital Expenditure Budgets:

These budgets plan for long-term investments and include expenditure for new plant
and equipment, major installations replacement of existing equipment, building etc.
Capital budgeting is a part of long-range planning and must be broken into well
defined phases of the programme, known as milestones, each phase being budgeted
for cost, time and success in a self contained way.

5. Balance-sheet Budget:

It is a composite budget and reflects anticipated assets, liabilities and owner's equity
or net worth at the end of a given period in the future. It provides forecast of the
anticipated financial status of the company at a future date.

6. Flexible Budget:

Flexible or variable budget reflects and combats the changes in expenditure as a

result of changes in volume of production and revenues. These expenditures are
primarily variable costs since the fixed costs are not generally affected by changes in
revenues. The basic idea of flexible budget is to establish a relationship of changes in
variable cost as affected by changes in revenues due to changes in sales.

What is TDS

TDS is one of the modes of collection of taxes, by which a certain percentage of

amounts are deducted by a person at the time of making/crediting certain specific
nature of payment to the other person and deducted amount is remitted to the
Government account. It is similar to "pay as you earn" scheme also known as
Withholding Tax in many other countries, one of the countries is USA. The concept of
TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility
of tax collection between the deductor and the tax administration. It ensures regular
inflow of cash resources to the Government. It acts as a powerful instrument to
prevent tax evasion as well as expands the tax net.

What is TCS
Tax Collection at Source or TCS, as the name implies, means collection of tax at source
by the seller or collector, from the buyer of the goods. As prescribed under Income Tax
Act 1961, it is mandatory on the part of the buyer to pay a predetermined value of TCS
to the seller, while purchasing a particular commodity. TCS is generally set for
business or trade in alcoholic liquor, forest produce, scarp, etc. Various lease, license
and contracts related to areas like parking lot, mines and toll plaza also falls under the
umbrella of TCS in India.

What is the difference between TDS and TCS?

TDS is the mode of collecting income tax.It's full form is
Tax Deducted at Sourse. The employer/Payer or deductor
deducts the tax from the payments which is made for
employee/Payee or deductee and deposited it in the
authroised banks or treasury, which is authorised by income
tax departments.

TCS is also the mode of collecting income tax. It's full

form is Tax collected at source. In this the payer or
collector collects tax on the time of payments and
deposited it in the authorised banks or treasury, which is
authorised by income tax departments.

Definition of 'Flexible Spending Account - FSA'

A type of savings account available in the United States that provides the account
holder with specific tax advantages. Set up by an employer for an employee, the
account allows employees to contribute a portion of their regular earnings to pay for
qualified expenses, such as medical expenses or dependent care expenses.

What is an EEFC Account?

Exchange Earners' Foreign Currency (EEFC) account is foreign currency-denominated
account maintained with banks dealing with foreign exchanges. The Reserve Bank of
India introduced this scheme in 1992 to enable exporters and professionals to retain
their foreign exchange receipts in banks without converting it into the local currency.
Any person residing in India who receives inward remittances in foreign currency or a
company with foreign currency earnings can open EEFC account but they don't earn
any interest from the deposits and it is a non-interest bearing scheme.

Accounting - process of identifying, measuring, and reporting financial information of an entity

Accounting Equation - assets = liabilities + equity

Accounts Payable - money owed to creditors, vendors, etc.

Accounts Receivable - money owed to a business, i.e. credit sales

Accrual Accounting - a method in which income is recorded when it is earned and expenses are
recorded when they are incurred, all independent of cash flow

Accruals - a list of expenses that have been incurred and expensed, but not paid or a list of sales
that have been completed, but not yet billed

Amortization – gradual reduction of amounts in an account over time, either assets or liabilities

Asset - property with a cash value that is owned by a business or individual

Audit Trail – a record of every transaction, when it was done, by whom and where, used by
auditors when validating the financial statement

Auditors – third party accountants who review an entity’s financial statements for accuracy and
provide a statement to that effect

Balance Sheet - summary of a company's financial status, including assets, liabilities, and equity

Bookkeeping - recording financial information

Budgeting – the process of assigning forecasted income and expenses to accounts, which
amounts will be compared to actual income and expense for analysis of variances

Capital Stock – found in the equity portion of the balance sheet describing the number of shares
sold to shareholders at a predetermined value per share, also called “common stock” or
“preferred stock”

Capital Surplus – found in the equity portion of the balance sheet accounting for the amount
shareholders paid that is greater or lesser than the “capital stock” amount

Capitalized Expense – expenses that are accumulated, not expensed as incurred, to be amortized
over a period of time; i.e. the development cost of a new product

Chart of Accounts - a listing of a company's accounts and their corresponding numbers

Cash-Basis Accounting - a method in which income and expenses are recorded when they are
paid.

Cash Flow - a summary of cash received and disbursed showing the beginning and ending
amounts
Closing the Books/Year End Closing – the process of reversing the income and expense for a
fiscal or calendar year and netting the amount into “retained earnings”

Cost Accounting - a type of accounting that focuses on recording, defining, and reporting costs
associated with specific operating functions

Credit - an account entry with a negative value for assets, and positive value for liabilities and
equity.

Debit - an account entry with a positive value for assets, and negative value for liabilities and
equity.

Departmental Accounting – separating operating divisions into their own sub entities on the
income statement, showing individual income, expenses, and net profit by entity

Depreciation - recognizing the decrease in the value of an asset due to age and use

Dividends – amounts paid to shareholders out of current or retained earnings

Double-Entry Bookkeeping - system of accounting in which every transaction has a

corresponding positive and negative entry (debits and credits)

Equity - money owed to the owner or owners of a company, also known as "owner's equity"

Financial Accounting - accounting focused on reporting an entity's activities to an external

party; ie: shareholders

Financial Statement - a record containing the balance sheet and the income statement

Fixed Asset - long-term tangible property; building, land, computers, etc.

General Ledger - a record of all financial transactions within an entity

Goodwill – an intangible asset reflecting the value of an entity in excess of its tangible assets

Income Statement - a summary of income and expenses

Inventory – merchandise purchased for resale at a profit

Inventory Valuation – the method to set the book value of unsold inventory: i.e. “LIFO,” last
in, first out; “FIFO,” first in, first out; “average,” an average cost over a given period, “last cost,”
the cost based on the last purchase; “standard,” a “deemed” amount related to but not tied to a
specific purchase, “serialized,” based on a uniquely identifiable serial number or character of
each inventory item
Invoice – the original billing from the seller to the buyer, outlining what was purchased and the
terms of sale, payment, etc.

Job Costing - system of tracking costs associated with a job or project (labor, equipment, etc)
and comparing with forecasted costs

Journal - a record where transactions are recorded, also known as an "account"

Liability - money owed to creditors, vendors, etc

Liquid Asset - cash or other property that can be easily converted to cash

Loan - money borrowed from a lender and usually repaid with interest

Master Account – an account on the general ledger that subtotals the “subsidiary accounts”
assigned to it; i.e. Cash might be the master account for a list of depository accounts at banks

Net Income - money remaining after all expenses and taxes have been paid

Non Cash Expense - recognizing the decrease in the value of an asset; i.e. depreciation and
amortization

Non-operating Income - income generated from non-recurring transactions; ie: sale of an old
building

Note - a written agreement to repay borrowed money; sometimes used in place of "loan"

Operating Income - income generated from regular business operations

Other Income - income generated from other than regular business operations, i.e. interest,
rents, etc.

Payroll - a list of employees and their wages

Posting – the process of entering then permanently saving or “archiving” accounting data

Profit - see "net income"

Profit/Loss Statement - see "income statement"

Reconciliation – the process of matching one set of data to another; i.e. the bank statement to the
check register, the accounts payable journal to the general ledger, etc.

Retained Earnings – the amount of net profit retained and not paid out to shareholders over the
life of the business
Revenue - total income before expenses.

Shareholder Equity - the capital and retained earnings in an entity attributed to the shareholders

Single-Entry Bookkeeping - system of accounting in which transactions are entered into one
account

Statement of Account - a summary of amounts owed to a vendor, lender, etc.

Subsidiary Accounts – the subaccounts that are totaled on the financial statement under “master
accounts;” i.e. “Cash-ABC Bank” might be one of several subsidiary accounts that are subtotaled
under “Cash”

Supplies – assets purchased to be consumed by the entity

Treasury Stock – shares purchased by the entity from shareholders, reducing shareholder equity

Write-down/Write-off – an accounting entry that reduces the value of an asset due to an

impairment of that asset; i.e. the account receivable from the bankrupt customer

Provision for Doubtful Debts

Even after deducting the amount of actual bad-debts from the Debtors, there may still be some debts
which may be regarded as bad or doubtful. Thus a business might make an estimate of the amount of
such doubtful debts, that is, debts that are likely to become bad, and charge them as an expense against
the current period’s revenue.

When Provision for Doubtful

Debts is set up for the first time
Accounting Entries
Doubtful Debts Account Dr.
Provision for doubtful debts
(Being creation of provision for doubtful
debts)

Closing Entries
Doubtful Debts Account is an expense for the business and thus it will be debited to the Profit and Loss
account
 Profit and Loss Account Dr.
Doubtful debts Account
(Being transfer of doubtful debts expense to the Profit
and Loss Account)
It will be deducted from the Sundry Debtors in the Balance Sheet.

Increasing the Existing Provision

for Doubtful Debts
Adjusting Entry
Doubtful debts Account Dr.
Provision for doubtful debts Account
(Being increase of provision for doubtful debts)

Closing Entry
Being a loss for the business the Doubtful Debts Account is transferred to the debit side of Profit and Loss
Account.

Profit and Loss Account Dr.

Doubtful Debts
(Being transfer of doubtful debts expense to the Profit
and Loss Account)

Decreasing the Existing Provision

for Doubtful Debts
Adjusting Entry
Provision for doubtful debts Account Dr.
Doubtful debts Account
(Being decrease of provisions for doubtful debts)

Closing Entry
Being a gain for the business the Doubtful Debts Account is transferred to the Credit side of Profit and
Loss Account.
 Doubtful Debts Account Dr.
Profit and Loss Account
(Being transfer of doubtful debts expense to the Profit
and Loss Account)
In the Balance Sheet the debtors will appear net of the Provision for Doubtful debts.

What are the three main financial statements?

The three main financial statements are essential for understanding a company's financial health and
performance:
1. Income Statement (Profit and Loss Statement):
o This statement shows a company's revenues, expenses, and profits or losses over a
specific period. It helps assess the company's profitability and operational efficiency.
2. Balance Sheet:
o The balance sheet provides a snapshot of a company's assets, liabilities, and
shareholders' equity at a specific point in time. It shows what the company owns and
owes, as well as the amount invested by shareholders.
3. Cash Flow Statement:
o This statement outlines the cash inflows and outflows from operating, investing, and
financing activities over a period. It helps evaluate the company's ability to generate cash
and manage its cash needs.