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business studies notes - chapter 7 - BY BODMAS CAREER ACADEMY

business studies notes cbse - chapter 7

Directing

Directing is the first execution function in the management process as all the preceding functions of planning, organising and staffing are concerned with determination of objectives and plans and making the required resources available. It is the direction function of management which initiates action of people in desired direction through effective supervision, leadership, motivation and communication. Thus, direction bridges the gap between planning and actual performance.

Meaning of direction The managerial function of directing involves issuing instructions and orders to subordinates, and guiding and motivating them in such a manner that individual as well as organisational goals are achieved.

Importance of direction

•   It initiates action in a desired manner for execution of plans.

•   It   integrates   the  efforts  of  employees  at  all   levels  so  as   to  achieve
organisational goals.

•   It   helps  to  motivate  employees  and   stimulates   them   towards  betterperformance.

•   It provides stability in the organisation by creating a balance between

•   individual goals and group goals.

•   It facilitates the process of change in the organisation by securing cooperationof employees.

Elements in direction The elements in the process of direction are supervision, leadership, motivation and communication.

Meaning of supervision Supervision means the process of overseeing of the work of a subordinate by a superior.

Role of the Supervisor

•   The supervisor acts as a link between the top-level management and theworkers.

•   He acts as an advisor for workers and guides them on work-related matters.

•   He acts as a counsellor for workers and helps to solve their problems.

•   He acts.as a facilitator for the execution of organisational plans and policies.

Functions of a Supervisor

•   The supervisor prepares the schedule for activities to be performed.

•   In accordance with the schedule he issues instructions and guidance to theworkers.

•   He controls the activities of the subordinates in order to ensure that they are' in accordance with the plans.

•   He motivates workers to perform better.

•   He acts as a linking pin between the top-level management and the workers.Importance of Supervision

•   Supervisors set people into action by issue of orders and instructions.

•   Supervision    facilitates   control    through    continuous    monitoring    ofsubordinates performance.

•   Supervision ensures optimal utilization of resources by avoiding needlessaction and wastage of resouces.

•   Supervision helps to maintain discipline by ensuring strict adherence to rulesand schedules.

•   Supervisors   ensure   smooth   flow   of   information   between    top-level
management and lower-level management by acting as an intermediary.

'  • Supervisors stimulate subordinates towards higher performance through continuous guidance and support.

Meaning of motivation

Motivation is a psychological phenomenon that stimulates people to desired action by arousing their needs and desires.

Importance of motivation

Motivation induces people towards desired action.

•   Motivation enhances the work efficiency of employees by stimulating their
willingness to perform through various incentives.

•   Motivation helps in achieving organisational goals as it helps to implement
plans efficiently.

•   Motivation   helps   to   develop   Healthy   employee-employer   relationshipthrough efficient system of rewards.

" Motivation leads to stability in workforce by providing job satisfaction.

•  Motivation facilitates change as it helps to build a supportive workforce.Human needs

The following needs govern human motivation in a definite order.

•   Psychological physical needs

•   Safety security needs

•   Social needs

•   Esteem needs

•   Self-actualisation needs

Meaning of incentives

The term 'incentive' refers to an act or promise that induces an individual towards desired beha^icur.

Forms of Incentives

•   Monetary incentives me directly or indirectly associated with money likebonus, housing facility,, free education for children, etc.

•   Non-monetary incentives are the once which cannot be measured in terms of
money like recognition, assigning challenging jobs, etc.

Meaning of leadership

Leadership is the process of influencing the behaviour of subordinates through effective support and guidance in order, to achieve both individual and organisational goals.

Importance of Leadership

•   If   helps   in   guiding   and   inspiring   employees   towards   attainment   oforganisational goals.

•   It helps to secure the cooperation of lire members of the organisation by.winning their faith and understanding their needs and. problems.

•   It helps to create confidence in employees by providing them support and*
guidance.

•   It helps to develop a healthy work environment! conducive to- maximum)effort inspiring employees for higher productivity and also considering their
individual goals.

Qualities of a Good Leader

•  A leader should be intelligent, practical and have a broad outlook.

• A lender should possess good communication skills to interact with and'influence the followers.

•   A   leader   .should   follow   an   unbiased   and   objective   approach   fordecision-making and!judgement.

•   A leader should have good knowledge of work.

•   A leader should develop healthy relations, with his followers.

•   A leader should possess confidence and will power.

•   A lender should adopt an empathetic attitude towards.his followers.

•   A leader should have a deep sense of responsibility for his. work andbehaviour.

Meaning of Communication

Communication is a two-way process of exchange of information, ideas and opinions among two or more persons and is said to be complete only when the receiver gives his feedback to the sender.

Importance of Communication

•    Communication facilitates planning as the plans are based on forecastsBusiness forecasts greatly depend on facts and figures, ideas about futuretrends and exchanges between managers.

•    Communication helps in decision-making as in  the absence of relatedinformation it will not be possible for managers to take the right decisions.

•    Communication   facilitates   coordination   among   and   within   variousdepartments of an enterprise.

•    Communication helps to develop employee-employer relationship through
regular interaction and counselling.

•    Communication facilitates the process of motivation as it is the meansthrough which employees are encouraged towards higher performance.

Types of Communication

•   Formal communication relates to official matters. If may flow in upward,downward, horizontal and diagonal directions.

•   Informal communication refers to the communication which satisfies thesocial needs of employees and is not on official lines, i.e., grapevine.

Channels of Communication

•   Oral communication refers to information which is exchanged verbally orwith the help of a mechanical device between two or more persons.

•    Written communication refers to the process of exchanging information in
writing through reports, memos or invoices between two or more persons.

Barriers to Effective Communication

The most common barriers to effective communication are lack of clarity, loss by transmission, lack of attention, lack of trust and premature evaluation of message.

Business studies cbse

*Q. What do you understand by the term EQUITY CULT ?*

Answer .
*EQUITY CULT*
Some stocks, regardless of their current fundamentals, are regarded as next big thing in the market based on the belief/rumors/stories that company will make a miraculous discovery or will receive a massive contract from the government or any clients. This discovery or contract has to be so massive that it will multi-fold the growth of the company. Such stocks are followed by many investors who believe this. Forget about the success of event.

So, "Equity cult" , refers to behavior when one stock creates a heavy interest among investors who wants to invest in the equity markets even though the company’s current fundamentals are insignificant.

For example,

XYZ Ltd. manufactures LED bulb in India. The company’s current annual sales is Rs. 50 million and it is making insignificant profit / loss.

Let’s say on Jan 1st, the share price of XYZ Ltd. is Rs. 40 per Share. All the publicly available information about the company (its earnings, contracts, operations, future plans) has already been factored into current share price.

On Jan 2nd, The news of possibility of XYZ Ltd. receiving massive order of LED bulbs worth Rs.100 million from Govt. of India came into market. Just based on the story, lots of retail investors buy the shares neglecting its insignificant fundamentals and due to heavy demand in the market, the share price goes up drastically up to Rs.60 in a day or two.

If the story turns out to be true, its potential growth & earnings are already partially factored in and will be fully factored in the share price once supply-demand stabilizes. If the XYZ Ltd does not receive an order, the retail investors may sell heavily and the price may come down to its actual level.

This entire Craze among investors about XYZ Ltd shares, based on the story described above, is equity cult.

NATURE AND SIGNIFICANCE OF MANAGEMENT - BUSINESS STUDIES -CLASS 12 CBSE

CHAPTER 1

NATURE AND SIGNIFICANCE OF MANAGEMENT

Question.    Define the term ‘Management’.

Answer.

Management is used to mean the group of persons who manage the organisation. It is needed every time and in every activity. It is not only confined to business organisations but also in organisations such as government, religious, charitable bodies etc.-

Traditional definition:

According to the traditional view “Management is getting things done through others”. This is incomplete as it treats the employees as mere means to achieve the goals of the organisation. Needs and demands of the employees of the organisation are overlooked.

Modern definition:

According to the modern view “Management is creating the internal environment of an organization where employees working together in groups can perform efficiently towards the achievement of the goals. On this basis Management is goal oriented and involves creating an internal atmosphere so that group goals can be achieved.

Question.    “A successful enterprise has to achieve its goals effectively and efficiently.” Explain.

Answer.

Management has been defined as a process of getting things done with the aim of achieving goals effectively and efficiently

Being effective or doing work effectively basically means finishing the given task. Effectiveness in management is concerned with doing the right task, completing activities and achieving goals. In other words, it is concerned with the end result.

But it is not enough to just complete the tasks. Completing task efficiently is also important. Efficiency means doing the task correctly and with minimum cost. There is a kind of cost-benefit analysis involved and the relationship between inputs and outputs. If by using less resources more benefits are derived then efficiency has increased. Efficiency is also increased when for the same benefit or outputs, fewer resources are used and less costs are incurred. Management is concerned with the efficient use of the available resources, because they reduce costs and ultimately lead to higher profits.

For management, it is important to be both effective and efficient. Effectiveness and efficiency are two sides of the same coin.

Usually high efficiency is associated with high effectiveness which is the aim of all managers. But undue emphasis on high efficiency without being effective is also not desirable.

Question.    Explain the characteristics/features of Management.

Answer.     

Key characteristics of management are given below: -

(i) Management is a goal-oriented process: An organisation has a set of basic goals which are the basic reason for its existence. These should be simple and clearly stated. Different organisations have different goals. Commonly managerial success is measured by the extent to which the objectives are achieved

(ii) Management is all pervasive: Management is relevant for all types of organization whether economic, social or political. A petrol pump needs to be managed as much as a hospital or a school. What managers do in India, the USA, Germany or Japan is the same.

(iii) Management is multidimen-sional: Management is a complex activity that has three main dimensions. These are:

(a) Management of work: All organisations exist for the performance of some work. In a factory, a product is manufactured, in a garment store a customer’s need is satisfied and in a hospital a patient is treated. Management translates this work in terms of goals to be achieved and assigns the means to achieve it.

(b) Management of people: Human resources are an organisation’s greatest asset. Managing people has two dimensions (i) it implies dealing with employees as individuals with diverse needs and behavior; (ii) it also means dealing with individuals as a group of people. The task of management is to make people work towards achieving the organisation’s goals, by making their strengths effective and their weaknesses irrelevant.

(c) Management of operations: Every organisation has some basic product or service to provide in order to survive. This requires a production process which has the flow of input material and the technology for transfor-ming this input into the desired output for consumption. This is interlinked with both the management of work and the management of people.

(iv) Management is a continuous process: The process of management is a series of continuous, composite, but separate functions (planning, organising, directing, staffing and controlling). These functions are simultaneously performed by all managers all the time.

(v) Management is a group activity: An organisation is a collection of diverse individuals with different needs. Every member of the group has a different purpose for joining the organization. Management implies group of persons working in association for the achievement of common objectives. The result of group efforts affects all the person of the group.

(vi) Management is a dynamic function: Management is a dynamic function and has to adapt itself to the changing environment. An organisation interacts with its external environment which consists of various social, economic and political factors. In order to be successful, an organisation must change itself and its goals according to the needs of the environment.

(vii) Management is an intangible force: - Management cannot be seen. One may not see with the naked eye the functioning of management, but its presence can be felt through orderliness, enthusiastic employees, and adequate work output. Quite often, the identity of management is brought in focus by its absence or by the presence of its direct opposite, mismanagement. 

Question.    What are the objectives of the Management?

Answer.

 Management Objectives can be classified into three major categories: Organisational, Social and Individual. A brief description about each objective is given below.

(i) Organisational Objectives: Management should be basically concerned with utilizing human and material resources available to an enterprise for deriving best results. This leads to reduction in costs and maximum prosperity for the organization by generating high profits. Organisational objectives must take care of the interests of all the stakeholders in a fair and just manner. The main organizational objectives are survival, profit and growth.

Survival: The basic objectives of any business is survival. In order to survive, an organisation must earn enough revenues to cover costs.

Profit: Mere survival is not enough for business. Management has to ensure that the organisation makes a profit. Profit provides a vital incentive for the continued successful operation of the enterprise.

Growth: A business needs to add to its prospects in the long run, for this it is important for the business to grow. An organization can grow and expand only if it moves in the predetermined direction. An effective management helps in achieving the objectives but also proves the way for growth and expansion

(ii) Social objectives: - Social objectives deal with the commitment of an organization toward society. Such objectives may be pertaining to health, safety, labour practices, and price regulation. Further, they include activities intended to further social and physical improvement of the community and to contribute to desirable civic activities. It should be noted that most business houses in achieving their primary goals also contribute to their respective communities by creating needed economic wealth, employment and financial support to the community.

(iii) Personal objectives:- Individual objectives are pertinent to the employees of the organization. Each employee joins an organization to satisfy his needs by working in the firm. These objectives might include competitive salary, personal growth and development, peer recognition and societal recognition. In the absence of satisfaction of personal objectives, employees may lose interest in the work and the performance of the organizational objectives may suffer.

Question.    What is the importance of Management in modern business?

Answer.

Management is very much needed for the survival of the business. Without proper management resources will remain resources and shall never become production. Management is important for the following reasons

1. Helps in achieving group goals: Management is a group activity. It co-ordinates the efforts of organizational members so as to achieve the predetermined objectives of the organization.

2. Management increases efficiency: The aim of a manager is to reduce costs and increase productivity through better planning, organising, directing, staffing and controlling the activities of the organisation.

3. Management creates a dynamic organisation: All organisations have to function in an environment which is constantly changing. It is generally seen that individuals in an organisation resist change. Management helps people adapt to these changes so that the organisation is able to maintain its competitive edge.

4. Management helps in achieving personal objectives: A manager motivates and leads his team in such a manner that individual members are able to achieve personal goals while contributing to the overall organisational objective.

5. Management helps in the development of society: An organisation has multiple objectives to serve the purpose of the different groups that constitute it. It helps to provide good quality products and services, creates employment opportunities, adopts new technology for the greater good of the people and leads the path towards growth and development.

Question.    Management is both a science and an art. Explain.

Answer.

Some authors describe management as an art because management relates to practical application knowledge and skill as per the needs of a given situation. On the other hand there are authors who regard management as science because management represents a body of well-tested principles, which can be universally applied. Management as a Science and Management as an art are discussed below

Management as a science: -

Science is a systematized body of knowledge pertaining to a specific field of study and contains general facts that explain a phenomenon. It establishes the cause and effect relationship between two or more factors and have certain principles governing the relationship. These principles are developed through the scientific methods of observation of events and verification through testing. The principles are absolute facts having universal application. As such science is characterized by for main features.

(i) Existence of systematized body of knowledge.

(ii) Use of scientific methods of observation.

(iii) Principle based on experiments.

(iv) Universal validity of principles.

On examination we find that while management has some of these features and it does not have others. For instance management is systematized body knowledge. Also principles of management are arrived on the observation and repeated experimentation in various types of organizations. But the methods of observation followed by management are not cent percent objective because the subjects are human being whose behaviour cannot be predicted. The Management principles are flexible and can be used in different situations with modification. So these principles do not have universal applicability. Thus management may be called an inexact science as is the case with other social sciences.

Management as an art

Art is concerned with the application of knowledge and skills. Desired results are achieved through the application of skill. Thus an art has the following characteristics. :

(1) It signifies practical knowledge.

(2) It signifies personal skills in particular fields of human activity.

(3) It helps in achieving desired/ predetermined results.

(4) It is creative in nature.

Management is also an art since it involves application of knowledge and personal skills to achieve desired results. Every manager has to apply certain knowledge and skills while dealing with the people to achieve the desired results. As an art management calls for a combination of abilities, skills and judgment and a continuous practice of management concepts and principles.

Management: Both science and an art

Management is combination of an organized body of knowledge and skilful application of this knowledge. Effective performance of various management functions necessarily needs an adequate basis of knowledge and a scientific approach. Thus, management is both a science and an art;. It is a science because it uses certain principles. It is an art because it requires continuous practice and personal skills.

From the above discussion it is clear that management is both a science and an art.

Question.    Management is a profession. Explain.

Answer.     

A profession means an occupation for which specialized skills are required. In a profession entry is restricted by examination or education. But these skills are not meant for self-satisfaction but are used for the large interests of the society. A profession has the following characteristics:

1. Well defined body of knowledge.

2. Restricted entry.

3. Professional association.

4. Ethical Code of conduct.

5. Service Motive

Management can be referred as a profession if it fulfills the above mentioned features:-

1. Well defined body of knowledge: Every profession has a specialized body of knowledge relevant to the area of specialization and it can be imported through formal methods of instructions or education. Management fulfills these criteria. The principle and theories of management have been developed for the existing and potential managers.

2. Restricted entry: Entry in a profession is subject to qualifying prescribed exams and acquired practice through training and apprenticeship. However there are no restrictions on a person to become a manager anyone can become a manager irrespective of education. Therefore this criterion is not fulfilled by the management.

3. Professional association: For every profession a representative association is there to lay down the code of conduct and membership rules. Management also has association such as All India Management Association, National Institution of Personnel Management etc. However the membership to these associations is not essential for the managers therefore this criterion is partly fulfilled by the management.

4. Ethical Code of conduct: Members of a profession have to abide by code of conduct which contains rules and regulations relating to the profession any member violating the code can be punished and the membership can be cancelled. The All India Management Association has also framed code of conduct for the managers but there is no legal backing for this code. Therefore management does not fulfill this criterion.

5. Service motive: The basic motive of a profession is to serve their client’s interests by rendering dedicated and committed service. The basic purpose of management is to help the organisation achieve its stated goal. This may be profit maximisation for a business enterprise. However, profit maximisation is not the sole objective of the management.. Therefore, if an organisation has a good management team that is efficient and effective it automatically serves society by providing good quality products at reasonable prices.

Conclusion: On the basis of above discussion we find that management fulfills some of the features of profession. Therefore it can be regarded as profession. But not full fledged professions like legal or medical profession. But the recent trends show that it is moving in that direction.

Question.    Explain different levels of management?

Answer.

A series of managerial position from top to bottom is called levels of management. Level of management determines the amount of authority and status enjoyed by any manager. The levels of management can be classified into three parts.

(i) Top level Management

(ii) Middle level management

(iii) Supervisory level or operating management

TOP MANAGEMENT

Top management consists of managers at the highest level in the management chain of command. This includes Board of Directors, Chief executive and the departmental heads.

Functions of top level Management / Activities Performed by top level Management

(i) Establishing overall long term goals and ways of attaining them.

(ii) Maintaining liaison with the outside world

(iii) Laying down overall policies

(iv) Providing direction and leadership to the organization as a whole.

MIDDLE MANAGEMENT

Middle level management consist of departmental managers, branch managers like purchase managers, production managers, personnel manager, finance manager marketing manager etc.

Function of the middle level management / Activities performed by the middle level management.

(i) To link the top and supervisory levels of management.

(ii) To transmit orders decisions and instructions down ward.

(iii) To carry the problems & suggestions upward.

(iv) To inspire lower level managers towards better performance.

(v) To co-ordinate various units and divisions

SUPERVISORY OR OPERATIONAL MANAGEMENT

Supervisory / operative / lower management consist of first line supervisors. They generally have such designations as superintendent, section officer, foreman etc. Following are the important functions of lower management.

(i) Planning day today activities.

(ii) Arranging machinery & tools etc.

(iii) Arraigning jobs and tasks to subordinate

(iv) Supervision of the work of labour.

(v) Reporting the problems faced and suggestions made by workers to the middle level management.

Question.    What are different functions of management?

Answer.

Following are the functions of Management

(1) Planning: - It is deciding in advance what to do, how to do when to do and who is to do. It bridges the gap between where we are to and where we want to go. It makes it possible for things to occur which would otherwise not happen. Planning is needed for all functions and at all level of management though its extent varies with the delegated authority or position.

(2) Organising: - It refers to the process of bringing together physical financial & human resources & establishing productive relations among them for the achievement of predetermined goals. It is concerned with building a structure of various inter-related parts. The main aim of Organising is to enable the people to relate to each other to work together for a common purpose.

(3) Staffing: - The staffing may be defined as the managerial function of hiring and developing the required personnel to fill in various positions in the organization. This function involves determination of the size and categories of required personnel. It is also concerned with employing the right people and developing their skills thorough training. The staffing function focuses on improving the competence and performance of the employees in the organization.

(4) Directing: - It is the function of managements concerned with instructing, guiding, supervising, motivating & leading the subordinates to contribute to the best of their of their abilities for the achievement of organizational objectives. It is a continuous function of the management.

(5) Controlling: -Controlling is the process of verifying actual performance is in conformity with planned performance & taking corrective action where necessary. It provides that performance of work is in accordance with the organizational plans policies & programmes. It enables managers to detect deviations in performance if any rectify them and to prevent their repetition in future.

Question.    Define coordination.

Answer.

Co-ordination as a function of management refers to the task of integrating the activities of separate units of on organization to accomplish the goals efficiently. The purpose of coordination is to ensure that the goals of units and subunits are pursued in harmony with each other keeping in view the goals of the organization as a whole.

Question. Co- ordination is the essence of management.

Answer. The work given to different departments units and individual must be coordinated by all managers at various levels as a regular function. Without proper co-ordination there is likely to be duplications or over lapping and even chaos in the organization co-ordination in required in performing every function of management as follows.

(a) In planning co-ordination is required

(i) Between objectives and available resources and

(ii) Among different functional managers.

(b) In organizing co-ordination is required.

(i) Between resources of an organization and activities to be performed.

(ii) Among authority responsibility and accountability.

(c) In staffing co-ordination is required

(i) Between skills of workers and jobs assigned to them.

(ii) Between training and technology of production.

(d) In directing co-ordination is required

(i) Among orders, instructions, guidelines, suggestions etc.

(ii) Between superior and subordinates

(iii) Between efficiency and motivation

(e) In controlling co-ordination is required

(i) Between standards fixed and actual performances

(ii)Between correction of deviation and achievement of objectives.

It is clear from the above discussion that Co-ordination is regarded as the essence of management rather than separate function of management.

Question. Explain the nature of coordination.

Answer. Coordination is the process of achieving unity of action among independent activities. This would be better achieved if the nature of coordination is understood clearly as discussed below: -

Nature of Coordination

The definitions given above highlight the following features of coordination:

(i) Coordination integrates group efforts: Coordination integrates unrelated or diverse interests into purposeful work activity. It gives a common objective to group effort to ensure that performance is done as per planning.

(ii) Coordination ensures unity of action: The purpose of coordination is to secure unity of action in the achievement of a common purpose. It acts as the binding force between departments and ensures that all action is aimed at achieving the goals of the organization.

(iii) Coordination is a continuous process: It is not a one time process but a continuous process. It starts with the establishment of business and runs up to its closure. Maintaining coordination among various activities of business is the essential task of managers. This should happen continuously

(iv) Coordination is an all pervasive function: Coordination is required at all levels of management due to the interdependent nature of activities of various departments. It integrates the efforts of different departments and different levels.

(v) Coordination is the responsibility of all managers: Coordination is the function of every manager in the organisation. Top level managers need to coordinate with their subordinates to ensure that the overall policies for the organisation are duly carried out. Middle level management coordinates with both the top level and first line managers. Operational level management

(vi) Coordination is a deliberate function: A manager has to coordinate the efforts of different people in a deliberate manner. Even where members of a department willingly cooperate and work, coordination gives a direction to that willing spirit. Cooperation in the absence of coordination may lead to wasted effort and coordination without cooperation may lead to dissatisfaction among employees.

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BUSINESS STUDIES - CLASS 12 CBSE NOTES, CHAPTER 1

VERY-SHORT-ANSWER QUESTIONS

1.     Explain the concept of management.

ANS.  

The term ‘management’ literally means ‘skillful use of means’. Traditionally, management is viewed as a process of getting a job done. However, the modern approach to management considers it as a means to integrate an organisation internally within its departments and externally with its environment for achievement of individual, societal and organizational goals.

2.     Define management. 

ANS. 

According to Koontz and O’Donnell, “Management is the art of getting  things done through and with people in formally organised groups. It is the art of creating an internal environment in an enterprise where individuals working together in groups can perform efficiently and effectively towards the attainment of group goals.”

3.     “Without objectives, management has no meaning.” Comment.

ANS.

Without objectives, management has no meaning. This statement is correct. Objectives determine the purpose of existence of an enterprise. All the activities in an organisation, related to planning, organising,  directing and controlling are directed towards the achievement of those objectives. The success of an organisation depends on the ability of the management to achieve its objectives.

4.     How does management help in building a sound organisation?

ANS.

Management helps in establishing a sound organisation by integrating it internally with its various departments and externally with its environment. It facilitates the smooth running of an enterprise by properly defining jobs and laying down a clear-cut pattern of authority-responsibility relationships in the organisation. Besides, it ensures that appropriate persons with the right qualifications and training are selected for various positions.

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ACCOUNTING BASICS

ACCOUNTING BASICS 

ACCOUNTING BASICS 

1. Definition of accounting: “the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of a financial character and interpreting the results there of ,and communicating the results to the interested parties”.

Accounting - The systematic recording, reporting, and analysis of financial transactions of a business. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit.

2. Book keeping: It is mainly concerned with recording of financial data relating to the business operations in a significant and orderly manner.

3. Concepts of accounting:

A. Separate entity concept

B. Going concern concept

C. Money measurement concept

D. Cost concept

E. Dual aspect concept

F. Accounting period concept

G. Periodic matching of costs and revenue concept

H. Realization concept.

4 Conventions of accounting:

A. Conservatism

B. Full disclosure

C. Consistency

D. Materiality

5. Systems of book keeping:

A. single entry system

B. double entry system

6. Systems of accounting:

A. Cash system accounting

B. Mercantile system of accounting.

7. 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

8. 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 a particular 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 of the 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 entry is recorded on both the debit and credit side of the cashbook is known as the contra entry.

15. Petty cash book: Petty cash is maintained by business to record petty cash expenses of the business, such as postage, cartage, stationery, etc.

16. Promisory note: an instrument in writing containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument.

17. Cheque: A bill of exchange drawn on a specified banker and payable on demand.

18. 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 balance as shown by the bank passbook and the balance as shown by the Cash Book. Obj: to know the difference & pass necessary correcting, adjusting entries in the books.

21. Matching concept: Matching means requires proper matching of expense with the revenue.

22. Capital income: The term capital income means an income which does not 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 transactions 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. E.g: 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 decrease 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. Intanglbe Assets: Intangible assets mean the assets which is not having the physical appearance. And it’s have the real value, it shown on the assets side of the balance sheet.

31. Accrued Income: Accrued income means income which has been earned by the business during the accounting year but which has not yet been due 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 been received 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. Pref.shares: Those shares which are carrying the pref.rights are called pref. shares Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the event of company winding up.

40. Leverage: It is a force applied at a particular work 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 the firm = 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 have agreed to share the profits of business carried on by all or any of them acting for all.

46. Factoring: It is an arrangement under which a firm (called borrower) receives advances against its receivables, from financial institutions (called factor)

47. Capital reserve: The reserve which transferred from the capital gains is called capital reserve.

48. General reserve: the reserve which is 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 “non-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 and which generally the result of the trading activities”.

53. Meaning of Company: A company is an association of many persons who contribute money or money’s 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 shares

B. Companies limited by guarantee

C. Unlimited companies

D. private company

E. public company

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 its shares or debentures.

56. Public company: A company, the articles of association of which does not contain the requisite restrictions to make it a private limited company, is called a public company.

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 that 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 profit: cash profit is the profit it is occurred from the cash sales.

67. Deemed public Ltd. Company: A private company is a subsidiary company to public company it satisfies the following terms/conditions Sec 3(1)3:

1. Having minimum share capital 5 lakhs

2. Accepting investments from the public

3. No restriction of the transferable of shares

4. No restriction of no. of members.

5. 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:

1. Excessive depot an asset, excessive over-valuation of a liability.

2. Complete elimination of an asset, or under valuation of an asset.

69. Provision: 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 known liability of which the amount cannot be determined with substantial accuracy.

70. Reserve: The provision in excess of the amount considered necessary for the purpose it was originally made is also considered as reserve Provision is charge against profits while reserves is an appropriation of profits Creation of reserve increase proprietor’s fund while creation of provisions decreases his funds in the business.

71. Reserve fund: The term reserve fund means such reserve against which clearly investment etc.,

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 an undisclosed reserve.

73. Finance management: Financial management deals with procurement of funds and their effective utilization in business.

74. Objectives of financial management: financial management having two objectives that Is:

1. Profit maximization: The finance manager has to make his decisions in a manner so that the profits of the concern are maximized.

2. Wealth maximization: Wealth maximization means the objective of a firm should be to maximize its value or wealth, or value of a firm is represented 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 a rupee 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 the long-term funds required in a business may be raised; in other words, it refers to the proportion of debt, preference capital and equity capital.

78. Optimum capital structure: Capital structure is optimum when the firm has a combination of equity and debt so that the wealth of the firm is maximum.

79. Wacc: It denotes weighted average cost of capital. It is defined as the overall cost of capital computed by reference to the proportion of each component of capital as weights.

80. Financial break-even point: It denotes the level at which a firm’s EBIT is just sufficient to cover interest and preference dividend.

81. Capital budgeting: Capital budgeting involves the process of decision making with regard to investment in fixed assets. Or decision making with regard to investment of money in longterm projects.

82. Payback period: Payback period represents the time period required for complete recovery of the initial investment in the project.

83. ARR: Accounting or average rates of return means the average annual yield on the project.

84. NPV: The Net 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 flows associated with the proposal. 

85. Profitability index: Where different investment proposal each involving different initial investments and cash inflows are to be compared.

86. IRR: Internal rate of return 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 places where customers are placed and open a local bank a/c in each of these locations and open local collection canter.

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 are classified according to their age.

91. Maximum permissible bank finance (MPBF): It is the maximum amount that banks can lend a borrower towards his working capital requirements.

92. Commercial paper: A cp is a short term promissory note issued by a company, negotiable by endorsement and delivery, issued at a discount on face value as may be determined by the issuing company.

93. Bridge finance: It refers to the loans taken by the company normally from commercial banks for a short period pending disbursement of loans sanctioned by the financial institutions.

94. Venture capital: It refers to the financing of high-risk ventures promoted by new qualified ntrepreneurs who require funds to give shape to their ideas.

95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a package of assets (called asset pool).

96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its views by another party (lessee) over a 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 within which the borrower allowed to overdraw from his account.

99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit against credit granted by bank.

100. Clean overdraft: It refers to an advance by way of overdraft facility, but not back by any tangible security.

101. Share capital: The sum total of the nominal value of the shares of a company is called share capital.

102. Funds flow statement: It is the statement deals with the financial resources for running business activities. It explains how the funds obtained and how they used.

103. Sources of funds: There are two sources of funds internal sources and external sources. Internal source: Funds from operations is the only internal sources of funds and some important points add to it they do not result in the outflow of funds

(a) Depreciation on fixed assets

(b) Preliminary expenses or goodwill written 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 fixed assets

(c) Funds from increase in share capital

104. Application of funds: (a) Purchase of fixed assets (b) Payment of dividend (c)Payment of tax liability (d) Payment of fixed liability

105. ICD (Inter corporate deposits): Companies can borrow funds for a short period. For example 6 months or less from another company which have surplus liquidity? Such deposits made by one company in another company are called ICD.

106. Certificate of deposits: The CD is a document of title similar to a fixed deposit receipt issued by banks 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 3 years.

108. Euro issues: The euro issues means that the issue is listed on a European stock Exchange. The subscription can come from any part of the world except India.

109. GDR (Global depository receipts): A depository receipt is basically a negotiable certificate, dominated in us dollars that represents a non-US company publicly traded in local currency equity shares.

110. ADR (American depository receipts): Depository receipts issued by a company in the USA are known as ADRs. Such receipts are to be issued in accordance with the provisions stipulated by the securities Exchange commission (SEC) of USA like SEBI in India.

111. Commercial banks: Commercial banks extend foreign currency loans for international operations, just like rupee loans. The banks also provided overdraft.

112. Development banks: It offers long-term and medium term loans including foreign currency loans

113. International agencies: International agencies like the IFC,IBRD,ADB,IMF etc. provide indirect assistance for obtaining foreign currency.

114. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for professionally or technically qualified entrepreneurs and persons possessing relevantexperience and skills and entrepreneur traits.

115. Unsecured loans: It constitutes a significant part of long-term finance available to an enterprise.

116. Cash flow statement: It is a statement depicting change in cash position from one period to another.

117. Sources of cash:

Internal sources

(a)Depreciation

(b)Amortization

(c)Loss on sale of fixed assets

(d)Gains from sale of fixed assets

(e) Creation of reserves

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 of long-term loans

(c) Decrease in deferred 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 to which it applies.

120. Budgetary control: It is the system of management control and accounting in which all operations are forecasted and so for as possible planned ahead, and the actual results compared with the forecasted and planned ones.

121. Cash budget: It is a summary statement of firm’s 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- base- budgeting: It is a management tool which provides a systematic method for evaluating all operations and programmes, current of new allows for budget reductions and expansions in a rational inner and allows reallocation of source from low to high priority programs.

125. Goodwill: The present value of firm’s anticipated excess earnings.

126. BRS: It is a statement reconciling the balance as shown by the bank pass book and balance shown by the cash book.

127. Objective of BRS: The objective of preparing such a statement is to know the causes of difference between the two balances and pass necessary correcting or adjusting entries in the books of the firm.

128. Responsibilities of accounting: It is a system of control by delegating and locating the Responsibilities for costs.

129. Profit centre: A centre whose performance is measured in terms of both the expense incurs and revenue it earns.

130. Cost centre: A location, person or item of equipment for which cost 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 furnishing of information management for decision making.

133. Elements of cost:

(A) Material

(B) Labour

(C) Expenses

(D) Overheads

134. Components of total costs: (A) Prime cost (B) Factory cost

(C)Total cost of production (D) Total c0st

135. Prime cost: It consists of direct material direct labour and direct expenses. It is also known as basic or first or flat cost.

136. Factory cost: It comprises prime cost, in addition factory overheads which include cost of indirect material indirect labour and 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 total cost 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 the cost of the product is determined in advance on certain predetermined standards.

143. Marginal costing: 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, labour, direct expenses and variable overheads.

144. Derivative: derivative is 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 today’s pre agreed price.

146. Futures: A future contract is an agreement between two parties to buy 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 option may exercise or not.

148. Call option: A call option gives the holder the right but not the 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 not obligation to sell an asset by a certain date for a certain price.

150. Option price: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.

151. Expiration date: The date which is specified in the option contract is called expiration date.

152. European option: It is the option at exercised only on expiration date itself.

153. Basis: Basis means future price minus spot price.

154. Cost of carry: The relation between future prices and spot prices can be summarized in terms of what is known as cost of carry.

155. Initial margin: The amount that must be deposited in the margin a/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 or loss depending upon the futures selling price. This is called mark to market.

158. Baskets: basket options are options on portfolio of underlying asset.

159. Swaps: swaps are private agreements between two parties to exchange cash flows in the future according to a pre agreed formula.

160. Impact cost: Impact cost is cost it is measure of liquidity of the market. It reflects the costs faced when actually trading in index.

161. Hedging: Hedging means minimize the risk.

162. Capital market: Capital market is the market it deals with the long term investment funds. It consists of two markets 1.primary market 2.secondary market.

163. Primary market: Those companies which are issuing new shares in this market. It is also called new issue market.

164. Secondary market: Secondary market is the market where shares buying and selling. In India secondary market is called stock exchange.

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: Ratios 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 of the investors MF managed by investment professionals 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 as the Net Asset Value

172. Open-ended fund: open ended funds means investors can buy and sell units of fund, at NAV related prices at any time, directly from the fund this is called open ended fund.

173. Close ended funds: 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 Sectoral funds Index funds

178. Sectoral funds: Sectoral 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 invests only in securities that are issued by the GOVT. and therefore does 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 appoint 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 in the mutual fund’s portfolio.

189. Scheme takes over: if an existing MF scheme is taken over by another AMC, it is called as scheme take over.

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

192. Market capitalization: market capitalization means number of shares issued multiplied with market price per share.

193. Price earnings ratio: The ratio between the share price and the post tax earnings of company is called as price earnings 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 the risk which an investor has to face as 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 call back the bonds prior to maturity.

198. Credit risk: Credit risk refers to the probability that a 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. Outstanding Income: Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm.

203. Outstanding Expenses: Outstanding Expenses refer to those expenses which have become due during the accounting period for which the Final Accounts have been prepared but have not yet been paid.

204. Closing stock: The term closing stock means goods lying unsold with the businessman at the end of the accounting year.

205. Methods of depreciation:

1. Unirorm charge methods:

a. Fixed installment method

b .Depletion method

c. Machine hour rate method.

2. Declining 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 depreciation

c. Annuity method

d. Depreciation fund method

e. Insurance policy method.

206. Accrued Income: Accrued Income means income which has been earned by the business during the accounting year but which has not yet become due and, therefore, has not been received.

207. Gross profit ratio: it indicates the efficiency of the production/trading operations.

Formula :                          Gross profit

                                       -------------------X100

                                           Net sales

208. Net profit ratio: it indicates net margin on sales

Formula:                      Net profit

                                  --------------- X 100

                                      Net sales

209. Return on share holders’ funds: it indicates measures earning power of equity capital.

Formula:

Profits available for Equity shareholders

-----------------------------------------------X 100

Average Equity Shareholders Funds

210. Earning per Equity share (EPS): it shows the amount of earnings attributable to each equity share.

Formula:

Profits available for Equity shareholders

----------------------------------------------

Number of Equity shares

211. Dividend yield ratio: it shows the rate of return to shareholders in the form of dividends based in the market price of the share

Formula:

Dividend per share

---------------------------- X100

Market price per share

212. Price earnings ratio: it a measure for determining the value of a share. May also be used to measure the rate of return expected by investors.

Formula:                            Market price of share (MPS)

                                          ------------------------------------X 100

                                             Earnings per share (EPS)

213. Current ratio: it measures short-term debt paying ability.

Formula:

Current Assets

------------------------

Current Liabilities

214. Debt-Equity Ratio: it indicates the percentage of funds being financed through borrowings; a measure of the extent of trading on equity.

Formula:                            Total Long-term Debt

                                           ---------------------------

                                              Shareholders’ funds

215. Fixed Assets ratio: This ratio explains whether the firm has raised adequate long-term funds to meet its fixed assets requirements.

Formula:                                Fixed Assets

                                             -------------------

                                           Long-term Funds

216. Quick Ratio: The ratio termed as ‘liquidity ratio’. The ratio is ascertained y comparing the liquid assets to current liabilities.

Formula:

 Liquid Assets

------------------------

Current Liabilities

217. Stock turnover Ratio: The ratio indicates whether investment in inventory in efficiently used or not. It, therefore explains whether investment in inventory within proper limits or not.

Formula:                           cost of goods sold

                                   ------------------------------

                                           Average stock

218. Debtors Turnover Ratio: The ratio the better it is, since it would indicate that debts are being collected more promptly. The ration helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales.

Formula:                            Credit sales

                                 ----------------------------

                             Average Accounts Receivable

219. Creditors Turnover Ratio: It indicates the speed with which the payments for credit purchases are made to the creditors.

Formula:                     Credit Purchases

                                 -----------------------

                           Average Accounts Payable

220. Working capital turnover ratio: It is also known as Working Capital Leverage Ratio. This ratio indicates whether or not working capital has been effectively utilized in making sales.

Formula:                           Net Sales

                              ----------------------------

                                  Working Capital

221. Fixed Assets Turnover ratio: This ratio indicates the extent to which the investments in fixed assets contribute towards sales.

Formula:                            Net Sales

                                  --------------------------

                                         Fixed Assets

222 .Pay-outs Ratio: This ratio indicates what proportion of earning per share has been used for paying dividend.

Formula:                            Dividend per Equity Share

                                --------------------------------------------X100

                                             Earning per Equity share

223. Overall Profitability Ratio: It is also called as “Return on Investment” (ROI) or Return on Capital Employed (ROCE). It indicates the percentage of return on the total capital employed in the business.

Formula:                      Operating profit

                                 ------------------------X 100

                                     Capital employed

The term capital employed has been given different meanings a.sum total of all assets Whether fixed or current b.sum total of fixed assets, c.sum total of long-term funds employed In the business, i.e., share capital +reserves &surplus +long term loans – (non business assets + fictitious assets). Operating profit means ‘profit before interest and tax’

224. Fixed Interest Cover ratio: The ratio is very important from the lender’s point of view. It indicates whether the business would earn sufficient profits to pay periodically the interest charges.

Formula:                           Income before interest and Tax

                                         ---------------------------------------

                                                         Interest Charges

225. Fixed Dividend Cover ratio: This ratio is important for preference shareholders entitled to get dividend at a fixed rate in priority to other shareholders.

Formula:                     Net Profit after Interest and Tax

------------------------------------------

Preference Dividend

226. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of principal amounts also on time.

Formula:                     Net profit before interest and tax

----------------------------------------------- 1-Tax rate

Interest + Principal payment installment

227. Proprietary ratio: It is a variant of debt-equity ratio . It establishes relationship between the proprietor’s funds and the total tangible assets.

Formula:                     Shareholders funds

                                    ------------------------------

Total tangible assets

228. Difference between 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 recorded under cash system In 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 is permanent.

229. Meaning of Working capital: The funds available for conducting day to day operations of an enterprise. Also represented by the excess of current assets over current liabilities.

230. Concepts of accounting:

1. Business entity concepts: - 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, revenue is considered as being earned on the data 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 concepts: - It is a one of the accounting principle, as per only important information will be taken, and UN important information will be ignored in the preparation of the financial statement.

9. Matching concepts: - 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.

231. Financial analysis: The process of interpreting the past, present, and future financial condition of a company.

232. Income statement: An accounting statement which shows the level of revenues, expenses and profit occurring for a given accounting period.

233. Annual report: The report issued annually by a company, to its share holders. it containing financial statement like, trading and profit & lose account and balance sheet.

234. Bankrupt: A statement in which a firm is unable to meets its obligations and hence, it is assets are surrendered to court for administration

235. Lease: Lease is a contract between to parties under the contract, the owner of the asset gives the right to use the asset to the user over an agreed period of the time for a consideration.

236. Opportunity cost: The cost associated with not doing something.

237. Budgeting: The term budgeting is used for preparing budgets and other producer for planning,co-ordination,and control of business enterprise.

238. 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.

239. Capitalization: It is the sum of the par value of stocks and bonds out standings.

240. Over capitalization: When a business is unable to earn fair rate on its outstanding securities.

241. Under capitalization: When a business is able to earn fair rate or over rate on it is outstanding securities.

242. Capital gearing: The term capital gearing refers to the relationship between equity and long term debt.

243. Cost of capital: It means the minimum rate of return expected by its investment.

244. Cash dividend: The payment of dividend in cash

245. Define the term 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.

245. 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.

246. Accrued revenue: Revenue which has been earned is an earned is an accounting period but in respect of which no enforceable claim has become due to in that period by the enterprise.

247. Accrued liability: A developing but not yet enforceable claim by another 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.

248. Convention of 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.

249. Convention of consistency: According to this convention it is essential that accounting practices and methods remain unchanged from one year to another.

250. Define the term preliminary expenses: Expenditure relating to the formation of an enterprise. There include legal accounting and share issue expenses incurred for formation of the enterprise.

251. Meaning of Charge: charge means it is a obligation to secure an indebt ness. It may be fixed charge and floating charge.

252. Appropriation: It is application of profit towards Reserves and Dividends.

253. Absorption costing: A method where by the cost is determine so as to include the appropriate share of both variable and fixed costs.

254. Marginal Cost: Marginal cost is the additional cost to produce an additional unit of a product. It is also called variable cost.

255. What are the ex-ordinary items in the P&L a/c: The transaction which is not related to the business is termed as ex-ordinary transactions or ex-ordinary items. Egg:- profit or losses on the sale of fixed assets, interest received from other company investments, profit or loss on foreign exchange, unexpected dividend received.

256. Share premium: The excess of issue of price of shares over their face value. It will be showed 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”.

257. Accumulated Depreciation: The total to date of the periodic depreciation charges on depreciable assets.

258. Investment: Expenditure on assets held to earn interest, income, profit or other benefits.

259. Capital: Generally refers to the amount invested in an enterprise by its owner. Ex; paid up share capital in corporate enterprise.

260. Capital Work In Progress: Expenditure on capital assets which are in the process of construction as completion.

261. Convertible Debenture: A debenture which gives the holder a right to conversion wholly or partly in shares in accordance with term of issues.

262. Redeemable Preference Share: The preference share that is repayable either after a fixed (or) determinable period (or) at any time dividend by the management.

263. Cumulative preference shares: A class of preference shares entitled to payment of emulates dividends. Preference shares are always deemed to be cumulative unless they are expressly made non-cumulative preference shares.

264. Debenture redemption reserve: A reserve created for the redemption of debentures at a future date.

265. Cumulative dividend: A dividend payable as cumulative preference shares which it unpaid Emulates as a claim against the earnings of a corporate before any distribution is made to the other shareholders.

266. Dividend Equalization reserve: A reserve created to maintain the rate of dividend in future years.

267. Opening Stock: The term ‘opening stock’ means goods lying unsold with the businessman in the beginning of the accounting year. This is shown on the debit side of the trading account.

268. Closing Stock: The term ‘Closing Stock’ includes goods lying unsold with the businessman at the end of the accounting year. The amount of closing stock is shown on the credit side of the trading account and as an asset in the balance sheet.

269. Valuation of closing stock: The closing stock is valued on the basis of “Cost or Market prices whichever is less” principle.

272. Contingency: A condition (or) situation the ultimate out comes of which gain or loss will be known as determined only as the occurrence or non occurrence of one or more uncertain future events.

273. Contingent Asset: An asset the existence ownership or value of which may be known or determined only on the occurrence or non occurrence of one more uncertain future event.

274. Contingent liability: An obligation to an existing condition or situation which may arise in future depending on the occurrence of one or more uncertain future events.

275. Deficiency: the excess of liabilities over assets of an enterprise at a given date is called deficiency.

276. Deficit: The debit balance in the profit and loss a/c is called deficit.

277. Surplus: Credit balance in the profit & loss statement after providing for proposed appropriation & dividend, reserves.

278. Appropriation Assets: An account sometimes included as a separate section of the profit and loss statement showing application of profits towards dividends, reserves.

279. Capital redemption reserve: A reserve created on redemption of the average cost: - the cost of an item at a point of time as determined 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.

280. 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.

281. Difference between Funds flow and Cash flow statement: A Cash flow statement is concerned only with the change in cash position while a funds flow analysis is concerned with change in working capital position between two balance sheet dates. A cash flow statement is merely a record of cash receipts and disbursements. While studying the short-term solvency of a business one is interested not only in cash balance but also in the assets which are easily convertible into cash.

282. Difference between the Funds flow and Income statement:

A funds flow statement deals with the financial resource required for 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 of funds 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.

283. Cash Flow Statement

Cash Flow Statement - A summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period (month, quarter, year).

It answers the questions:

• Where the money came (will come) from?
• Where it went (will go)?

Cash flow statements assess the amount, timing, and predictability of cash-inflows and cash-outflows, and are used as the basis for budgeting and business-planning.

The accounting data is presented usually in three main sections:

1. Operating-activities (sales of goods or services),
2. Investing-activities (sale or purchase of an asset, for example), and
3. Financing-activities (borrowings, or sale of common stock, for example).

Together, these sections show the overall (net) change in the firm's cash-flow for the period the statement is prepared.

284. Asset - Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.

On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.

From an accounting perspective, assets are divided into the following categories:

• current assets (cash and other liquid items),
• long-term assets (real estate, plant, equipment),
• prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and
• intangible assets (trademarks, patents, copyrights, goodwill).                                                                285.   Liability - An obligation that legally binds a company to settle a debt. When one is liable for a debt, they are responsible for paying the debt. A liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.