CA Foundation Paper 4 key terms

The branch of economics that studies how firms make production, pricing, and resource-allocation decisions, and how markets, costs, and demand interact to shape commercial outcomes.

The principle that, other things being equal, quantity demanded of a good rises when its price falls and falls when its price rises, producing an inverse relationship between price and quantity demanded.

A measure of how responsive quantity demanded is to a change in price, income, or the price of a related good, calculated as percentage change in quantity divided by percentage change in the influencing variable.

The satisfaction a consumer derives from consuming a good or service. Marginal utility is the extra satisfaction from one more unit, which typically diminishes as consumption increases.

The value of the next best alternative forgone when a choice is made. It is a core concept in economics and in costing, because every resource use has an implicit sacrifice attached to it.

The price at which quantity demanded equals quantity supplied, so there is no tendency for the price to change. It is also called the market-clearing price.

The addition to total cost from producing one more unit of output. It is used in break-even and profit-maximisation analysis and is distinct from average cost.

The level of sales at which total revenue equals total cost, so profit is zero. It is computed as fixed cost divided by contribution per unit, where contribution is selling price minus variable cost.

Sales revenue minus variable costs. It measures the amount available to cover fixed costs and then generate profit, and it is the numerator basis for break-even and profit-volume calculations.

A cost that remains unchanged in total over a relevant range of activity, such as rent or insurance, though it falls per unit as output rises. It contrasts with variable cost.

The process of identifying, recording, classifying, summarising, and communicating financial information about an entity so that users can make informed economic decisions.

The bookkeeping method in which every transaction is recorded with equal debits and credits in at least two accounts, keeping the accounting equation in balance at all times.

The book of original entry in which transactions are recorded chronologically with narration, showing the accounts debited and credited before posting to the ledger.

The principal book containing all accounts in which journal entries are posted, allowing the balance of each account to be determined and summarised for reporting.

A statement listing the debit and credit balances of all ledger accounts on a given date to test the arithmetical accuracy of posting; equal totals indicate no certain classes of error.

A temporary account used to hold the difference in a trial balance until the underlying error is located and corrected, after which its balance should become nil.

The accounting assumption that revenue and expenses are recognised when earned or incurred, not when cash is received or paid, so financial statements reflect the period's true performance.

The rule that expenses incurred to earn revenue in a period are recorded in the same period as that revenue, so profit is measured meaningfully rather than by cash timing.

The assumption that an entity will continue operating for the foreseeable future, which justifies carrying assets at cost less depreciation rather than at forced-sale values.

The systematic allocation of the depreciable cost of a fixed asset over its useful life, reflecting consumption of economic benefit rather than a fall in market value.

A statement prepared to reconcile the cash book balance with the bank statement balance on a given date, explaining differences such as unpresented cheques and uncredited deposits.

Spending that creates or enhances a long-term asset and is shown in the balance sheet rather than charged to profit, as distinct from revenue expenditure.

The statute governing the formation, performance, and enforcement of contracts in India, setting out essentials of a valid contract, offer, acceptance, consideration, and remedies for breach.

The two-step process by which a proposal is made by one party and unconditionally assented to by another, creating an agreement that may become a contract if other essentials are met.

Something of value given by each party in exchange for the other's promise, such as money, goods, or a service, without which an agreement is generally not enforceable as a contract.

Consent given without coercion, undue influence, fraud, misrepresentation, or mistake. When consent is not free, the contract may be voidable at the option of the aggrieved party.

The statute governing contracts for the sale of movable goods, covering formation, conditions and warranties, transfer of ownership, and the rights of unpaid sellers.

A document such as a cheque, bill of exchange, or promissory note that is freely transferable and gives its holder a right to payment, governed by the Negotiable Instruments Act, 1881.

A relationship between persons who agree to share the profits of a business carried on by all or any of them acting for all, governed in India by the Partnership Act, 1932.

A business form combining partnership flexibility with limited liability for partners, registered under the LLP Act, 2008, and treated as a body corporate separate from its partners.

The principle that money available today is worth more than the same amount in future because it can earn interest, forming the basis of present value and future value calculations.

Interest calculated on both the original principal and accumulated interest, so the amount grows geometrically over time rather than linearly as with simple interest.

A series of equal payments or receipts made at regular intervals over a defined period, whose present or future value can be found using annuity factor tables or formulas.

Counting techniques: permutations count ordered arrangements of items, while combinations count selections where order does not matter, both used in probability and business statistics problems.

A numerical measure between zero and one of how likely an event is, computed as favourable outcomes divided by total equally likely outcomes in classical settings and used widely in decision analysis.

The three common measures of central tendency: the arithmetic average, the middle value of ordered data, and the most frequently occurring value respectively, each suited to different data types.

A measure of dispersion equal to the positive square root of the variance, expressing how far values typically spread from the mean in the original units of the data.

The exchange of information within and outside an organisation through written, oral, and electronic channels, aiming at clarity, accuracy, and appropriate tone for the audience.

The structured presentation of facts, analysis, and recommendations on a defined issue, typically using headings, an executive summary, and a logical sequence suited to the reader's needs.

A business or official communication following a conventional layout with sender details, date, reference, salutation, body, and complimentary close, written in a polite impersonal style.