CMA Inter Paper 6 key terms

Accounting method that records income when earned and expenses when incurred, regardless of when cash actually moves. It matches revenues with the costs that produced them during the same period.

Presumption that the business will continue operating for the foreseeable future without liquidation or major downsizing. It justifies carrying assets at cost rather than at forced-sale values.

Convention of exercising caution in estimates so that assets and income are not overstated and liabilities and expenses are not understated. It permits provisions but not deliberate hidden reserves.

Measuring assets and liabilities at the amount paid or received when the transaction occurred, rather than at current market value. It is reliable but can become less relevant over time.

Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It reflects current exit value.

Spending that creates or enhances a long-term asset and is shown in the balance sheet instead of being charged to profit. Its cost is later allocated through depreciation or amortisation.

Spending on day-to-day operations or on maintaining an asset in working order, written off to the profit and loss account in the period incurred. It does not add to asset capacity.

Liability of uncertain timing or amount recognised when a present obligation exists, an outflow is probable and the amount can be estimated reliably. It differs from a contingent liability.

Possible obligation whose existence depends on uncertain future events, or a present obligation that fails the recognition criteria. It is disclosed in notes rather than recorded in the books.

Arrangement where the consignor sends goods to a consignee who sells them on the consignor's behalf. The consignee never owns the goods and remits proceeds after deducting commission and expenses.

Statement sent by the consignor to the consignee showing the description, quantity and price of goods despatched. It is not a sale invoice and creates no debtor in the consignor's books.

Periodic statement from the consignee to the consignor reporting quantities sold, sale proceeds, commission, expenses incurred and any unsold stock. It forms the basis for settling the consignor's account.

Business arrangement in which two or more parties share profits and losses of a specific project, often without forming a separate company. Each venturer records its own share of transactions.

Written order from a drawer directing the drawee to pay a specified sum to a named party on demand or at a fixed future date. Once accepted, it becomes a negotiable instrument.

Selling a bill of exchange to a bank before maturity for less than its face value, the difference being the discount charge. The drawer may remain liable if the acceptor defaults.

Fee paid to a notary public for formally recording the dishonour of a bill or promissory note. The amount is recoverable from the party who caused the dishonour.

Financing arrangement where the buyer takes possession of an asset immediately but ownership passes only after all instalments are paid. Instalments include both interest and capital recovery.

Contract granting the right to use an asset for an agreed period in return for payments. A finance lease transfers substantially all risks and rewards of ownership; an operating lease does not.

Land or buildings held to earn rentals or for capital appreciation rather than for use in production or administration. It may be measured at cost or fair value under the chosen policy.

Cash, goods or other assets withdrawn by the proprietor from the business for personal use. Drawings reduce capital and must be separated from genuine business expenses.

Ledger account recording the owner's or partner's investment, share of profits and drawings. Its balance represents the equity stake in the business at any date.

In partnership accounting, the account that tracks a partner's share of profits, drawings, interest on capital and salary, keeping the fixed capital balance unchanged. Its balance is settled periodically.

Statement prepared after the profit and loss account showing how distributable profit is allocated among partners through interest on capital, salaries, commission, reserves and profit shares.

Arrangement under which a partner is assured a minimum share of profit, with any shortfall borne by another partner or partners as agreed. The deficiency is debited to the guaranteeing partner.

Proportion in which existing partners give up their share of profit in favour of an incoming partner. It is computed as old ratio minus new ratio and governs goodwill distribution.

Intangible value of a firm's reputation, customer base and earning capacity beyond the fair value of its net assets. It is paid by an incoming partner and compensated to sacrificing partners.

Account opened at admission, retirement or death of a partner to record changes in the value of assets and liabilities. The resulting profit or loss is shared by old partners in their old ratio.

Written acknowledgement of a loan raised by a company, carrying a fixed rate of interest and usually secured by a charge on assets. Debenture holders are creditors, not owners.

Share that gives its holder priority over equity shareholders for dividend payment and for return of capital on winding up, usually at a fixed rate. Voting rights are restricted.

Allotment of additional shares to existing shareholders free of charge, funded from reserves or share premium rather than fresh cash. It increases share capital while reducing reserves.

Offer of new shares to existing shareholders in proportion to their current holding, usually below market price. The right may be exercised, renounced or allowed to lapse.

Amount received on issue of shares above the face value, credited to a separate reserve. Its use is restricted by law, for example to issue bonus shares or write off issue expenses.

Repayment of debenture capital to holders at maturity or earlier, either in lump sum or by instalments. Companies may fund it from profits, fresh issue or sale of investments.

Reserve created out of profits by companies required to do so, to ensure funds are available when debentures mature. It is utilised only for redemption purposes.

Loan or advance where interest or principal has remained overdue for more than the period specified by the regulator. Such assets are classified as substandard, doubtful or loss assets.

Method of posting entries in bank books where transactions are first recorded on separate slips and later summarised into day books. It reduces posting errors in high-volume branches.

Unearned discount relating to the unexpired period of discounted bills, carried forward as a liability or deducted from discount earned. It prevents overstatement of current income.

Provision created by an insurer out of premium income for the portion of risk cover that extends into the following accounting period. It is required for general insurance business.

Indian Accounting Standards converged with IFRS, applicable to specified classes of companies. They prescribe recognition, measurement, presentation and disclosure requirements for financial statements.

Process of determining when and how much income from contracts with customers is recorded, generally when control of goods or services passes to the buyer. It drives the timing of profit.