BSEB Inter Accountancy key terms

A nominal account prepared after the trading and profit and loss account to show how net profit is divided among partners, covering interest on capital, salary, commission, interest on drawings and transfers to reserves.

The account recording each partner's permanent investment in the firm, credited with capital introduced and share of profit, and debited with drawings, share of loss and withdrawals of capital.

A method in which only one capital account is kept per partner; all adjustments such as drawings, interest on capital, salary and profit share are recorded directly in it, so the balance changes every period.

A method where each partner has two accounts: a capital account that changes only on capital introduction or withdrawal, and a current account that absorbs drawings, interest, salary and profit share.

A supporting account used under the fixed capital method to record routine adjustments like drawings, interest on capital, salary and share of profit, without disturbing the capital balance.

A charge levied on partners for amounts withdrawn for personal use, debited to the partner's account and credited to the profit and loss appropriation account, thereby increasing divisible profit.

The agreed proportion in which partners divide profits and losses; in the absence of a partnership deed it is equal, and it governs distribution of goodwill and revaluation gains on reconstitution.

The proportion of profit surrendered by existing partners in favour of an incoming partner, computed as old ratio minus new ratio, and used to divide the incoming partner's share of goodwill.

The proportion in which continuing partners acquire the share of a retiring or deceased partner, computed as new ratio minus old ratio, and used to distribute the retiring partner's goodwill among them.

The monetary value of a firm's reputation, customer base and earning capacity beyond the normal return on its net assets, recognised only when paid for on admission, retirement or death.

A goodwill valuation technique that multiplies the simple or weighted average of past years' profits by an agreed number of years' purchase, after adjusting profits for abnormal items.

A goodwill valuation technique based on profit above the normal return on capital employed: super profit equals average profit minus normal profit, multiplied by the agreed years of purchase.

A goodwill valuation technique that finds the firm's total value by capitalising average or super profit at the normal rate of return, then deducts net assets or capital employed to obtain goodwill.

The amount an incoming partner pays for a share of the firm's reputation; it is credited to the sacrificing partners' capital accounts, either directly or through a current account.

A nominal account prepared at reconstitution to record increases and decreases in the values of assets and liabilities; the resulting profit or loss is shared by old partners in their old ratio.

A revaluation account prepared when the partners decide not to alter the books; its balance is recorded only in a memorandum, and adjustments are made directly in partners' capital accounts.

Withdrawal of a partner from the firm, requiring settlement of the retiring partner's capital balance, share of goodwill, revaluation gains and reserves, and adjustment of the new profit-sharing ratio.

A liability account opened when a retiring partner's dues are not paid immediately; it is credited with the settled amount and debited with subsequent payments, usually carrying interest.

The account opened in the firm's books on a partner's death to record the amount due to the deceased partner's legal representatives, including capital, goodwill share and profit up to the death date.

The complete termination of the firm's business: assets are realised, liabilities are paid and the remaining surplus is distributed among partners, ending the firm entirely rather than merely changing its constitution.

A nominal account opened on dissolution to record the sale of assets and payment of liabilities; the resulting profit or loss is transferred to partners' capital accounts in the profit-sharing ratio.

Costs incurred to wind up the firm, such as legal fees and asset disposal costs; they are debited to the realisation account unless a partner has agreed to bear them personally.

The amount contributed by shareholders and shown in the company's balance sheet, divided into authorised, issued, subscribed and paid-up categories under the Companies Act.

The amount of share capital called but not yet received from shareholders; it is deducted from subscribed capital in the balance sheet and may attract interest unless the articles say otherwise.

Money received from shareholders before the corresponding call is due; it is a current liability, shown separately in the balance sheet and not treated as part of paid-up capital.

The excess of share issue price over face value, credited to a separate reserve that may be used only for specified purposes such as issuing bonus shares or writing off preliminary expenses.

Free shares issued to existing shareholders by capitalising reserves, with no cash inflow; they may be issued only from free reserves, securities premium or capital redemption reserve.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and repaid at maturity, with holders ranking as creditors rather than owners.

A reserve created out of divisible profits to protect debenture holders, mandatory for certain companies before redemption, and transferred to general reserve when the debentures are redeemed.

Repayment of debenture liability at maturity, done by lump-sum payment, instalments, purchase in the open market or conversion into shares, with entries closing the debenture account.

The format prescribed under the Companies Act, 2013 for presenting financial statements, dividing the balance sheet into equity and liabilities, and assets, with detailed sub-headings.

A company's income statement under Schedule III, showing revenue, other income, expenses, tax and profit for the period, with separate disclosure of exceptional and extraordinary items.

Items of income and expense excluded from profit or loss by accounting standards, such as revaluation surplus and certain remeasurements, presented separately within the statement of profit and loss.

A liquidity measure dividing current assets by current liabilities; a ratio near 2:1 is conventionally considered comfortable, though the ideal varies by industry.

A stringent liquidity test dividing quick assets (current assets excluding inventory and prepaid expenses) by current liabilities, indicating ability to meet immediate obligations.

A solvency ratio dividing long-term debt by shareholders' funds, showing the proportion of outsiders' funds relative to owners' funds and the firm's financial risk.

A statement classifying cash receipts and payments into operating, investing and financing activities to explain the change in cash and cash equivalents over a period.

The principal revenue-producing activities of an enterprise, whose cash flows are derived by adjusting profit for non-cash items and changes in working capital.

Cash flows from acquiring and disposing of long-term assets and investments, such as purchase of plant, sale of land and interest or dividends received on investments.

Cash flows that change the size and composition of owners' capital and borrowings, including issue of shares, debenture proceeds, loan repayments and dividend paid.

An entity formed for charitable, educational, religious or social purposes rather than profit, whose surplus is retained and used for its objectives instead of being distributed.

A summary of actual cash and bank receipts and payments during a period, prepared on a cash basis, including capital items and opening and closing balances.

An accrual-basis account of a not-for-profit organisation matching revenue income with revenue expenditure for the period, producing a surplus or deficit instead of profit or loss.

Regular amounts paid by members of a not-for-profit organisation; only the amount relating to the current period is income, with arrears as assets and advance receipts as liabilities.