CHSE Odisha Elective Accountancy flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accounting Equation

Assets equal Liabilities plus Capital. Every transaction changes at least two elements while keeping both sides equal, forming the basis of double entry bookkeeping.

Accrual Concept

Revenue is recorded when earned and expenses when incurred, irrespective of cash receipt or payment. It requires adjusting entries for outstanding and prepaid items.

Going Concern Assumption

The business is assumed to continue operating in the foreseeable future. Therefore assets are valued at cost less depreciation, not at forced sale value.

Golden Rules of Debit and Credit

Debit the receiver, credit the giver for personal accounts; debit what comes in, credit what goes out for real accounts; debit expenses and losses, credit incomes and gains for nominal accounts.

Trial Balance

A statement listing debit and credit balances of all ledger accounts on a given date. Equal totals indicate arithmetical accuracy but do not prove absence of errors.

Compound Journal Entry

A single journal entry recording more than two accounts for one transaction, such as goods purchased partly for cash and partly on credit, with total debits equalling total credits.

Balancing a Ledger Account

The difference between the two sides is written as Balance c/d on the smaller side and brought down as the opening balance on the opposite side in the next period.

Contra Entry

A transaction recorded in both Cash and Bank accounts, such as cash deposited into bank or withdrawn for office use. It cancels out in the trial balance.

Bank Reconciliation Statement

A statement reconciling the bank balance shown by the Cash Book with the balance shown by the Pass Book, explaining differences caused by timing and errors.

Cheque Deposited Not Credited

A cheque paid into the bank but not yet recorded by the bank. It is added to the Cash Book balance when reconciling towards the Pass Book balance.

Suspense Account

A temporary account opened to record the difference in the trial balance. It is closed once all one-sided errors affecting the difference are located and rectified.

Error of Principle

An error where a capital expenditure is treated as revenue or vice versa, or an asset is posted to a wrong account head. It does not affect trial balance agreement.

Straight Line Method

Depreciation equals cost less scrap value divided by useful life. The same amount is charged every year on original cost, and the asset can be fully written off.

Written Down Value Method

Depreciation is charged at a fixed percentage on the book value at the start of each year. The charge declines annually and the asset is never fully written off.

Provision versus Reserve

A provision is a charge against profit for a known liability of uncertain amount and is mandatory. A reserve is an appropriation of profit for strengthening the financial position.

Capital Reserve

A reserve created from capital profits such as share premium or profit on sale of fixed assets. It cannot be distributed among shareholders as dividend.

Bill of Exchange

An unconditional written order by the drawer directing the drawee to pay a stated sum to the payee or bearer on demand or at a fixed future date.

Days of Grace

Three days added to the tenor of a bill to arrive at the due date. If the due date is a public holiday, the preceding working day applies.

Noting Charges

Fees paid to a notary public for recording the dishonour of a bill. They are ultimately borne by the acceptor and recovered from the debtor.

Discounting of Bill

The holder receives immediate cash from the bank before the due date, at a discount. The discount is an expense for the holder and income for the bank.

Gross Profit Formula

Gross profit equals net sales minus cost of goods sold, where cost of goods sold equals opening stock plus purchases plus direct expenses minus closing stock.

Outstanding Expense Adjustment

The unpaid expense of the current period is added to the expense in the Profit and Loss Account and shown as a current liability in the balance sheet.

Prepaid Expense Adjustment

An expense paid in advance for the next period is deducted from the expense in the Profit and Loss Account and shown as a current asset in the balance sheet.

Partnership Act Defaults

In the absence of a partnership deed, profits and losses are shared equally, no interest on capital or drawings is allowed, and interest on advances is 6% per annum.

Profit and Loss Appropriation Account

An extension of the Profit and Loss Account that distributes net profit among partners after interest on capital, partner's salary, and interest on drawings.

Sacrificing Ratio

The ratio in which old partners give up their share of profit in favour of an incoming partner. It equals old ratio minus new ratio.

Gaining Ratio

The ratio in which continuing partners acquire the retiring or deceased partner's share. It equals new ratio minus old ratio and governs goodwill compensation.

Revaluation Account

An account prepared on reconstitution to record increases and decreases in the value of assets and liabilities. Its balance is shared by old partners in the old ratio.

Realisation Account

An account opened on dissolution to record the sale of assets and payment of liabilities. Its balance is the profit or loss on realisation, shared by all partners.

Garner versus Murray Rule

When a partner is insolvent, the deficiency is borne by solvent partners in the ratio of their capitals, not in the profit-sharing ratio, unless the deed says otherwise.

Forfeiture of Shares

Cancellation of shares for non-payment of calls. The amount already paid is forfeited and credited to Share Forfeiture Account, and unpaid calls are debited.

Quick Ratio

Quick assets divided by current liabilities, where quick assets exclude stock and prepaid expenses. A ratio near 1:1 indicates sound immediate liquidity.