KSEAB II PUC Accountancy key terms

A written agreement among partners recording profit-sharing ratio, capital contributions, interest on capital, salary, and admission or retirement rules. When silent, the Partnership Act 1932 defaults apply, such as equal sharing of profits and no interest on capital.

The agreed proportion in which partners divide profits and losses. It governs distribution of reserves, revaluation gains, and goodwill adjustments on reconstitution, and changes whenever a partner is admitted, retires, or dies.

The account recording each partner's permanent investment in the firm. It is credited with capital introduced and interest on capital, and debited with drawings, interest on drawings, and the partner's share of losses.

An account used under the fixed capital method to record a partner's drawings, interest on capital, salary, commission, and share of profit separately from the fixed capital balance, so capital stays unchanged unless fresh capital is introduced.

Cash or goods withdrawn by a partner for personal use. Drawings reduce the partner's claim on the firm and usually attract interest on drawings, which is a gain to the firm and a charge against the partner.

A charge levied on a partner for amounts withdrawn, calculated for the average period the money was absent from the business. It is debited to the partner and credited to the Profit and Loss Appropriation Account.

An extension of the Profit and Loss Account that shows how profit is distributed among partners through interest on capital, partner salaries and commissions, interest on drawings, and transfer to reserves before the divisible profit is shared.

The account used when a partner advances money to the firm beyond capital. It is treated as a liability, and interest on it is a business expense charged to Profit and Loss rather than an appropriation of profit.

The value of a firm's reputation, customer base, and earning capacity beyond the value of its net assets. It is raised or adjusted in the books when a partner is admitted, retires, or dies, and is shared among partners in the agreed ratio.

The proportion in which existing partners give up their share of profit in favour of an incoming partner. It equals old ratio minus new ratio and determines how the new partner's share of goodwill is credited to the old partners.

The proportion in which continuing partners acquire the share of a retiring or deceased partner. It equals new ratio minus old ratio and decides how the retiring partner's goodwill is compensated by the remaining partners.

The reconstitution event in which a new partner joins the firm, bringing capital and possibly premium for goodwill. Assets and liabilities are revalued, reserves are distributed, and a new profit-sharing ratio is agreed.

A temporary account prepared on reconstitution to record increases and decreases in the value of assets and liabilities. The resulting profit or loss is shared by the old partners in their old profit-sharing ratio.

The amount paid by an incoming partner for a share of the firm's existing reputation, over and above their capital contribution. It is credited to the sacrificing partners' capital accounts in the sacrificing ratio.

Goodwill inferred from the total capital brought in by a new partner relative to their share, when the question gives no explicit valuation. The excess of the implied total firm value over actual net assets is the hidden goodwill.

The event in which a partner leaves the firm, requiring settlement of their capital balance plus share of goodwill, reserves, and revaluation profits. The remaining partners adopt a new profit-sharing ratio and a gaining ratio.

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

The complete termination of the firm's business, involving sale of assets, payment of liabilities, and settlement of partners' accounts. It differs from dissolution of partnership, which only changes the relationship among partners.

An account opened at dissolution to record the sale proceeds of assets and settlement of liabilities. The balance is profit or loss on realisation, shared by partners in their profit-sharing ratio.

A situation where a partner cannot pay their debts or their deficit on capital. Under the Garner versus Murray rule, the deficiency of an insolvent partner is borne by solvent partners in their capital ratio, not profit-sharing ratio.

The maximum amount of capital a company is permitted to raise by issuing shares, as stated in its memorandum of association. It can be increased only by following the legal procedure for alteration.

The portion of authorised capital actually offered to investors. It may be less than authorised capital and includes shares subscribed by the public and any shares allotted to promoters or vendors.

The amount actually received from shareholders plus any calls in advance, excluding unpaid calls. It equals the face value of shares allotted less calls in arrears and is shown in the balance sheet as a shareholder fund.

The amount of allotted capital that shareholders have failed to pay on the due date. It is deducted from called-up capital to arrive at paid-up capital and is shown as a deduction in the notes to accounts.

Cancellation of shares when a shareholder fails to pay calls. Amounts already received are transferred to a Share Forfeiture account, and on reissue the forfeiture balance may be used to discount the reissue price.

The amount received on issue of shares above their face value. It is a capital receipt credited to a separate reserve and may be used only for purposes permitted by the Companies Act, such as premium on redemption of debentures.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and repayment terms. Debenture holders are creditors, not owners, and receive interest before any dividend is paid.

A reserve created out of profits to ensure funds are available to repay debentures at maturity. It is a charge against divisible profits and is required by law for certain issues of redeemable debentures.

Repayment of debenture capital to holders at maturity or earlier. It may be done in lump sum or by instalments, through a sinking fund, or by conversion into shares or new debentures.

The financial statement showing revenue, expenses, and profit or loss for a period, prepared in the prescribed Schedule III format. It includes revenue from operations, other income, and total expenses before arriving at profit before tax.

A financial statement presenting figures for two or more periods side by side, with absolute change and percentage change columns. It helps users identify trends and assess performance over time.

A statement in which each item is expressed as a percentage of a common base, such as total revenue in the Statement of Profit and Loss or total assets in the balance sheet, allowing comparison across firms of different sizes.

Current assets divided by current liabilities. It measures a firm's ability to meet short-term obligations, with a value near 2:1 traditionally considered satisfactory, though the ideal varies by industry.

Liquid assets divided by current liabilities, where liquid assets exclude stock and prepaid expenses. It is a stricter test of short-term solvency than the current ratio, with 1:1 often regarded as comfortable.

Long-term debt divided by shareholders' funds. It indicates financial leverage and risk; a higher ratio means greater dependence on borrowed funds and thinner protection for creditors.

Shareholders' funds divided by total assets, showing the proportion of total assets financed by owners. A high ratio suggests conservative financing and greater long-term solvency.

A statement classifying cash inflows and outflows into operating, investing, and financing activities for a period. It reconciles opening and closing cash and cash equivalents and is prepared under AS-3.

The principal revenue-producing activities of the firm, such as cash received from customers and paid to suppliers and employees. In the indirect method, cash flow from operations starts from net profit before tax and adjusts non-cash items.

Cash flows from acquiring and disposing of long-term assets and investments not classified as cash equivalents, such as purchase of plant or sale of land. These affect the earning capacity of the business.

Cash flows that change the size and composition of owners' capital and borrowings, such as issue of shares, redemption of debentures, and payment of dividends or interest on borrowings.

An accounting system in which transactions are recorded and processed using accounting software, with data stored in linked tables. It enforces double entry automatically and produces reports such as ledger, trial balance, and final accounts.

A program or set of programs used to record, classify, and summarise accounting transactions. Types include ready-to-use, customised, and tailor-made software, chosen according to the size and needs of the organisation.

A control built into accounting software that checks data entered against predefined rules, such as a date range or a valid account code, to prevent errors and maintain the integrity of accounting records.