RBSE SS Accountancy key terms

A written agreement among partners that records profit-sharing ratio, capital contributions, interest terms, salary and other rules. When absent, statutory defaults apply, such as equal sharing of profits and no interest on capital.

The proportion in which partners divide profits and losses. It may be fixed by the deed or changed on reconstitution, and it determines each partner's share of goodwill adjustments and reserves.

An allowance credited to a partner's capital account for the use of money invested, usually computed at a rate stated in the deed. It is charged to the profit and loss account before distributing profit.

A charge debited to a partner's capital account when money or goods are withdrawn privately for personal use. It compensates the firm and is credited to the profit and loss account as income.

Amounts of cash or goods a partner takes from the firm for personal use. Drawings reduce the partner's capital balance and may attract interest if the partnership deed provides for it.

A capital account that records only permanent contributions and permanent withdrawals. All other items such as interest, salary, profit share and drawings go to a separate current account.

A capital account to which every adjustment is posted, including profit share, interest, salary and drawings, so the balance changes each year. It shows the partner's net claim against the firm at any date.

A separate ledger account used alongside fixed capital accounts to record routine adjustments like interest on capital, salary, commission, share of profit and drawings. Its balance may be debit or credit.

The value of a firm's reputation, customer base and earning capacity beyond the worth of its identifiable net assets. It is recognised in accounts mainly when a firm is reconstituted or sold.

The share of profit that existing partners give up in favour of an incoming partner. It equals old ratio minus new ratio for each old partner and is the basis for compensating them for goodwill.

The extra share of profit that continuing partners acquire when another partner retires or dies. It equals new ratio minus old ratio and decides how the retiring partner's goodwill share is paid.

A temporary account prepared at reconstitution to record increases and decreases in the values of assets and liabilities. The resulting profit or loss is divided among old partners in their old profit-sharing ratio.

The amount an incoming partner pays to old partners for the share of future profits they surrender. It is shared in the sacrifice ratio, either directly or through the capital accounts.

An account opened on dissolution to record the sale of assets, payment of liabilities and expenses of winding up. Its balance shows the gain or loss on realisation, which is shared by partners.

The complete termination of a firm, involving sale of assets, settlement of outsiders' claims and final distribution among partners. It differs from dissolution of partnership, where only the relationship among partners changes.

A principle applied when one partner becomes insolvent: the deficiency in that partner's capital is borne by solvent partners in the ratio of their capitals before dissolution, not in the profit-sharing ratio. It applies in the absence of a contrary agreement.

A partner whose private assets are insufficient to clear the debit balance of his capital account. The unpaid portion is a deficiency shared by the solvent partners under the Garner v. Murray rule.

The final ledger account of each partner, closing with all adjustments such as realisation profit, goodwill, reserves and private assets. A credit balance is paid out; a debit balance is brought in by the partner.

The money raised by a company through issue of shares, divided into authorised, issued, subscribed and paid-up categories. It appears in the balance sheet under shareholders' funds as per Schedule III.

A method of allotting shares when applications exceed the issue, so each applicant receives a proportion of the shares applied for. Excess application money is adjusted against allotment or later calls.

Cancellation of shares when a shareholder fails to pay a call. The amount already received is retained and transferred to share forfeiture account, and the paid-up capital is reduced.

Selling forfeited shares again, usually at a discount not exceeding the amount already forfeited. Any gain on reissue is transferred to capital reserve, while discount beyond forfeiture reduces it.

The amount of called-up capital that shareholders have not yet paid. It is deducted from called-up capital in the balance sheet to arrive at paid-up capital.

Money received from shareholders before the corresponding call is made. It is a current liability and is shown separately in the notes to accounts, not added to paid-up capital.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and repayment terms. Debenture holders are creditors and have no voting rights, unlike shareholders.

The periodic coupon paid to debenture holders at the stated rate on face value. It is a charge against profit, so it is debited to the statement of profit and loss and paid net of tax deducted at source where applicable.

Debentures a company buys back in the open market for cancellation or as an investment. Purchasing them below or above face value creates a gain or loss, and they may be cancelled to reduce liability.

Money set aside each year out of profits and invested so that a lump sum is available to repay debentures on maturity. It is also called a debenture redemption fund and reduces risk of default.

Repayment of debenture capital to holders at maturity or earlier, by lump sum, instalments, draw of lots or purchase in the open market. The liability and related reserve are adjusted at that time.

The format prescribed under the Companies Act, 2013 for presenting a company's balance sheet and statement of profit and loss. It specifies line items, current and non-current classification, and notes to accounts.

The income statement of a company prepared in Schedule III format, showing revenue from operations, other income, expenses, profit before and after tax, and earnings per share. It explains the change in reserves during the year.

Schedules attached to a company's financial statements that break down each line item, such as share capital, reserves, borrowings and fixed assets. They form an integral part of the statements and are mandatory.

A financial statement showing figures for two or more years side by side, with absolute change and percentage change. It helps users spot trends in revenue, expenses and profitability over time.

A statement in which each item is expressed as a percentage of a common base, such as revenue from operations for the income statement or total assets for the balance sheet. It allows comparison across firms of different sizes.

A technique that takes one base year as 100 and expresses later years' figures as index numbers. It reveals the direction and pace of change in items such as sales, profit or capital employed.

Computing relationships between financial statement items, such as liquidity, solvency, activity and profitability ratios, to judge performance and financial health. Ratios are meaningful only when compared with past periods, budgets or industry norms.

A statement summarising cash inflows and outflows during a period under operating, investing and financing activities. Under the indirect method it starts with net profit before tax and adjusts for non-cash and working capital changes.

The principal revenue-producing activities of an enterprise, such as cash received from customers and paid to suppliers and employees. Their cash flows are usually derived indirectly from profit by removing non-cash items.

Cash flows from acquiring and disposing of long-term assets and investments, such as purchase of machinery or sale of land. They show how much the entity spends to build future earning capacity.

Cash flows that change the size and composition of owners' capital and borrowings, such as issue of shares, fresh loans, repayment of loans and payment of dividends or interest. They reveal how the entity raises funds.

A summary of cash and bank receipts and payments of a not-for-profit organisation for a period, including capital items. It opens with the opening balance and closes with the closing balance, but does not show accruals.

An account prepared by a not-for-profit organisation on an accrual basis, recording revenue income and revenue expenditure of the period. Its surplus or deficit is added to or deducted from the capital fund.

The accumulated fund of a not-for-profit organisation, equivalent to owners' capital in a business. It equals total assets minus total liabilities and is increased by surplus or reduced by deficit.

Regular amounts members pay to a not-for-profit organisation, usually annual. Amounts relating to the current year are income, while those received in advance or outstanding are shown as liability or asset respectively.

An accounting system in which transactions are recorded, processed, stored and reported using computers and accounting software instead of manual ledgers. It offers speed, accuracy, automatic posting and easy generation of reports.

Ready-made or customised software that performs bookkeeping, inventory, payroll, taxation and reporting functions. Examples range from small business packages to enterprise resource planning systems with modular design.

An organised collection of related data stored so that it can be retrieved and updated efficiently. In accounting software it holds ledgers, vouchers and master records, usually managed through a database management system.