Tamil Nadu HSE Second Year Accountancy flashcards

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

Dual Aspect Concept

Every transaction has two equal effects, debit and credit. It keeps the accounting equation Assets = Liabilities + Capital in balance after every recorded transaction.

Accrual Concept

Revenue is recorded when earned and expense when incurred, regardless of cash movement. It supports the matching of expenses of a period against its revenue.

Going Concern Concept

The assumption that a business will continue operating long enough to realise assets and settle liabilities normally. It justifies using cost rather than break-up value.

Compound Journal Entry

A single journal entry recording more than two accounts, such as goods bought partly for cash and partly on credit. Total debits equal total credits.

Suspense Account

A temporary account opened to hold the difference in a trial balance. It is closed once all one-sided errors affecting the agreement of the trial balance are rectified.

Error of Principle

A mistake where a capital expenditure is treated as revenue expenditure or vice versa, such as debiting machinery repairs to Machinery Account. A trial balance cannot detect it.

Contra Entry

An entry appearing on both debit and credit sides of a cash book, arising when cash is deposited into or withdrawn from bank. It is not posted to the ledger.

Cheques Issued Not Presented

While reconciling from a cash book debit balance, such cheques are added back because the cash book has already reduced the bank balance but the pass book has not.

Bank Overdraft in BRS

A credit balance in the cash book or pass book. When reconciling an overdraft, additions and deductions are reversed compared with reconciling a positive bank balance.

Straight Line Method

Depreciation = (Cost - Scrap value) / Useful life. An equal amount is charged each year, and the asset can be reduced to zero or its estimated scrap value.

Written Down Value Method

Depreciation = Book value at start of year x Rate %. The charge declines each year, and the book value never reaches zero at a fixed percentage rate.

Profit on Sale of Asset

Sale proceeds minus the book value on the date of sale, where book value is original cost less accumulated depreciation charged up to that date.

Gross Profit Formula

Gross Profit = Net Sales - Cost of Goods Sold, where Cost of Goods Sold = Opening stock + Purchases + Direct expenses - Closing stock.

Outstanding Expense Adjustment

An expense incurred but unpaid at year end is debited to the expense account and shown as a current liability. It increases the expense charged for the period.

Closing Stock Treatment

Closing stock is credited to the Trading Account and shown as a current asset in the Balance Sheet. It reduces cost of goods sold and increases gross profit.

Statement of Affairs

A statement listing estimated assets and liabilities on a date to find capital under incomplete records. Capital = Total Assets - Total Liabilities.

Net Worth Method

Profit = Closing capital + Drawings - Additional capital - Opening capital. It is used under single entry when detailed records of income and expense are unavailable.

Total Debtors Account

A working account to find missing figures such as credit sales. Opening debtors + Credit sales - Cash received - Discount allowed - Returns - Bad debts = Closing debtors.

Sacrificing Ratio

Old share minus new share of each continuing partner on admission of a new partner. It determines how the incoming partner's share of goodwill is distributed.

Interest on Partner Loan

When a partner lends money to the firm, interest is allowed at 6% per annum in the absence of a partnership deed. It is a charge against profit.

Revaluation Account

Prepared on admission, retirement or death to record increases and decreases in assets and liabilities. The balance is shared by old partners in the old ratio.

Securities Premium

Amount received above face value on issue of shares. It is credited to Securities Premium Account, a capital receipt, and is used only for purposes permitted by law.

Forfeiture of Shares

Cancellation of shares for non-payment of calls. Share Capital is debited with the called-up amount, and the amount already received is credited to Forfeited Shares Account.

Calls in Arrears

The amount of called-up capital not received from shareholders. It is deducted from called-up capital in the Balance Sheet and shown as a current asset.

Current Ratio

Current Assets divided by Current Liabilities. It measures short-term solvency, and a ratio of about 2:1 is generally considered satisfactory.

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.

Return on Capital Employed

Net profit before interest and tax divided by capital employed, multiplied by 100. Capital employed equals total assets minus current liabilities.

Cash Equivalents

Short-term, highly liquid investments with original maturity of three months or less, subject to insignificant risk of change in value, such as treasury bills.

Operating Activities Cash Flow

Cash flows from the main revenue-producing activities of the business, including cash received from customers, cash paid to suppliers and employees, and tax paid.

Prime Cost

The total of direct material, direct labour and direct expenses. It forms the first stage of a cost sheet before factory overheads are added.

Fixed Cost Behaviour

A cost that stays constant in total within a relevant range of output but declines per unit as production rises, such as factory rent or insurance.

Audit Trail in Accounting Software

A feature recording who entered or edited each voucher and when. Indian companies must use accounting software with an audit trail from FY 2023-24.