Tamil Nadu HSE Second Year Accountancy key terms

The basic relationship stating that total assets always equal total liabilities plus owner's capital; every transaction changes at least two elements while keeping the two sides balanced.

The rule that every transaction has two effects of equal value, one debit and one credit, which is why books stay in balance and the accounting equation holds.

Revenue and expense are recorded in the period they are earned or incurred, regardless of when cash moves; this supports matching and adjusting entries.

The assumption that a business will continue operating for the foreseeable future, so assets are valued for use rather than for immediate sale.

Expenses incurred to earn revenue in a period are reported in that same period, so profit is measured by pairing related incomes and costs.

The owner's own investment in the business, increased by further contributions and profit, and reduced by drawings and losses.

Money or goods taken from the business by the owner for personal use; it reduces capital and is not a business expense.

A record in the journal showing the date, accounts debited and credited, amount, and a short narration explaining the transaction.

A single journal entry that debits or credits more than one account, used when one transaction affects several accounts at once.

The main book containing all accounts, each on a separate page, where journal entries are posted to show balances and movements.

A statement listing all ledger account balances on a given date to check that total debits equal total credits.

A temporary account opened to hold the difference when a trial balance does not agree, later cleared as errors are located and corrected.

A subsidiary book that records all cash and bank receipts and payments, and also serves as the ledger account for cash.

A book kept under the imprest system to record small day-to-day payments, so the main cash book stays free of minor entries.

A statement prepared to explain the difference between the bank balance shown in the cash book and the balance shown in the bank passbook on a date.

A cheque that the bank refuses to pay, for example due to insufficient funds; the payer must reverse the earlier receipt entry.

The systematic allocation of the cost of a fixed asset, less its estimated scrap value, over the years it is used in the business.

A depreciation method charging an equal amount every year, calculated as cost minus scrap value divided by useful life.

A depreciation method charging a fixed percentage on the reducing book value each year, so the annual charge falls over time.

The estimated amount an asset is expected to fetch when it is finally sold or discarded at the end of its useful life.

The first part of the final accounts, showing sales, cost of goods sold and the resulting gross profit or gross loss for the period.

The statement that starts with gross profit and deducts operating expenses and adds other incomes to arrive at net profit or net loss.

A statement of assets, liabilities and capital on a particular date, showing the financial position of the business at that moment.

An expense incurred in the current period but not yet paid; it is added to the expense in the profit and loss account and shown as a liability.

An amount paid in the current period for a benefit that will be used in a later period; it is deducted from the expense and shown as an asset.

The excess of net sales over cost of goods sold, calculated in the trading account before deducting operating expenses.

A statement of estimated assets and liabilities prepared from incomplete records to find opening or closing capital when a proper balance sheet is unavailable.

An incomplete way of recording where only some transactions, mainly cash and personal accounts, are kept, so profit must be found by comparing capital.

An extension of the profit and loss account in a partnership that shows how profit is divided among partners after interest and salary adjustments.

Amounts withdrawn by a partner for personal use; these reduce the partner's capital and may attract interest charged against the partner.

A credit allowed to partners on their capital balances as a reward for investment, charged to the profit and loss appropriation account.

The value of a firm's reputation, customer base and earning capacity beyond its net assets, paid when a new partner is admitted or on retirement.

Restating asset and liability values at current amounts when a partner joins, retires or dies, with the resulting gain or loss shared by old partners.

The amount received on issuing shares above their face value; it is credited to a separate securities premium account and used only for permitted purposes.

Money due from shareholders on allotted shares that remains unpaid after the call is made; it is deducted from called-up capital in the balance sheet.

The total amount raised by a company by issuing shares, divided in the balance sheet into authorised, issued, subscribed, called-up and paid-up categories.

A liquidity measure found by dividing current assets by current liabilities; a value near two is often considered comfortable for a trading business.

A stricter liquidity test dividing quick assets, which exclude stock and prepaid items, by current liabilities to show immediate paying ability.

The technique of comparing related figures from financial statements, expressed as ratios, to judge profitability, liquidity, solvency and efficiency.

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

The cash effects of the main revenue-producing activities of the business, such as cash from customers and payments to suppliers and employees.

The total of direct material, direct labour and direct expenses incurred to produce goods, before factory overheads are added.

Indirect costs such as factory rent, supervision and power that cannot be traced to a single unit and must be apportioned across output.

A statement built up in stages from prime cost through works cost and cost of production to cost of sales and profit.

A computer program that records transactions, posts to ledgers and generates reports automatically from data entered once, reducing manual repetition.

Rules built into accounting software that reject impossible entries, such as a date outside the financial year, to protect records from error.