WB HS Accountancy key terms

A written agreement among partners setting out profit-sharing ratio, capital contributions, interest on capital, salary, drawings rules and dispute settlement. When absent, the Indian Partnership Act 1932 defaults apply.

The proportion in which partners divide profits and losses. It governs distribution of divisible profit, interest on capital and salary adjustments, and changes whenever a partner is admitted, retires or dies.

Cash or goods withdrawn by a partner for personal use. Drawings reduce the partner's capital and attract interest charged against the partner, unlike interest on capital which is credited.

An amount charged to the partner for using firm funds privately, credited to the Profit and Loss Appropriation Account. It reduces the partner's share of profit and is computed on time or average basis.

An extension of the Profit and Loss Account showing how profit is distributed among partners through interest on capital, partner salaries, commission, interest on drawings and transfer to reserves.

A credit allowed to partners for funds invested in the firm, usually a fixed percentage of opening or average capital. It is an appropriation of profit, not a business expense.

The account recording a partner's permanent investment plus share of profit, interest on capital and salary, reduced by drawings, interest on drawings and losses. It may be fixed or fluctuating.

An account used when capitals are fixed, recording all non-capital transactions such as drawings, interest on capital, salary and profit share. Its balance is a receivable or payable, not capital.

The proportion in which existing partners surrender their share of profit to an incoming partner. It equals old ratio minus new ratio and determines how goodwill brought in is shared.

The proportion in which continuing partners acquire the share of a retiring or deceased partner. It equals new ratio minus old ratio and decides who compensates the outgoing partner for goodwill.

The value of a firm's reputation, customer base and earning capacity beyond the value of its net assets. It is raised, adjusted or written off at admission, retirement and death under agreed methods.

Goodwill implied by the difference between the total amount a new partner pays for a share and the net assets plus recorded goodwill of the firm. It arises when the question gives no explicit goodwill figure.

A nominal account prepared at reconstitution to record increases and decreases in assets and liabilities. The resulting profit or loss is shared by old partners in the old ratio.

A revaluation account prepared when the firm does not want to alter the book values in the ledger. Revised values are recorded in a separate statement, and the profit or loss is adjusted through partners' capital accounts.

A partner leaving the firm, which reduces the partner count and requires settlement of the retiring partner's balance, revaluation of assets and liabilities, and adjustment of goodwill through the gaining ratio.

The automatic dissolution event when a partner dies. The deceased partner's share of profit up to the death date, interest on capital and goodwill are computed and paid to the legal representatives.

The closing of the firm's business, involving sale of assets, payment of liabilities and final settlement of partners. It is distinct from dissolution of partnership, which only changes the agreement.

A nominal account opened on dissolution to record the sale of assets and payment of liabilities, with the resulting gain or loss shared by partners in their profit-sharing ratio.

The account for money lent by a partner to the firm, separate from capital. On dissolution it is repaid before partner capitals, and in Garner v Murray it ranks with other liabilities.

A partner unable to contribute the debit balance on capital. The deficiency is borne by solvent partners in their capital ratio under Garner v Murray, or in profit-sharing ratio if the deed so provides.

The maximum amount of capital a company may issue, stated in the memorandum of association. It is also called nominal or registered capital and can be increased only by following legal procedure.

The portion of authorised capital actually offered to investors, including shares offered to the public and to vendors or promoters. It cannot exceed the authorised capital.

The part of issued capital for which applications have been received and accepted. It excludes shares offered but not taken up and is the figure normally shown in the balance sheet.

Cancellation of shares when a shareholder fails to pay calls. Amounts already received are forfeited, and the shares may be reissued at a discount that cannot exceed the amount forfeited.

Money due from shareholders on allotted shares that remains unpaid. It is deducted from subscribed capital in the balance sheet and may later lead to forfeiture.

The amount received above the face value of shares or debentures. It is credited to a separate reserve and is restricted in use, for example for bonus issue or writing off preliminary expenses.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and usually repayable after a stated period. Debenture holders are creditors, not owners.

A reserve created out of profits to fund repayment of debentures, as required by law for certain issues. It is a charge against profit and appears under reserves and surplus.

Money set aside and invested periodically so that a known liability, such as debenture repayment, can be met on maturity. Investments are sold when the liability falls due.

The financial statement showing revenue, other income, expenses, tax and resulting profit or loss for a period. It is prepared in the prescribed format and complements the balance sheet.

Items of income and expense excluded from profit or loss, such as revaluation surplus and certain remeasurements. It is presented separately and accumulated in reserves.

A statement of assets, liabilities and equity at a given date, prepared in the prescribed vertical format. It shows what the company owns and owes and the owners' residual interest.

A possible obligation depending on a future event, or a present obligation that cannot be reliably measured. It is disclosed by note and not recognised in the balance sheet.

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

A statement expressing each item as a percentage of a common base, such as revenue in the income statement or total assets in the balance sheet. It allows comparison across firms of different size.

Study of financial data over several years by expressing each year as a percentage of a base year. It reveals the direction and pace of change in individual items.

Current assets divided by current liabilities. It measures short-term liquidity and the margin of safety for creditors; a ratio near 2:1 is often considered comfortable.

Quick assets, meaning current assets excluding stock and prepaid expenses, divided by current liabilities. It tests immediate solvency without relying on inventory sales.

Operating cost of goods sold plus operating expenses, expressed as a percentage of net revenue from operations. A lower ratio indicates better operational efficiency.

Profit before interest and tax divided by capital employed, expressed as a percentage. It measures how efficiently funds are used to generate operating profit.

Shareholders' funds divided by total assets. It shows the proportion of assets financed by owners and indicates long-term financial strength and creditor safety.

A statement classifying cash receipts and payments into operating, investing and financing activities for a period, reconciling opening and closing cash and cash equivalents.

The principal revenue-producing activities of the business, such as cash from customers and payments to suppliers and employees. Cash flow here may be shown by the direct or indirect method.

Cash flows from acquiring and disposing of long-term assets and investments, such as purchase of plant or sale of land. These are outside the day-to-day trading cycle.

Cash flows that change the size and composition of owners' capital and borrowings, such as issue of shares, debentures, loans taken and dividends paid.

Cash on hand, demand deposits and short-term highly liquid investments with minor risk of value change. Bank overdrafts are included only where they form part of cash management.

An entity formed for charitable, educational or social purposes where profit is not distributed to members. Its surplus is added to capital or a specific fund.

A summary of actual cash received and paid during a period, including capital items. It is prepared from the cash book and shows opening and closing cash balances.

An account prepared on accrual basis showing income and expenses of a not-for-profit organisation for a period, resulting in surplus or deficit rather than profit or loss.

Amounts received from members as periodic fees. Accrued and advance subscriptions must be adjusted to show the correct income for the period, with outstanding amounts as assets.

The accumulated surplus of a not-for-profit organisation, equivalent to owners' capital. It is increased by surplus and donations capitalised, and reduced by deficit.

A practical assignment requiring students to study a real or simulated business, collect data, compute ratios or prepare statements, and present findings in a structured file.

Computing and interpreting relationships between financial statement items to assess liquidity, solvency, activity and profitability. It forms the analytical core of most accountancy projects.