1) Why did you select accounting as your profession?

Well, I was quite good in accounting throughout but in my masters, when I got distinction I
decided to adopt this field as a profession.
2) Do you have any professional experience of this field?
Yes, I have worked as an accountant at two different places.
3) Did you use accounting applications at your previous companies or
prefer working manually??
Yes, I have used Advanced Business Solutions and AME Accounting Software in my
previous jobs.
4) Can you name any other accounting application?
Yes, I am familiar with CGram Software, Financial Force, Microsoft Accounting Professional,
Microsoft Dynamics AX and Microsoft Small Business Financials.
5) Which accounting application you prefer most and why?
I think all are good though but Microsoft Accounting Professional is best because it offers
reliable and fast processing of accounting transactions that saves time and increases
proficiency.
6) What is the abbreviation for the accounting terms debit and credit?
Debit abbreviation is dr and credit abbreviation is cr.
7) How many types of business transactions are there in accounting?
There are two types of transactions in accounting i.e. revenue and capital.
8)

What is balance sheet?

It is a statement that states all the liabilities and assets of the company at certain point.
9)

Have you ever heard about TDS, what it is?

Yes, TDS abbreviates Tax Deduction at Source.

10)

In balance sheet, where do you show TDS?

It is shown on the assets section, right after the head current asset.
11)

Do you have any idea about Service Tax or Excise?

It is a kind of hidden tax that is included in the service provided by the service provider and
paid by the service receiver.
12)

Do you think there is any difference between inactive and

dormant accounts?
Yes, both are different terms in accounting. Inactive accounts means that accounts have
been closed and will not be used in future as well. While, dormant accounts are those that
are not functional today but may be used in future.
13)

What is tally accounting?

It is the software used for accounting in small business and shops for managing routine
accounting transactions.
14)

How can you define departmental accounting?

It is a type of accounting in which separate account is created for departments. It is

managed separately as well as shown independently in the balance sheet.
15)

Define fictitious assets?

These are the assets that cannot be shown or touch. Fictitious assets can only be felt such
as good will, rights etc.
16)

By saying, perpetual or periodic inventory system; what do we

mean?
In the first one i.e. the perpetual inventory system, the accounts are adjusted on continual
basis. In the periodic inventory system, the accounts are adjusted periodically.
17)

In accounting, how do you define premises?

Premises refer to fixed assets that are shown in the balance sheet.
18)

In accounting, VAT abbreviates what?

VAT means Value Added Tax.

19)

Do you possess any knowledge about accounting standards?

Yes, as per my knowledge there are total 33 accounting standards published so far by ICAI.
The purpose of these standards is to implement same policies and practices in any country.
20)

What is ICAI?

It is the abbreviation of Institute of Chartered Accountants in India.

21)

How can you explain the basic accounting equation?

We know that accounting is all about assets, liabilities and capital. Therefore, the
accounting equation is:
Assets = Liabilities + Owners Equity.
22)

Define Executive accounting?

It is a type of accounting that is specifically designed for the business that offers services to
users.
23)

Define Public accounting?

Public accounting offers audits and CPAs to review company financial records to ensure
accountability. It is for general public.
24)

What is a CPA?

CPA stands for Certified Public Accountant. To become a CPA, one should have to do many
other qualifications as well. It is a qualification with 150 hour requirement; it means that one
should complete 150 credit hours at any accredited university.
25)

What do you think is bank reconciliation statement?

A reconciliation statement is prepared when the passbook balance differs from the
cashbook balance.
26)

Differentiate Public and Private Accounting?

Public accounting is a type of accounting that is done by one company for another
company. Private accounting is done for your own company.
27)

What is project implementation?

Project implementation involves six steps in total such as:

Identify Need

Generate and Screen Ideas

Conduct Feasible Study

Develop the Project

Implement the Project

Control the Project

28)

Do you think Accounting Standards are mandatory and why?

Yes, I do believe that accounting standards play a very important role to prepare good
quality and accurate financial reports. It ensures reliability and relevance in financial reports.
29)

Can you name different branches of accounting?

There are three branches of accounting named as Financial Accounting, Management

Accounting and Cost Accounting.
30)

Differentiate Accounting and Auditing?

Accounting is all about recording daily business activities while auditing is the checking that
whether all these events have been noted down correctly or not.
31)

Define dual aspect term in accounting?

As the name implies, the dual aspect concept states that every transaction has two sides.
For example, when you buy something, you give the cash and get the thing. Similarly, when
you sale something, you lose the thing and gets the money. So this getting and losing is
basically two aspects of every transaction.
32)

What do we mean by purchase return in accounting?

It is the term introduced in the records for every defective or unsatisfactory good returned
back to its supplier.
33)

Define the term material facts in accounting?

Material facts are the bills or any document that becomes the base of every account book. It
means that all those documents, on which account book is prepared, are called material
facts.

34)

Have you ever prepared MIS reports and what are these?

Yes, I have prepared few MIS reports during my previous jobs. MIS reports are created to
identify the efficiency of any department of a company.
35)

Define companys payable cycle?

It is the time required by the company to pay all its account payables.
36)

Define retail banking?

It is a type of banking that involves a retail client. These clients are the normal people and
not any organizational customers.
37)

How much mathematics knowledge is necessary or required in

accounting?
Not much knowledge but basic mathematical background is required in accounting for
operations like addition, subtraction, multiplication and division.
38)

Define bills receivable?

All types of exchange bills, bonds and other securities owned by a merchant that is payable
to him are said as bills receivable.
39)

Define depreciation and its types?

By depreciation we mean that a value of an asset is decreasing as it is in use. It has two

types such as Straight Line Method and Written Down Value Method.
40)

Differentiate between consignor and consignee?

Consigner is the owner of the goods or you can say he is the person who delivers the goods
to the consignee. The consignee is the person who receives the goods.
41)

Define balancing in accounting?

Balancing means to equate both sides of the T-account i.e. the debit and credit sides of a Taccount must be equal/balanced.
42)

How much statistics knowledge is necessary or required in

accounting?

You must be very good at statistics if you want to do well in accounting. Otherwise, with
minimum knowledge you cannot manage your day to day transactions effectively in
accounting.
43)

Define Scrap value in accounting?

It is the residual value of an asset. The residual value is the value that any asset holds after
its estimated life time.
44)

Define Marginal Cost?

Suppose you have to produce an additional unit of output. The estimated cost of additional
inputs to produce that output is actually the marginal cost.
45)

Define Partitioning in accounting?

It is a kind of groups made on the basis of same responses by a system.

46)

Differentiate between provision and reserve?

Provisions are the liabilities or the anticipated items such as depreciation. You can say
provisions are expenses. Reserves are the profits of any company and a part of that profit is
placed back to the business to keep it sustainable in tough times of a company.
47)

Define Offset accounting?

Offset accounting is one that decreases the net amount of another account to create a net
balance.
48)

Define overhead in terms of accounting?

It is the indirect expenditure of a company such as salaries, rent dues etc.

49)

Define trade bills?

We know that all types of transactions need to be documented. The trade bills are the
documents, generated against each transaction.
50)

Define fair value accounting?

As per fair value accounting, a company has to show the value of all of its assets in terms of
price on balance sheet on which that asset can be sold.

Q: Why do capital expenditures increase assets (PP&E), while other cash

outflows, like paying salary, taxes, etc., do not create any asset, and
instead instantly create an expense on the income statement that reduces
equity via retained earnings?
A: Capital expenditures are capitalized because of the timing of their estimated
benefits the lemonade stand will benefit the firm for many years. The employees
work, on the other hand, benefits the period in which the wages are generated only
and should be expensed then. This is what differentiates an asset from an expense.
Q: Walk me through a cash flow statement.
A. Start with net income, go line by line through major adjustments (depreciation,
changes in working capital and deferred taxes) to arrive at cash flows from
operating activities.
Mention capital expenditures, asset sales, purchase of intangible assets, and
purchase/sale of investment securities to arrive at cash flow from investing
activities.
Mention repurchase/issuance of debt and equity and paying out dividends to arrive
at cash flow from financing activities.
Adding cash flows from operations, cash flows from investments, and cash flows
from financing gets you to total change of cash.
Beginning-of-period cash balance plus change in cash allows you to arrive at end-ofperiod cash balance.
Q: What is working capital?
A: Working capital is defined as current assets minus current liabilities; it tells the
financial statement user how much cash is tied up in the business through items
such as receivables and inventories and also how much cash is going to be needed
to pay off short term obligations in the next 12 months.
Q: Is it possible for a company to show positive cash flows but be in grave
trouble?
A: Absolutely. Two examples involve unsustainable improvements in working capital
(a company is selling off inventory and delaying payables), and another example
involves lack of revenues going forward.in the pipeline
Q: How is it possible for a company to show positive net income but go
bankrupt?

A: Two examples include deterioration of working capital (i.e. increasing accounts

receivable, lowering accounts payable), and financial shenanigans.
Q: I buy a piece of equipment, walk me through the impact on the 3
financial statements.
A: Initially, there is no impact (income statement); cash goes down, while PP&E goes
up (balance sheet), and the purchase of PP&E is a cash outflow (cash flow
statement)
Over the life of the asset: depreciation reduces net income (income statement);
PP&E goes down by depreciation, while retained earnings go down (balance sheet);
and depreciation is added back (because it is a non-cash expense that reduced net
income) in the cash from operations section (cash flow statement).
Q: Why are increases in accounts receivable a cash reduction on the cash
flow statement?
A: Since our cash flow statement starts with net income, an increase in accounts
receivable is an adjustment to net income to reflect the fact that the company
never actually received those funds.
Q: How is the income statement linked to the balance sheet?
A: Net income flows into retained earnings.
Q: What is goodwill?
A: Goodwill is an asset that captures excess of the purchase price over fair market
value of an acquired business. Lets walk through the following example: Acquirer
buys Target for $500m in cash. Target has 1 asset: PPE with book value of $100,
debt of $50m, and equity of $50m = book value (A-L) of $50m.
Acquirer records cash decline of $500 to finance acquisition
Acquirers PP&E increases by $100m
Acquirers debt increases by $50m
Acquirer records goodwill of $450m
Q: What is a deferred tax liability and why might one be created?
A: Deferred tax liability is a tax expense amount reported on a companys income
statement that is not actually paid to the IRS in that time period, but is expected to
be paid in the future. It arises because when a company actually pays less in taxes
to the IRS than they show as an expense on their income statement in a reporting
period.

Differences in depreciation expense between book reporting (GAAP) and IRS

reporting can lead to differences in income between the two, which ultimately leads
to differences in tax expense reported in the financial statements and taxes payable
to the IRS.
Q: What is a deferred tax asset and why might one be created?
A: Deferred tax asset arises when a company actually pays more in taxes to the IRS
than they show as an expense on their income statement in a reporting period.
Differences in revenue recognition, expense recognition (such as warranty
expense), and net operating losses (NOLs) can create deferred tax assets

What is Journalizing? What are the columns of a journal?

Journalizing is the process of recoding business transactions in the Journal in chronological order, as and
when the transactions take place. Journal is also known as Book of Original Entry or the Book of Prime
Entry.
Journal has following five columns:
-Date
-Particulars
-Ledger Folio
-Amount Debited
-Amount Credited

What is Trial Balance? What does an accurate Trial Balance suggest?

Trial Balance is a summary of all the balances of various ledger accounts and Cash/Book accounts of an
organisation at any given date. For the preparation of Trial Balance the entire Ledger accounts and Cash
book/Bank book are required to be balanced to get the closing balance. Assets and Expenses accounts
having debit balance are posted on debit side whereas Income and Liability accounts having credit
balance are posted on credit side of the Trial Balance.
An accurate Trial Balance is an evidence that all the transactions are recorded and posted in the General
Ledger account as per the accounting principles. It also ensures arithmetical accuracy of the process of
ledger posting

What are the reasons which cause pass book of the bank and your bank book not tally?
* Cheques deposited into the bank but not yet collected
* Cheques issued but not yet presented for payment
* Bank charges
* Amount collected by bank on standing instructions of the concern.
* Amount paid by the bank on standing instructions of the concern.
* Interest debited by the bank

* Interest credited by the bank

* Direct payment by customers into the bank account
* Dishonour of cheques
* Clerical errors

ACCOUNTING BASICS AND INTERVIEW QUESTIONS

ANSWERS
ACCOUNTING BASICS AND INTERVIEW QUESTIONS ANSWERS
1. Definition of accounting: the art of recording, classifying and
summarizing in a significant manner and in terms of money, transactions and
events which are, in part at least of a financial character and interpreting the
results there of.
2. Book keeping: It is mainly concerned with recording of financial data
relating to the business operations in a significant and orderly manner.
3. Concepts of accounting:
A. Separate entity concept
B. Going concern concept
C. Money measurement concept
D. Cost concept
E. Dual aspect concept
F. Accounting period concept
G. Periodic matching of costs and revenue concept
H. Realization concept.

4 Conventions of accounting:
A. Conservatism
B. Full disclosure
C. Consistency
D. Materiality

5. Systems of book keeping:

A. single entry system
B. double entry system

6. Systems of accounting:

A. Cash system accounting

B. Mercantile system of accounting.
7. Principles of accounting:
A. Personal a/c: Debit the receiver
Credit the giver

B. Real a/c: Debit what comes in

Credit what goes out
C. Nominal a/c: Debit all expenses and losses
Credit all gains and incomes
8. Meaning of journal: Journal means chronological record of
transactions.

9. Meaning of ledger: Ledger is a set of accounts. It contains all

accounts of the business enterprise whether real, nominal, personal.
10. Posting: It means transferring the debit and credit items from the
journal to their respective accounts in the ledger.
11. Trial balance: Trial balance is a statement containing the various
ledger balances on a particular date.
12. Credit note: The customer when returns the goods get credit for the
value of the goods returned. A credit note is sent to him intimating that his a/c
has been credited with the value of the goods returned.
13. Debit note: When the goods are returned to the supplier, a debit
note is sent to him indicating that his a/c has been debited with the amount
mentioned in the debit note.
14. Contra entry: Which accounting entry is recorded on both the debit
and credit side of the cashbook is known as the contra entry.
15. Petty cash book: Petty cash is maintained by business to record
petty cash expenses of the business, such as postage, cartage, stationery, etc.
16. Promisory note: an instrument in writing containing an
unconditional undertaking signed by the maker, to pay certain sum of money
only to or to the order of a certain person or to the barer of the instrument.
17. Cheque: A bill of exchange drawn on a specified banker and payable
on demand.
18. Stale Cheque: A stale cheque means not valid of cheque that means
more than six months the cheque is not valid.
20. Bank reconciliation statement: It is a statement reconciling the
balance as shown by the bank passbook and the balance as shown by the Cash
Book. Obj: to know the difference & pass necessary correcting, adjusting entries
in the books.
21. Matching concept: Matching means requires proper matching of
expense with the revenue.
22. Capital income: The term capital income means an income which
does not grow out of or pertain to the running of the business proper.
23. Revenue income: The income, which arises out of and in the course
of the regular business transactions of a concern.

24. Capital expenditure: It means an expenditure which has been

incurred for the purpose of obtaining a long term advantage for the business.
25. Revenue expenditure: An expenditure that incurred in the course of
regular business transactions of a concern.
26. Differed revenue expenditure: An expenditure, which is incurred
during an accounting period but is applicable further periods also. Eg: heavy
advertisement.
27. Bad debts: Bad debts denote the amount lost from debtors to whom
the goods were sold on credit.
28. Depreciation: Depreciation denotes gradually and permanent
decrease in the value of asset due to wear and tear, technology changes, laps of
time and accident.
29. Fictitious assets: These are assets not represented by tangible
possession or property. Examples of preliminary expenses, discount on issue of
shares, debit balance in the profit And loss account when shown on the assets
side in the balance sheet.
30. Intanglbe Assets: Intangible assets mean the assets which is not
having the physical appearance. And its have the real value, it shown on the
assets side of the balance sheet.
31. Accrued Income: Accrued income means income which has been
earned by the business during the accounting year but which has not yet been
due and, therefore, has not been received.
32. Outstanding Income: Outstanding Income means income which has
become due during the accounting year but which has not so far been received
by the firm.
33. Suspense account: The suspense account is an account to which
the difference in the trial balance has been put temporarily.
34. Depletion: It implies removal of an available but not replaceable
source, Such as extracting coal from a coal mine.
35. Amortization: The process of writing of intangible assets is term as
amortization.
36. Dilapidations: The term dilapidations to damage done to a building
or other property during tenancy.

37. Capital employed: The term capital employed means sum of total
long term funds employed in the business. i.e.
(Share capital+ reserves & surplus +long term loans (non
business assets + fictitious assets)
38. Equity shares: Those shares which are not having pref. rights are
called equity shares.
39. Pref.shares: Those shares which are carrying the pref.rights are
called pref. shares Pref.rights in respect of fixed dividend. Pref.right to
repayment of capital in the event of company winding up.
40. Leverage: It is a force applied at a particular work to get the desired
result.
41. Operating leverage: the operating leverage takes place when a
changes in revenue greater changes in EBIT.
42. Financial leverage: it is nothing but a process of using debt capital
to increase the rate of return on equity
43. Combine leverage: It is used to measure of the total risk of the firm =
operating risk + financial risk.

44. Joint venture: A joint venture is an association of two or more the

persons who combined for the execution of a specific transaction and divide the
profit or loss their of an agreed ratio.
45. Partnership: Partnership is the relation b/w the persons who have
agreed to share the profits of business carried on by all or any of them acting for
all.
46. Factoring: It is an arrangement under which a firm (called borrower)
receives advances against its receivables, from financial institutions (called
factor)
47. Capital reserve: The reserve which transferred from the capital
gains is called capital reserve.
48. General reserve: the reserve which is transferred from normal
profits of the firm is called general reserve
49. Free Cash: The cash not for any specific purpose free from any
encumbrance like surplus cash.

50. Minority Interest: Minority interest refers to the equity of the

minority shareholders in a subsidiary company.
51. Capital receipts: Capital receipts may be defined as non-recurring
receipts from the owner of the business or lender of the money crating a liability
to either of them.
52. Revenue receipts: Revenue receipts may defined as A recurring
receipts against sale of goods in the normal course of business and which
generally the result of the trading activities.
53. Meaning of Company: A company is an association of many
persons who contribute money or moneys worth to common stock and employs
it for a common purpose. The common stock so contributed is denoted in money
and is the capital of the company.
54. Types of a company:
1. Statutory companies
2. Government company
3. Foreign company
4. Registered companies:
A. Companies limited by shares
B. Companies limited by guarantee
C. Unlimited companies
D. private company
E. public company
55. Private company: A private co. is which by its AOA: Restricts the
right of the members to transfer of shares Limits the no. Of members 50.
Prohibits any Invitation to the public to subscribe for its shares or debentures.
56. Public company: A company, the articles of association of which
does not contain the requisite restrictions to make it a private limited company,
is called a public company.
57. Characteristics of a company:
> Voluntary association

> Separate legal entity

> Free transfer of shares
> Limited liability
> Common seal
> Perpetual existence.
58. Formation of company:
> Promotion
> Incorporation
> Commencement of business
59. Equity share capital: The total sum of equity shares is called equity
share capital.
60. Authorized share capital: It is the maximum amount of the share
capital, which a company can raise for the time being.
61. Issued capital: It is that part of the authorized capital, which has
been allotted to the public for subscriptions.
62. Subscribed capital: it is the part of the issued capital, which has
been allotted to the public
63. Called up capital: It has been portion of the subscribed capital
which has been called up by the company.
64. Paid up capital: It is the portion of the called up capital against
which payment has been received.
65. Debentures: Debenture is a certificate issued by a company under
its seal acknowledging a debt due by it to its holder.
66. Cash profit: cash profit is the profit it is occurred from the cash
sales.
67. Deemed public Ltd. Company: A private company is a subsidiary
company to public company it satisfies the following terms/conditions Sec 3(1)3:
1. Having minimum share capital 5 lakhs
2. Accepting investments from the public

3. No restriction of the transferable of shares

4. No restriction of no. of members.
5. Accepting deposits from the investors

68. Secret reserves: Secret reserves are reserves the existence of

which does not appear on the face of balance sheet. In such a situation, net
assets position of the business is stronger than that disclosed by the balance
sheet.
These reserves are created by:
1. Excessive depot an asset, excessive over-valuation of a liability.
2. Complete elimination of an asset, or under valuation of an asset.

69. Provision: provision usually means any amount written off or

retained by way of providing depreciation, renewals or diminutions in the value
of assets or retained by way of providing for any known liability of which the
amount cannot be determined with substantial accuracy.
70. Reserve: The provision in excess of the amount considered
necessary for the purpose it was originally made is also considered as reserve
Provision is charge against profits while reserves is an appropriation of profits
Creation of reserve increase proprietors fund while creation of provisions
decreases his funds in the business.
71. Reserve fund: The term reserve fund means such reserve against
which clearly investment etc.,
72. Undisclosed reserves: Sometimes a reserve is created but its
identity is merged with some other a/c or group of accounts so that the
existence of the reserve is not known such reserve is called an undisclosed
reserve.
73. Finance management: Financial management deals with
procurement of funds and their effective utilization in business.
74. Objectives of financial management: financial management
having two objectives that Is:

1. Profit maximization: The finance manager has to make his decisions

in a manner so that the profits of the concern are maximized.
2. Wealth maximization: Wealth maximization means the objective of a
firm should be to maximize its value or wealth, or value of a firm is represented
by the market price of its common stock.
75. Functions of financial manager:
> Investment decision
> Dividend decision
> Finance decision
> Cash management decisions
> Performance evaluation
> Market impact analysis

76. Time value of money: The time value of money means that worth
of a rupee received today is different from the worth of a rupee to be received in
future.
77. Capital structure: It refers to the mix of sources from where the
long-term funds required in a business may be raised; in other words, it refers to
the proportion of debt, preference capital and equity capital.
78. Optimum capital structure: Capital structure is optimum when the
firm has a combination of equity and debt so that the wealth of the firm is
maximum.
79. Wacc: It denotes weighted average cost of capital. It is defined as the
overall cost of capital computed by reference to the proportion of each
component of capital as weights.
80. Financial break-even point: It denotes the level at which a firms
EBIT is just sufficient to cover interest and preference dividend.
81. Capital budgeting: Capital budgeting involves the process of
decision making with regard to investment in fixed assets. Or decision making
with regard to investment of money in longterm projects.

82. Payback period: Payback period represents the time period required
for complete recovery of the initial investment in the project.
83. ARR: Accounting or average rates of return means the average
annual yield on the project.
84. NPV: The Net present value of an investment proposal is defined as
the sum of the present values of all future cash inflows less the sum of the
present values of all cash out flows associated with the proposal.
85. Profitability index: Where different investment proposal each
involving different initial investments and cash inflows are to be compared.
86. IRR: Internal rate of return is the rate at which the sum total of
discounted cash inflows equals the discounted cash out flow.
87. Treasury management: It means it is defined as the efficient
management of liquidity and financial risk in business.
88. Concentration banking: It means identify locations or places where
customers are placed and open a local bank a/c in each of these locations and
open local collection canter.
89. Marketable securities: Surplus cash can be invested in short term
instruments in order to earn interest.
90. Ageing schedule: In an ageing schedule the receivables are
classified according to their age.
91. Maximum permissible bank finance (MPBF): It is the maximum
amount that banks can lend a borrower towards his working capital
requirements.
92. Commercial paper: A cp is a short term promissory note issued by a
company, negotiable by endorsement and delivery, issued at a discount on face
value as may be determined by the issuing company.
93. Bridge finance: It refers to the loans taken by the company normally
from commercial banks for a short period pending disbursement of loans
sanctioned by the financial institutions.
94. Venture capital: It refers to the financing of high-risk ventures
promoted by new qualified ntrepreneurs who require funds to give shape to their
ideas.

95. Debt securitization: It is a mode of financing, where in securities

are issued on the basis of a package of assets (called asset pool).
96. Lease financing: Leasing is a contract where one party (owner)
purchases assets and permits its views by another party (lessee) over a
specified period
97. Trade Credit: It represents credit granted by suppliers of goods, in
the normal course of business.
98. Over draft: Under this facility a fixed limit is granted within which
the borrower allowed to overdraw from his account.
99. Cash credit: It is an arrangement under which a customer is allowed
an advance up to certain limit against credit granted by bank.
100. Clean overdraft: It refers to an advance by way of overdraft
facility, but not back by any tangible security.
101. Share capital: The sum total of the nominal value of the shares of
a company is called share capital.
102. Funds flow statement: It is the statement deals with the financial
resources for running business activities. It explains how the funds obtained and
how they used.
103. Sources of funds: There are two sources of funds internal sources
and external sources. Internal source: Funds from operations is the only internal
sources of funds and some important points add to it they do not result in the
outflow of funds
(a) Depreciation on fixed assets
(b) Preliminary expenses or goodwill written off, Loss on sale of fixed
assets Deduct the following items, as they do not increase the funds:
Profit on sale of fixed assets, profit on revaluation Of fixed assets
External sources: (a) Funds from long-term loans
(b)Sale of fixed assets
(c) Funds from increase in share capital

104. Application of funds: (a) Purchase of fixed assets (b) Payment of

dividend (c)Payment of tax liability (d) Payment of fixed liability

105. ICD (Inter corporate deposits): Companies can borrow funds for
a short period. For example 6 months or less from another company which have
surplus liquidity? Such deposits made by one company in another company are
called ICD.
106. Certificate of deposits: The CD is a document of title similar to a
fixed deposit receipt issued by banks there is no prescribed interest rate on such
CDs it is based on the prevailing market conditions.
107. Public deposits: It is very important source of short term and
medium term finance. The company can accept PD from members of the public
and shareholders. It has the maturity period of 6 months to 3 years.
108. Euro issues: The euro issues means that the issue is listed on a
European stock Exchange. The subscription can come from any part of the world
except India.
109. GDR (Global depository receipts): A depository receipt is
basically a negotiable certificate, dominated in us dollars that represents a nonUS company publicly traded in local currency equity shares.
110. ADR (American depository receipts): Depository receipts issued
by a company in the USA are known as ADRs. Such receipts are to be issued in
accordance with the provisions stipulated by the securities Exchange
commission (SEC) of USA like SEBI in India.
111. Commercial banks: Commercial banks extend foreign currency
loans for international operations, just like rupee loans. The banks also provided
overdraft.
112. Development banks: It offers long-term and medium term loans
including foreign currency loans
113. International agencies: International agencies like the
IFC,IBRD,ADB,IMF etc. provide indirect assistance for obtaining foreign currency.
114. Seed capital assistance: The seed capital assistance scheme is
desired by the IDBI for professionally or technically qualified entrepreneurs and
persons possessing relevantexperience and skills and entrepreneur traits.

115. Unsecured loans: It constitutes a significant part of long-term

finance available to an enterprise.
116. Cash flow statement: It is a statement depicting change in cash
position from one period to another.
117. Sources of cash:
Internal sources
(a)Depreciation
(b)Amortization
(c)Loss on sale of fixed assets
(d)Gains from sale of fixed assets
(e) Creation of reserves
External sources(a)Issue of new shares
(b)Raising long term loans
(c)Short-term borrowings
(d)Sale of fixed assets, investments
118. Application of cash:
(a) Purchase of fixed assets
(b) Payment of long-term loans
(c) Decrease in deferred payment liabilities
(d) Payment of tax, dividend
(e) Decrease in unsecured loans and deposits
119. Budget: It is a detailed plan of operations for some specific future
period. It is an estimate prepared in advance of the period to which it applies.
120. Budgetary control: It is the system of management control and
accounting in which all operations are forecasted and so for as possible planned
ahead, and the actual results compared with the forecasted and planned ones.

121. Cash budget: It is a summary statement of firms expected cash

inflow and outflow over a specified time period.
122. Master budget: A summary of budget schedules in capsule form
made for the purpose of presenting in one report the highlights of the budget
forecast.
123. Fixed budget: It is a budget, which is designed to remain
unchanged irrespective of the level of activity actually attained.
124. Zero- base- budgeting: It is a management tool which provides a
systematic method for evaluating all operations and programmes, current of
new allows for budget reductions and expansions in a rational inner and allows
reallocation of source from low to high priority programs.
125. Goodwill: The present value of firms anticipated excess earnings.
126. BRS: It is a statement reconciling the balance as shown by the bank
pass book and balance shown by the cash book.
127. Objective of BRS: The objective of preparing such a statement is
to know the causes of difference between the two balances and pass necessary
correcting or adjusting entries in the books of the firm.
128. Responsibilities of accounting: It is a system of control by
delegating and locating the Responsibilities for costs.
129. Profit centre: A centre whose performance is measured in terms of
both the expense incurs and revenue it earns.
130. Cost centre: A location, person or item of equipment for which cost
may be ascertained and used for the purpose of cost control.
131. Cost: The amount of expenditure incurred on to a given thing.
132. Cost accounting: It is thus concerned with recording, classifying,
and summarizing costs for determination of costs of products or services
planning, controlling and reducing such costs and furnishing of information
management for decision making.
133. Elements of cost:
(A) Material
(B) Labour
(C) Expenses

(D) Overheads
134. Components of total costs: (A) Prime cost (B) Factory cost
(C)Total cost of production (D) Total c0st
135. Prime cost: It consists of direct material direct labour and direct
expenses. It is also known as basic or first or flat cost.
136. Factory cost: It comprises prime cost, in addition factory overheads
which include cost of indirect material indirect labour and indirect expenses
incurred in factory. This cost is also known as works cost or production cost or
manufacturing cost.
137. Cost of production: In office and administration overheads are
added to factory cost, office cost is arrived at.
138. Total cost: Selling and distribution overheads are added to total
cost of production to get the total cost or cost of sales.
139. Cost unit: A unit of quantity of a product, service or time in relation
to which costs may be ascertained or expressed.
140.Methods of costing: (A)Job costing (B)Contract costing (C)Process
costing (D)Operation costing (E)Operating costing (F)Unit costing (G)Batch
costing.
141. Techniques of costing: (a) marginal costing (b) direct costing (c)
absorption costing (d) uniform costing.
142. Standard costing: standard costing is a system under which the
cost of the product is determined in advance on certain predetermined
standards.
143. Marginal costing: it is a technique of costing in which allocation of
expenditure to production is restricted to those expenses which arise as a result
of production, i.e., materials, labour, direct expenses and variable overheads.
144. Derivative: derivative is product whose value is derived from the
value of one or more basic variables of underlying asset.
145. Forwards: a forward contract is customized contracts between two
entities were settlement takes place on a specific date in the future at todays
pre agreed price.

146. Futures: A future contract is an agreement between two parties to

buy or sell an asset at a certain time in the future at a certain price. Future
contracts are standardized exchange traded contracts.
147. Options: An option gives the holder of the option the right to do
something. The option holder option may exercise or not.
148. Call option: A call option gives the holder the right but not the
obligation to buy an asset by a certain date for a certain price.
149. Put option: A put option gives the holder the right but not
obligation to sell an asset by a certain date for a certain price.
150. Option price: Option price is the price which the option buyer pays
to the option seller. It is also referred to as the option premium.
151. Expiration date: The date which is specified in the option contract
is called expiration date.
152. European option: It is the option at exercised only on expiration
date itself.
153. Basis: Basis means future price minus spot price.
154. Cost of carry: The relation between future prices and spot prices
can be summarized in terms of what is known as cost of carry.
155. Initial margin: The amount that must be deposited in the margin
a/c at the time of first entered into future contract is known as initial margin.
156 Maintenance margin: This is somewhat lower than initial margin.
157. Mark to market: In future market, at the end of the each trading
day, the margin a/c is adjusted to reflect the investors gains or loss depending
upon the futures selling price. This is called mark to market.
158. Baskets: basket options are options on portfolio of underlying asset.
159. Swaps: swaps are private agreements between two parties to
exchange cash flows in the future according to a pre agreed formula.
160. Impact cost: Impact cost is cost it is measure of liquidity of the
market. It reflects the costs faced when actually trading in index.
161. Hedging: Hedging means minimize the risk.

162. Capital market: Capital market is the market it deals with the long
term investment funds. It consists of two markets 1.primary market 2.secondary
market.
163. Primary market: Those companies which are issuing new shares in
this market. It is also called new issue market.
164. Secondary market: Secondary market is the market where shares
buying and selling. In India secondary market is called stock exchange.
165. Arbitrage: It means purchase and sale of securities in different
markets in order to profit from price discrepancies. In other words arbitrage is a
way of reducing risk of loss caused by price fluctuations of securities held in a
portfolio.
166. Meaning of ratio: Ratios are relationships expressed in
mathematical terms between figures which are connected with each other in
same manner.
167. Activity ratio: It is a measure of the level of activity attained over a
period.
168. Mutual fund: A mutual fund is a pool of money, collected from
investors, and is invested according to certain investment objectives.
169. Characteristics of mutual fund: Ownership of the MF is in the
hands of the of the investors MF managed by investment professionals The
value of portfolio is updated every day
170. Advantage of MF to investors: Portfolio diversification
Professional management Reduction in risk Reduction of transaction casts
Liquidity Convenience and flexibility
171. Net asset value: the value of one unit of investment is called as
the Net Asset Value
172. Open-ended fund: open ended funds means investors can buy and
sell units of fund, at NAV related prices at any time, directly from the fund this is
called open ended fund.
173. Close ended funds: close ended funds means it is open for sale to
investors for a specific period, after which further sales are closed. Any further
transaction for buying the units or repurchasing them, happen, in the secondary
markets.

174. Dividend option: investors who choose a dividend on their

investments, will receive dividends from the MF, as when such dividends are
declared.
175. Growth option: investors who do not require periodic income
distributions can be choose the growth option.
176. Equity funds: equity funds are those that invest pre-dominantly in
equity shares of company.
177. Types of equity funds: Simple equity funds Primary market funds
Sectoral funds Index funds
178. Sectoral funds: Sectoral funds choose to invest in one or more
chosen sectors of the equity markets.
179. Index funds: The fund manager takes a view on companies that
are expected to perform well, and invests in these companies
180. Debt funds: the debt funds are those that are pre-dominantly
invest in debt securities.
181. Liquid funds: the debt funds invest only in instruments with
maturities less than one year.
182. Gilt funds: gilt funds invests only in securities that are issued by
the GOVT. and therefore does not carry any credit risk.
183. Balanced funds: Funds that invest both in debt and equity markets
are called balanced funds.
184. Sponsor: sponsor is the promoter of the MF and appoints trustees,
custodians and the AMC with prior approval of SEBI.
185. Trustee: Trustee is responsible to the investors in the MF and
appoint the AMC for managing the investment portfolio.
186. AMC: the AMC describes Asset Management Company; it is the
business face of the MF, as it manages all the affairs of the MF.
187. R & T Agents: the R&T agents are responsible for the investor
servicing functions, as they maintain the records of investors in MF.
188. Custodians: Custodians are responsible for the securities held in
the mutual funds portfolio.

189. Scheme takes over: if an existing MF scheme is taken over by

another AMC, it is called as scheme take over.
190. Meaning of load: Load is the factor that is applied to the NAV of a
scheme to arrive at the price.
192. Market capitalization: market capitalization means number of
shares issued multiplied with market price per share.
193. Price earnings ratio: The ratio between the share price and the
post tax earnings of company is called as price earnings ratio.
194. Dividend yield: The dividend paid out by the company, is usually a
percentage of the face value of a share.
195. Market risk: It refers to the risk which the investor is exposed to as
a result of adverse movements in the interest rates. It also referred to as the
interest rate risk.
196. Re-investment risk: It the risk which an investor has to face as a
result of a fall in the interest rates at the time of reinvesting the interest income
flows from the fixed income security.
197. Call risk: Call risk is associated with bonds have an embedded call
option in them. This option hives the issuer the right to call back the bonds prior
to maturity.
198. Credit risk: Credit risk refers to the probability that a borrower
could default on a commitment to repay debt or band loans
199. Inflation risk: Inflation risk reflects the changes in the purchasing
power of the cash flows resulting from the fixed income security.
200. Liquid risk: It is also called market risk, it refers to the ease with which
bonds could be traded in the market.

201. Drawings: Drawings denotes the money withdrawn by the

proprietor from the business for his personal use.
202. Outstanding Income: Outstanding Income means income which
has become due during the accounting year but which has not so far been
received by the firm.
203. Outstanding Expenses: Outstanding Expenses refer to those
expenses which have become due during the accounting period for which the
Final Accounts have been prepared but have not yet been paid.

204. Closing stock: The term closing stock means goods lying unsold
with the businessman at the end of the accounting year.
205. Methods of depreciation:
1. Unirorm charge methods:
a. Fixed installment method
b .Depletion method
c. Machine hour rate method.
2. Declining charge methods:
a. Diminishing balance method
b. Sum of years digits method
c. Double declining method
3. Other methods:
a. Group depreciation method
b. Inventory system of depreciation
c. Annuity method
d. Depreciation fund method
e. Insurance policy method.
206. Accrued Income: Accrued Income means income which has been
earned by the business during the accounting year but which has not yet
become due and, therefore, has not been received.

207. Gross profit ratio: it indicates the efficiency of the

production/trading operations.
Formula :

Gross profit
-------------------X100

Net sales
208. Net profit ratio: it indicates net margin on sales
Formula:

Net profit
--------------- X 100
Net sales

209. Return on share holders funds: it indicates measures earning

power of equity capital.
Formula:
Profits available for Equity shareholders
-----------------------------------------------X 100
Average Equity Shareholders Funds
210. Earning per Equity share (EPS): it shows the amount of earnings
attributable to each equity share.
Formula:
Profits available for Equity shareholders
---------------------------------------------Number of Equity shares

211. Dividend yield ratio: it shows the rate of return to shareholders in

the form of dividends based in the market price of the share
Formula:
Dividend per share
---------------------------- X100
Market price per share
212. Price earnings ratio: it a measure for determining the value of a
share. May also be used to measure the rate of return expected by investors.
Formula:
Market price of share (MPS)

------------------------------------X 100
Earnings per share (EPS)

213. Current ratio: it measures short-term debt paying ability.

Formula:
Current Assets
-----------------------Current Liabilities

214. Debt-Equity Ratio: it indicates the percentage of funds being

financed through borrowings; a measure of the extent of trading on equity.
Formula:

Total Long-term Debt

--------------------------Shareholders funds

215. Fixed Assets ratio: This ratio explains whether the firm has raised
adequate long-term funds to meet its fixed assets requirements.
Formula:

Fixed Assets
------------------Long-term Funds

216. Quick Ratio: The ratio termed as liquidity ratio. The ratio is
ascertained y comparing the liquid assets to current liabilities.
Formula:
Liquid Assets
-----------------------Current Liabilities

217. Stock turnover Ratio: The ratio indicates whether investment in

inventory in efficiently used or not. It, therefore explains whether investment in
inventory within proper limits or not.
Formula:

cost of goods sold

-----------------------------Average stock

218. Debtors Turnover Ratio: The ratio the better it is, since it would
indicate that debts are being collected more promptly. The ration helps in cash
budgeting since the flow of cash from customers can be worked out on the basis
of sales.
Formula:

Credit sales
---------------------------Average Accounts Receivable

219. Creditors Turnover Ratio: It indicates the speed with which the
payments for credit purchases are made to the creditors.
Formula:

Credit Purchases
----------------------Average Accounts Payable

220. Working capital turnover ratio: It is also known as Working

Capital Leverage Ratio. This ratio indicates whether or not working capital has
been effectively utilized in making sales.
Formula:

Net Sales
---------------------------Working Capital

221. Fixed Assets Turnover ratio: This ratio indicates the extent to
which the investments in fixed assets contribute towards sales.
Formula:

Net Sales
-------------------------Fixed Assets

222 .Pay-outs Ratio: This ratio indicates what proportion of earning per
share has been used for paying dividend.
Formula:

Dividend per Equity Share

--------------------------------------------X100
Earning per Equity share

223. Overall Profitability Ratio: It is also called as Return on

Investment (ROI) or Return on Capital Employed (ROCE). It indicates the
percentage of return on the total capital employed in the business.
Formula:

Operating profit
------------------------X 100
Capital employed

The term capital employed has been given different meanings a.sum total
of all assets Whether fixed or current b.sum total of fixed assets, c.sum total of
long-term funds employed In the business, i.e., share capital +reserves &surplus
+long term loans (non business assets + fictitious assets). Operating profit
means profit before interest and tax
224. Fixed Interest Cover ratio: The ratio is very important from the
lenders point of view. It indicates whether the business would earn sufficient
profits to pay periodically the interest charges.
Formula:

Income before interest and Tax

---------------------------------------

Interest Charges

225. Fixed Dividend Cover ratio: This ratio is important for preference
shareholders entitled to get dividend at a fixed rate in priority to other
shareholders.
Formula:

Net Profit after Interest and Tax

-----------------------------------------Preference Dividend
226. Debt Service Coverage ratio: This ratio is explained ability of a
company to make payment of principal amounts also on time.
Formula:

Net profit before interest and tax

----------------------------------------------- 1-Tax rate

Interest + Principal payment installment
227. Proprietary ratio: It is a variant of debt-equity ratio . It establishes
relationship between the proprietors funds and the total tangible assets.
Formula:

Shareholders funds
------------------------------

Total tangible assets

228. Difference between joint venture and partnership: In joint
venture the business is carried on without using a firm name, In the partnership,
the business is carried on under a firm name. In the joint venture, the business
transactions are recorded under cash system In the partnership, the business
transactions are recorded under mercantile system. In the joint venture, profit
and loss is ascertained on completion of the venture In the partnership, profit
and loss is ascertained at the end of each year. In the joint venture, it is confined
to a particular operation and it is temporary. In the partnership, it is confined to
a particular operation and it is permanent.
229. Meaning of Working capital: The funds available for conducting
day to day operations of an enterprise. Also represented by the excess of
current assets over current liabilities.
230. Concepts of accounting:

1. Business entity concepts: - According to this concept, the business is

treated as a separate entity distinct from its owners and others.
2. Going concern concept :- According to this concept, it is assumed that a
business has a reasonable expectation of continuing business at a profit for an
indefinite period of time.
3. Money measurement concept :- This concept says that the accounting
records only those transactions which can be expressed in terms of money only.
4. Cost concept: - According to this concept, an asset is recorded in the
books at the price paid to acquire it and that this cost is the basis for all
subsequent accounting for the asset.
5. Dual aspect concept: - In every transaction, there will be two aspects
the receiving aspect and the giving aspect; both are recorded by debiting one
accounts and crediting another account. This is called double entry.
6. Accounting period concept: - It means the final accounts must be
prepared on a periodic basis. Normally accounting period adopted is one year,
more than this period reduces the utility of accounting data.
7. Realization concept: - According to this concepts, revenue is considered
as being earned on the data which it is realized, i.e., the date when the property
in goods passes the buyer and he become legally liable to pay.
8. Materiality concepts: - It is a one of the accounting principle, as per
only important information will be taken, and UN important information will be
ignored in the preparation of the financial statement.
9. Matching concepts: - The cost or expenses of a business of a particular
period are compared with the revenue of the period in order to ascertain the net
profit and loss.
10. Accrual concept: - The profit arises only when there is an increase in
owners capital, which is a result of excess of revenue over expenses and loss.
231. Financial analysis: The process of interpreting the past, present,
and future financial condition of a company.
232. Income statement: An accounting statement which shows the
level of revenues, expenses and profit occurring for a given accounting period.
233. Annual report: The report issued annually by a company, to its
share holders. it containing financial statement like, trading and profit & lose
account and balance sheet.

234. Bankrupt: A statement in which a firm is unable to meets its

obligations and hence, it is assets are surrendered to court for administration
235. Lease: Lease is a contract between to parties under the contract,
the owner of the asset gives the right to use the asset to the user over an
agreed period of the time for a consideration.
236. Opportunity cost: The cost associated with not doing something.
237. Budgeting: The term budgeting is used for preparing budgets and
other producer for planning,co-ordination,and control of business enterprise.
238. Capital: The term capital refers to the total investment of company
in money, tangible and intangible assets. It is the total wealth of a company.
239. Capitalization: It is the sum of the par value of stocks and bonds
out standings.
240. Over capitalization: When a business is unable to earn fair rate on
its outstanding securities.
241. Under capitalization: When a business is able to earn fair rate or
over rate on it is outstanding securities.
242. Capital gearing: The term capital gearing refers to the relationship
between equity and long term debt.
243. Cost of capital: It means the minimum rate of return expected by
its investment.
244. Cash dividend: The payment of dividend in cash
245. Define the term accrual: Recognition of revenues and costs as
they are earned or incurred. it includes recognition of transaction relating to
assets and liabilities as they occur irrespective of the actual receipts or
payments.
245. Accrued expenses: An expense which has been incurred in an
accounting period but for which no enforceable claim has become due in what
period against the enterprises.
246. Accrued revenue: Revenue which has been earned is an earned is
an accounting period but in respect of which no enforceable claim has become
due to in that period by the enterprise.
247. Accrued liability: A developing but not yet enforceable claim by
another person which accumulates with the passage of time or the receipt of

service or otherwise. It may rise from the purchase of services which at the date
of accounting have been only partly performed and are not yet billable.
248. Convention of Full disclosure: According to this convention, all
accounting statements should be honestly prepared and to that end full
disclosure of all significant information will be made.
249. Convention of consistency: According to this convention it is
essential that accounting practices and methods remain unchanged from one
year to another.
250. Define the term preliminary expenses: Expenditure relating to
the formation of an enterprise. There include legal accounting and share issue
expenses incurred for formation of the enterprise.
251. Meaning of Charge: charge means it is a obligation to secure an
indebt ness. It may be fixed charge and floating charge.
252. Appropriation: It is application of profit towards Reserves and
Dividends.
253. Absorption costing: A method where by the cost is determine so
as to include the appropriate share of both variable and fixed costs.
254. Marginal Cost: Marginal cost is the additional cost to produce an
additional unit of a product. It is also called variable cost.

255. What are the ex-ordinary items in the P&L a/c: The transaction
which is not related to the business is termed as ex-ordinary transactions or exordinary items. Egg:- profit or losses on the sale of fixed assets, interest received
from other company investments, profit or loss on foreign exchange,
unexpected dividend received.
256. Share premium: The excess of issue of price of shares over their
face value. It will be showed with the allotment entry in the journal; it will be
adjusted in the balance sheet on the liabilities side under the head of reserves
& surplus.
257. Accumulated Depreciation: The total to date of the periodic
depreciation charges on depreciable assets.
258. Investment: Expenditure on assets held to earn interest, income,
profit or other benefits.

259. Capital: Generally refers to the amount invested in an enterprise by

its owner. Ex; paid up share capital in corporate enterprise.
260. Capital Work In Progress: Expenditure on capital assets which are
in the process of construction as completion.
261. Convertible Debenture: A debenture which gives the holder a
right to conversion wholly or partly in shares in accordance with term of issues.
262. Redeemable Preference Share: The preference share that is
repayable either after a fixed (or) determinable period (or) at any time dividend
by the management.
263. Cumulative preference shares: A class of preference shares
entitled to payment of emulates dividends. Preference shares are always
deemed to be cumulative unless they are expressly made non-cumulative
preference shares.
264. Debenture redemption reserve: A reserve created for the
redemption of debentures at a future date.
265. Cumulative dividend: A dividend payable as cumulative
preference shares which it unpaid Emulates as a claim against the earnings of a
corporate before any distribution is made to the other shareholders.
266. Dividend Equalization reserve: A reserve created to maintain the
rate of dividend in future years.
267. Opening Stock: The term opening stock means goods lying
unsold with the businessman in the beginning of the accounting year. This is
shown on the debit side of the trading account.
268. Closing Stock: The term Closing Stock includes goods lying unsold
with the businessman at the end of the accounting year. The amount of closing
stock is shown on the credit side of the trading account and as an asset in the
balance sheet.
269. Valuation of closing stock: The closing stock is valued on the
basis of Cost or Market prices whichever is less principle.
272. Contingency: A condition (or) situation the ultimate out comes of
which gain or loss will be known as determined only as the occurrence or non
occurrence of one or more uncertain future events.

273. Contingent Asset: An asset the existence ownership or value of

which may be known or determined only on the occurrence or non occurrence of
one more uncertain future event.
274. Contingent liability: An obligation to an existing condition or
situation which may arise in future depending on the occurrence of one or more
uncertain future events.
275. Deficiency: the excess of liabilities over assets of an enterprise at a
given date is called deficiency.
276. Deficit: The debit balance in the profit and loss a/c is called deficit.
277. Surplus: Credit balance in the profit & loss statement after
providing for proposed appropriation & dividend, reserves.
278. Appropriation Assets: An account sometimes included as a
separate section of the profit and loss statement showing application of profits
towards dividends, reserves.
279. Capital redemption reserve: A reserve created on redemption of
the average cost: - the cost of an item at a point of time as determined by
applying an average of the cost of all items of the same nature over a period.
When weights are also applied in the computation it is termed as weight
average cost.
280. Floating Change: Assume change on some or all assets of an
enterprise which are not attached to specific assets and are given as security
against debt.
281. Difference between Funds flow and Cash flow statement: A
Cash flow statement is concerned only with the change in cash position while a
funds flow analysis is concerned with change in working capital position
between two balance sheet dates. A cash flow statement is merely a record of
cash receipts and disbursements. While studying the short-term solvency of a
business one is interested not only in cash balance but also in the assets which
are easily convertible into cash.
282. Difference between the Funds flow and Income statement:
A funds flow statement deals with the financial resource required for
running the business activities. It explains how were the funds obtained and how
were they used, whereas an income statement discloses the results of the
business activities, i.e., how much has been earned and how it has been spent.
A funds flow statement matches the funds raised and funds applied during a

particular period. The source and application of funds may be of capital as well
as of revenue nature. An income statement matches the incomes of a period
with the expenditure of that period, which are both of a revenue nature.