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MUST KNOW CONCEPT OF ACCOUNTING FOR MANAGERS:

1. Accounts payable (creditors):

they are persons or other entities who have to be paid by an enterprise an amount for providing the enterprise goods and services on credit. They are current liability for business. they are persons or other entities who owe to an enterprise an amount to buy goods and services on credit. They are current assets for the business. activities. A tangible object or an intangible right owned by an enterprise and carrying probable future benefits. The original cost of equipment less accumulated depreciation, which is the summation of depreciation charged to past periods. The level of sales at which revenue equals expenses and aid to converted into The assumption minus the net income is zero.

2. Accounts receivable (debtors):

3. Assets: Economic resources that are expected to benefit future

4. Book value (net book value):

5. Break-even point: 6. Budget: A

quantitative expression of a plan of action, and an coordinating and implementing the plan. : Short-term investments that can easily be cash with little delay.

7. Cash equivalents

8. Continuity convention 9. Contribution m argin

(going concern convention): that an organization will continue to exist and operate. (m arginal income): variable cost per unit.

The sales price

10. Cost accounting systems:

The techniques used to determine the cost of a product, service, or other cost objective by collect ing and classifying costs and assigning them to cost objects. What a firm must pay to acquire more capital, not it actually has to acquire more capital to take on a project. The cost of the m erchandise that is manufactured and resold. whether or acquired or

11. Cost of capital:

12. C of goods sold: ost 13. Current assets:

Cash and all other assets that are reasonably expected to be converted to cash or sold or consumed within one year or during the normal operating cycle, if longer than a year. increase in liability or owners equity.

14. Credit: is an accounting entry which results in either decrease in asset or 15. Current liabilities:

An organization's debts that falls due within coming year or within the normal operating cycle if longer than a year.

the

16. Depreciation: 17. Debentures:

The periodic cost of equipment that is spread over (or charged to) the future periods in which the equipment is expected to be used. Formal certificates of indebtedness that are accom promise to pay interest at a specified annual rate. a decrease in liability or owners equity. panied by a

18. Debit: is an accounting entry which results in either an increase in asset or 19.

Dividends: income.

Distributions of assets to stockholders that reduce

retained sively with a each ber of

20. Direct costs: Costs that can be identified specifically and exclu

given cost objective in an economically feasible


21. 22.

way.

Double-entry system: A method of record keeping in which transaction affects at least two accounts. Earnings per share: Net income divided by the average num common shares outstanding during the year. services or using up assets.

23. Expenses: Decreases in ownership claims arising from delivery 24. Financial accounting:

goods or

The field of accounting that develops information for external decision makers such as stockholders, suppliers, banks, and government regulatory agencies. (FIFO): An inventory method that assumes stock acquired earliest is sold (used up) first. Physical items that a person can touch, such as property, plant, and equipment. that the see and

25. First -in, first-out

26. Fixed assets (tangible assets): 27.

Fixed cost (sunk cost): A cost that has already been incurred and, there fore, is irrelevant to the decision making process. It remains static at all levels of output. A collection of the group of accounts that su shown in the major financial statements . pports the items

28. General ledger:

29. Generally accepted accounting principles (G AAP):

Broad concepts or guidelines and detailed practices, including all con ventions, rules, and procedures that together make up accepted accounting practice at a given time. The amount originally paid to acquire an asset. assets less its liabilities. cost of

30. Historical cost:

31. Goodwill: The excess of the cost of an acquired company over the sum of

the fair market values of its identifiable individual


32. Gross margin (gross profit):

The excess of sales over the total

goods sold

33. Incom statem e ent:

A statem that m ent easures the perfor mance of an organization by matching its accomplishments (revenue from customers, which is usually called sales) and its efforts (cost of goods sold and other expenses). monetary tory is sold unit.

34. Inflation: The decline in the general purchasing power of the 35. Inventory turnover:

The number of times the average inven

per year.
36. Intangible assets:

Long-lived assets those are not physical in nature. Examples are goodwill, franchises, patents, trademarks, and copyrights. An inventory method that assumes stock acquired most recently is sold (used up) first. that the

37. Last-in, first-out (LIFO):

38. Liabilities: The entity's economic obligations to non owners.

Present obligations for the future payment of assets or performance of services that are the result of past transactions or events. Limited liability: Creditors cannot seek payment from share individuals if the corporation itself cannot pay its debts. Converting assets to cash and using the cash to outside claims. holders as pay off

39.

40. Liquidation:

41. Management accounting:

The process of identifying, measur ing, accumulating, analyzing, preparing, interpreting, and com municating information that helps managers fulfill organiza tional objectives. The planned unit sales less the break-even unit sales; it shows how far sales can fall below the planned level before losses occur. The popular "bottom line"-the residual after from revenues all expenses, including income taxes. (long-term liabilities): that falls due beyond one year. assets over the liabilities An organiza deducting tion's debts

42. Margin of safety: 43. Net incom e

44. Noncurrent liabilities

45. Owners' equity or stockholders equity(net worth): 46. Paid-in capital:

The excess of the in by the on the face ery of goods or

The ownership claim arising from funds paid

owners.
47. Par value (legal value, stated value):

The value that is printed of the certificate. Also, known as nominal or face value. services.

48. Revenue: Increases in ownership claims arising from the deliv

49. Statement of cash flows: 50.

A statement that reports the cash cash payments of an organization during a partic ular period. V ariable cost: A cost that changes in direct proportion to the cost driver level.

receipts and changes in

51. Zero based budgeting:

It is a system whereby budget figures are developed with zero as the base, i.e. budget is prepared for the first time (from scratch). it works for functions, programmes and activities. It focuses on achievement of physical targets. output. It is defined which is designed to remain unchanged irrespective of the level of activity attained.

52. Performance budgeting:

53. Fixed budget : A fixed budget is one which is prepared keeping in mind one level of

54. Flexible budget:

It is one which is designed to change in relation to the level of activity attained. It is developed with the objective of changing the budget figures to correspond with the actual output achieved. in a period.

55. Asset turnover: The number of times the assets of a business are turned over into sales 56. Bad debts: Customers who do not or will not pay balances resulting from credit

transactions.
57. Balance sheet: A financial statement that presents an enterprise's assets, liabilities, and

equity at a point in time.


58. Bank statement: A periodical statement sent by a bank to each customer showing the

balance at the beginning of the month, the deposits, the checks paid, and other debits and credits during the month, and the balance at the end of the month.
59. Accounting: An information system that processes business transactions to provide

information to various interested parties for making business and economic decisions.
60. Accounting (business) entity assumption: The notion that a business is distinct and

separate from its owners and from other firms.


61. Dual concept: it holds that every transaction has a two sided or double effect i.e. debit

and credit.
62. Trading account: A part of financial statement prepared to ascertain gross profit of

loss during an accounting year.


63. Written down value method: depreciation is charged at fixed rate on the reducing

balance i.e. costless depreciation.


64. Straight line method (original cost method): a fixed percentage of original cost is

written off every year.


65. Accounting equation: Assets = Liabilities + Equity.

66. Accounting period: The period for which net profit is reported by a business. In India

the accounting period is from 1 April this year to 31 March next year.
67. Accrual: The recognition of an expense that has not been paid or of a revenue that has

not been received.


68. Journal: A chronological record of transactions entered into by a business. 69. Merchandise inventory: Goods purchased by a company with an intention for resale

and lying unsold.


70. Net profit: Profit that remains after all expenses; the increase in equity from the

operations of the business.


71. Operating expenses: Expenses that are incurred on selling and administration

activities.
72. Operating profit: Gross profit minus operating expenses. 73. Profit and loss account: A financial statement that summarizes the results of an

enterprise's operations for a given time period.


74. Reserve: The earnings of a company that remain after payment of dividends. 75. Trial balance: A list of accounts and their balances at a given time. 76. Drawings: withdrawal of money or goods by the owner from the business for personal

use. It has an effect of reducing the amount of capital invested in the business.
77. Capital: it is the amount invested by the owner in the business. It may be brought in the

form of cash or in form of assets.


78. Capital expenditure: can be defined as an expense which is incurred in lump sum i.e.

generally for the acquisition of fixed assets.


79. Revenue expenditure: it can be defined as an expense which is incurred to carry out

the day to day activities. They are recurring in nature.


80. Prime costs:

Direct labor costs plus direct materials costs. A carefully pre-determ ined cost per unit that should

81. Standard cost:

be attained.
82. Variances:

Deviations from plans. Difference between actual and

standard plans.