Amalgamation

Amalgamation is the process of combining two or more entities into a new entity.
For example "A company and B company combine to form a new company with the name "C". This is the Amalgamation.

Accounting period

Accounting period is the reference to the period during which all transactions are recorded in the books of accounts and financial statements are prepared to know performance relating to that period.
Accounting period is usually 12 months period . May start from January and end in December.

Also see:- Assemeent year , Financial year.

Business words starting with "A"

A priori probability A probability based on logical analysis rather than on observation or personal judgment.
Abnormal return The amount by which a security’s actual return differs from its expected return, given the security’s
risk and the market’s return.
Absolute advantage A country’s ability to produce a good or service at a lower absolute cost than its trading partner.
Absolute dispersion The amount of variability present  without comparison to any reference point or benchmark.
Absolute frequency The number of observations in a given interval (for grouped data).
Accelerated book build An offering of securities by an invest￾ment bank acting as principal that is accomplished in only
one or two days.
Accelerated methods Depreciation methods that allocate a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
Account With the accounting systems, a formal record of
increases and decreases in a specific asset, liability, com￾ponent of owners’ equity, revenue, or expense.
Accounting costs Monetary value of economic resources used in performing an activity. These can be explicit, out￾of-pocket, current payments, or an allocation of historical payments (depreciation) for resources. They do not include
implicit opportunity costs.
Accounting profit Income as reported on the income statement, in accordance with prevailing accounting standards,
before the provisions for income tax expense. Also called
income before taxes or pretax income.
Accounts payable Amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid.
Accounts receivable Amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers (such as for returns of merchandise). Also called commercial receivables or trade receivables.
Accounts receivable turnover Ratio of sales on credit to the average balance in accounts receivable.
Accrued expenses Liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting period—an example of an accrued expense is rent that has been incurred but not yet paid, resulting in a liability
“rent payable.” Also called accrued liabilities.
Accrued interest Interest earned but not yet paid.
Accrued revenue Revenue that has been earned but not yet billed to customers as of the end of an accounting period.
Accumulated depreciation :-An offset to property, plant, and equipment (PPE) reflecting the amount of the cost of PPE that has been allocated to current and previous accounting periods.
Acid-test ratio A stringent measure of liquidity that indicates a company’s ability to satisfy current liabilities with its most liquid assets, calculated as (cash + short-term marketable
investments + receivables) divided by current liabilities.

Meaning and definition of Consignment

Consignment:-
Quite often it happens that a manufacturer or a wholesale dealer who does not find ready
market in his own place becomes desirous of seeking a good market elsewhere. Even when there is a good market for his goods in his own place, he is often anxious to make his goods popular elsewhere. For this purpose the merchant employs a leading dealer at the place where he wants to push his goods to act as his agent and sell goods on his behalf and risk as agent on commission.
Goods so sent to a person are known as Consignment.
 The person who sends such goods is
known as the Consignor and the person to whom the goods are sent is known as the consignee.

Such goods sent to the Consignee remain the property of the Consignor. The Consignee to whom the goods are sent does not buy them, but, merely undertakes to sell them on behalf of the
consignor. He is not responsible for any loss or damage to the goods, if such loss or damage is
caused for no fault of the Consignee.
Such a shipment of the goods by the Consignor cannot be treated as ordinary sale and such
transactions require special treatment in the books of accounts.

Types of Reserves

Types of Reserves:-
Revenue Reserves are reserves built out of ordinary profits, profits which can be used for
declaring dividends. Examples are General Reserve and Dividend Equalisation Reserve (a
reserve to make dividends uniform from year to year).
 A Specific reserve is created for definite
purpose.
 A general reserve is created to make position better generally.
Capital Reserves are reserves built out of capital (or extraordinary) profits—profits not
available for dividends. Such profiles are :–
(a) Profit Prior to incorporation.
(b) Premium on issue of shares or debentures.
(c) Profit on redemption of debentures.
(d) Amount utilised out of profits to redeem redeemable preference shares.
(e) Profit on forfeiture of shares.
(f) Profit on sale or revaluation of fixed assets.
Capital profits may be used to issue bonus shares
Secret Reserves.
Reserves (accumulation of profits) which are not disclosed in accounts are
known as secret reserves. Secret reserves mean that the actual financial position is much better
than that show in the Balance Sheet. Such reserves are created by suppressing profits, like.
(a) writing off excessive depreciation;
(b) treating an asset as an expense (i.e., charging capital expenditure to revenue);
(c) under valuation of closing stock;
(d) suppression of sales; and
(e) crediting revenue receipts to an asset.

Secret reserves are the reverse of window dressing (which showing a better position that it
is).Both are against the provisions of the Companies act which require that the Balance Sheet and Profit and Loss Account should exhibit a true an fair position.

Statutory Reserves	Contingency Reserves
Securities Premium Reserve	Depreciation Reserve

Straight line method of depreciation

Fixed Percentage on Original Cost. As the same implies, every year a suitable percentage
of the original cost is written off. Suppose, the cost Is Rs. 60,000 and 80% is to be written off;
every year 8% of Rs. 60,000, i.e., 4,800 will be written off. Depreciation Account will be
debited, Machinery Account will be credited.
The amount to be written off each year may also be determined as :
Cost – Estimated scrap Value/Estimated life
                                                                       
One should remember while writing off depreciation (under all method) that if the fixed  asset concerned has been used only for part of a year, depreciation should be provided only for that part of the year. If the asset has to be discarded before the expiry of its life, the amount realised should be credited to the account of the asset and the remaining amount should be written off as a loss.
The book value of the machine is found by deducting the total accumulated depreciation
from the cost.

Methods of depreciation

There are a number of methods for writing off depreciation. These are the following :

(a) Fixed percentage on the original cost (also known as the Straight Line Method or the
Fixed Instalment Method).
(b) Fixed percentage on the diminishing balance (also known as the Reducing Instalment
method).
(c) Annuity Method.
(d) Depreciation Fund Method.
(e) Insurance Policy Method.
(f) Machine Hour Rate Method.
(g) Depletion Method.
(h) Revaluation Method.

Distinction between capital expenditure and revenue expenditure

It is necessary to distinguish between two types of expenditure-Capital and Revenue Expenditure.

An expenditure incurred to acquire an asset or a benefit, which will be available for a long time, is
capital expenditure. When the earning capacity of a business is increased it is also capital expenditure. Amount spent to buy fixed asset comes under Capital expenditure .

Examples are money spent to acquire machinery, repair expenses of second hand
machinery purchased, purchase of goodwill of a running business, etc.
expenditure whose benefit
is available only for the present is revenue expenditure. Examples are, payment of the wages,
salaries, rent and expenditure on advertising etc.

Capital expenditure is an asset, revenue expenditure is an expense. 

Out of current income
expenses should be met, but in respect of assets only the diminution in their value should be met,
out of current income, which is called Depreciation  in Accounting.
Remember also that when assets (except goods) are sold the proceeds are not to be treated as
sales in the ordinary sense. The proceeds are “Capital Receipts”. If the asset has been sold at a
price higher than its book-value or recorded value, the difference can be treated as profit.
Similarly, if the amount received by its sale is less than its recorded value, the difference must be
treated-as a loss.
Distinction between capital and revenue is very Important but is not always easy. But a
golden rule is: if an expenditure results in increased capacity for business or reduced costs in producing goods or, of course, in the acquisition of an asset, it is capital expenditure. Otherwise,
it is revenue expenditure, making new exits in a cinema house is revenue expenditure because
capacity is not increased. But making a gallery to seat more people is capital expenditure.

Deferred Revenue Expenditure. Sometimes a very heavy expenditure of revenue nature is
incurred. If its benefit will be available for three or four years (as in case of heavy advertising to
launch a new product) the expenditure is deferred Revenue Expenditure.

Branches of Accounting

Accountants tend to specialize in various types of accounting work and this has resulted in
the development of different branches of accounting. Some of these divisions of accounting are
given as:
(i) Financial Accounting : Accounting designed for outsiders (persons other than owners
and managers) is known as financial accounting. It is concerned with the recording of
business transactions and periodic preparation of balance sheets and income statement
from such records. In this manner, the financial accounting is useful for the ascertaining
profit or loss made during a given period and financial position at the end of the period.
(ii) Management Accounting : It is concerned with the interpretation of accounting
information to guide the management for future planning. Decision making control, etc.
Management Accounting, therefore, serves the information needs of the insiders, e.g.
owners, managers and employees.
(iv) Cost Accounting: It has been developed to ascertain the cost incurred for carrying out
various business activities and to help the management to exercise strict cost control.
(v) Tax Accounting: This branch of accounting has grown in response to the difficult tax
laws such as relating to income tax, sales tax, excise duties, custom duties, etc. An
accountant is required to be fully aware of various tax legislations.
(vi) Social Accounting : This branch of accounting is also known as social reporting or
social responsibility accounting. It discloses the social benefits created and the costs
incurred by the enterprise. Social benefits include such facilities as medical, housing,education, canteen, provident fund, so on while the social costs may include such
matters as extra hours worked by employees without payment, environment pollution,
unreasonable terminations, etc.
(vii) Human Resource Accounting : It is concerned with the human resources of an
enterprise. Accounting methods are applied to identify human resources and its
evolution is done in money terms so that the society might judge the total work of the
business enterprises including its non-human net assets. It is, therefore, an accounting
for the people of the organization. Unfortunately no objectively verifiable measure has
been developed for universal application.
(viii)National Accounting means the accounting for the nation as a whole. It is generally
not concerned with the accounting of individual business entities and is not based on
generally accepted accounting principles. It has been developed by the economists and
the statisticians.
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Functions of Accounting

Financial Accounting performs the following nature functions:
(i) Maintaining systematic records: Business transactions are properly recorded,
classified under appropriate accounts and summarized into financial statements–
income statement and the balance sheet.
(ii) Communicating the financial results: Accounting is used to communicate financial
information in respect of net profits (or loss), assets, liabilities etc., to the interested
parties.
(iii) Meeting legal needs: The provisions of various laws such as Companies Act, Income
Tax and Sales Tax Acts require the submission of various statements, i.e., annual
account, income tax returns, returns for sales tax purposes and so on.
(iv) Protecting business assets: Accounting maintains proper records of various assets and
thus enables the management to exercise proper control over them with the help of
following information regarding them: (a) how much is balance of cash in hand and
cash at bank?
(b) What is the position of the inventories? (c) How much money is owed by the
customers?
(d)How much money is owing to the creditors? (e) What is the position of various fixed
assets and how these are being used?
(v) Accounting assists the management in the task of planning, control and coordination
of business activities.
(vi) Stewardship: In the case of limited companies, the management is entrusted with the
resources of the enterprise. The managers are expected to act true trustees of the funds
and the accounting helps them to achieve the same.
(vii) Fixing responsibility: Accounting helps in the computation of the profits of different
departments of an enterprise. This would help in fixing the responsibility of
departmental heads.
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