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Home > Business > Special


Key accounting definitions

Rayana Pandey, in New Delhi | May 14, 2007

 A guide to some key accounting words...

Accrual

Revenues and costs are accrued, that is, recognised as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements, of the periods to which they relate.

Asset

An asset is a resource controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise.

Inventory

Inventories are assets held for sale in the ordinary course of business or in the process of production for such sale or supplies to be consumed in the production process or in the rendering of services.

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 weightages are also applied in computation, it is termed as weighted average cost.

Ad Valorem

A method of levying tax or duty on goods by using their assessable value as the tax base.

Bad Debts

Debts owed to an enterprise which are considered to be irrevocable.

Balance Sheet

A statement of the financial position of an enterprise as at a given date, which exhibits its assets, liabilities, capital, reserves and other account balances at their respective book values.

Bill of Exchange

An instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Capital Assets

Assets, including investments not held for sale, conversion or consumption in the ordinary course of business.

Collateral Security

Security which is given in addition to the principal security against the same liability or obligation.

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 or more uncertain future events.

Debenture

A formal document constituting acknowledgement of a debt by an enterprise, usually given under its common seal and normally containing provisions regarding payment of interest, repayment of principal and securities if any. It is transferable in the appropriate manner.

Convertible Debenture

A debenture which gives the holder a right to its conversion, wholly or partly, into shares in accordance with the terms or issue.

Deferral

Postponement of recognition of a revenue or expense after its related receipt or payment (or incurrence of a liability), to a subsequent period to which it applies. Some examples are pre-paid rent and taxes, unearned subscriptions received in advance by newspapers, magazines and others.

Direct Cost

An item of cost that can be reasonably identified with a specific unit of product or with a specific operation or other cost centre.



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