CA Glossary
512 terms
All512 terms
Absorption Costing
A method of costing where all manufacturing costs, both fixed and variable, are allocated to the cost of the product.
Accounting Equation
A fundamental principle of accounting that states that a company's assets must always equal the sum of its liabilities and owner's equity. (Assets = Liabilities + Owner's Equity).
Accounting Policies
The specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.
Accounting Standards (AS)
Authoritative pronouncements issued by the Institute of Chartered Accountants of India (ICAI) that prescribe accounting policies and practices for various transactions and events, ensuring uniformity and comparability in financial reporting.
Accounts Receivable
Money owed to a business by its customers for goods or services that have been delivered or used but not yet paid for. It is a current asset.
Accrual Basis of Accounting
An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is actually received or paid.
Acquisition
The process where one company purchases another company or a significant part of another company's assets or shares, typically to gain control.
Activity-Based Costing (ABC)
A costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.
Advance Tax
Income tax paid in advance for the income earned in a particular financial year. It is meant to be paid in installments during the year instead of a lump sum payment at the end.
Amortization
The systematic allocation of the depreciable amount of an intangible asset over its useful life. It reflects the pattern in which the asset's future economic benefits are expected to be consumed by the entity.
Analytical Procedures
Evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.
Annual General Meeting (AGM)
A mandatory annual meeting of the shareholders of a company where key decisions are made, such as approving financial statements, declaring dividends, and appointing auditors and directors.
Articles of Association (AoA)
A document that specifies the regulations for a company's operations and defines the company's purpose and lays out how tasks are to be accomplished within the organization.
Assessee
Under Indian income tax law, any person by whom any tax or any other sum of money is payable under the Income Tax Act, 1961, or in respect of whom any proceeding under the Act has been initiated.
Assessment Year
The twelve-month period starting from April 1st during which the income earned in the previous financial year is assessed and taxed.
Assessment Year (AY)
The period of 12 months commencing on April 1st of every year, immediately succeeding the financial year, in which the income earned during the financial year is assessed to tax.
Asset
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Audit Evidence
Information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Includes information contained in accounting records underlying the financial statements and other information.
Audit Report
A formal opinion issued by an independent auditor regarding the fairness and accuracy of a company's financial statements, based on their audit findings.
Audit Risk
The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of the risks of material misstatement and detection risk.
Audit Trail
A step-by-step record by which accounting data can be traced to its source, demonstrating the history and sequence of events.
Authorized Capital
The maximum amount of share capital that a company is authorized by its constitutional documents to issue to shareholders.
Bad Debts
Amounts owed by debtors that are considered irrecoverable and are written off as an expense.
Balance Sheet
A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
Bank Overdraft
A short-term facility allowing a customer to withdraw more than the balance in the current account up to an agreed limit.
Bank Reconciliation Statement
A statement prepared to reconcile the cash balance in the bank's records with the cash balance in the company's accounting records (cash book) at a specific date, identifying discrepancies like unpresented cheques or uncredited deposits.
Bank Reconciliation Statement (BRS)
A statement that reconciles the balance as per the cash book with the balance as per the bank passbook by explaining the differences between them.
Basic Exemption Limit
In Indian taxation, the minimum income level below which an individual is not liable to pay income tax.
Bear Market
A financial market in which prices are falling or are expected to fall, characterized by investor pessimism, economic slowdown, and decreased trading activity.
Beta
In finance, a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A Beta of 1 indicates the asset's price moves with the market.
Bill of Exchange
A written, unconditional order by one party directing another to pay a fixed sum of money on demand or at a future date.
Board of Directors
A group of individuals elected by shareholders to oversee the management of a company, set its strategic direction, and ensure compliance with legal and ethical standards.
Bond
A debt instrument issued by governments or corporations to raise capital, promising to pay interest (coupon) over a specified period and repay the principal (face value) at maturity.
Bonus Shares
Additional shares issued free of cost to existing shareholders in proportion to their holdings, out of accumulated profits or reserves.
Book Value
The value of an asset as recorded in the books of accounts, being cost less accumulated depreciation.
Break-even Point
The point at which total costs and total revenues are equal, meaning there is no net loss or gain, and all fixed and variable costs have been covered.
Breakeven Point
The level of production or sales at which total revenues equal total expenses, meaning there is neither a profit nor a loss.
Budgetary Control
A system of managing costs by comparing actual results against budgeted figures and taking corrective action on variances.
Budgeting
The process of creating a detailed plan for how to acquire and use financial resources over a specific period, typically a fiscal year, to achieve organizational goals.
Bull Market
A financial market in which prices are rising or are expected to rise, characterized by investor optimism, economic growth, and increased trading activity.
Business Income
Income earned by an individual or entity from carrying on a business or profession, taxable under the head 'Profits and Gains from Business or Profession' as per Indian income tax laws.
Buyback of Shares
The repurchase by a company of its own shares from existing shareholders, reducing the number of shares outstanding.
Capital Account
In the context of Balance of Payments, it records all international capital transfers, such as foreign investments (FDI, FII), loans, and changes in foreign exchange reserves.
Capital Asset Pricing Model (CAPM)
A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, used widely for pricing risky securities.
Capital Budgeting
The process of evaluating and selecting long-term investment projects (e.g., purchasing new equipment, expanding facilities) that are consistent with the goal of maximizing shareholder wealth.
Capital Expenditure
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment, which are expected to provide benefits for more than one accounting period.
Capital Expenditure (CapEx)
Money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Capital Gain Exemption
Provisions under the Income Tax Act that allow taxpayers to claim an exemption from paying capital gains tax if they reinvest the proceeds in specified assets.
Capital Gains
The profit earned from the sale of a capital asset (like property, shares, or mutual funds) that has been held for a certain period, and which is subject to specific tax treatment under the Income Tax Act, 1961.
Capital Gains Tax
A tax levied on the profit from the sale of property or an investment. It is the tax paid on the difference between the sale price and the original purchase price of a capital asset.
Capital Structure
The specific mix of debt and equity a company uses to finance its overall operations and growth.
Capital Work-in-Progress (CWIP)
An account representing the costs incurred on fixed assets that are currently under construction or assembly and are not yet ready for their intended use.
Cash Flow Statement
A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, categorized into Operating, Investing, and Financing activities.
Charge (on assets)
A security interest created by a company over its assets (movable or immovable) in favour of a lender (e.g., bank) to secure a loan or other financial obligation, which must be registered with the Registrar of Companies.
Charge on Assets
A right created by a company in favor of a creditor over its assets as security for the repayment of a loan or debt.
Clubbing of Income
Including the income of another person (like a spouse or minor child) in the total income of the taxpayer for the purpose of tax calculation, designed to prevent tax evasion.
Companies Act, 2013
The principal legislation governing the incorporation, responsibilities of directors, winding up, and other aspects of companies in India, replacing the Companies Act, 1956.
Compliance Audit
An audit conducted to determine whether an entity is following specific procedures, rules, or regulations set by an authority (e.g., government, management, or internal policies).
Consolidated Financial Statements
Financial statements of a parent company and its subsidiaries presented as those of a single economic entity, eliminating intercompany transactions and balances.
Contingent Asset
A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Contingent Liability
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Corporate Social Responsibility (CSR)
A management concept whereby companies integrate social and environmental concerns in their business operations. In India, it is a mandatory statutory requirement for certain profitable companies.
Cost of Capital
The minimum rate of return that a business must earn on its investments to satisfy its various investors (shareholders and debt holders).
Credit Note
A commercial document issued by a seller to a buyer, indicating a reduction in the amount owed by the buyer due to reasons like goods returned, overcharging, or damaged goods.
Cross-Holding
A situation where two companies hold shares in each other, affecting the computation of consolidated results.
Current Assets
Assets that are expected to be converted into cash, sold, or consumed within one year or the normal operating cycle of the business, whichever is longer.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. Calculated as Current Assets divided by Current Liabilities.
Debenture
A long-term debt instrument issued by a company to raise funds, usually carrying a fixed rate of interest.
Debit Note
A document issued by a buyer to a seller indicating a return of goods or a reduction in the amount payable.
Debt-to-Equity Ratio
A financial leverage ratio that indicates the proportion of debt and equity used to finance a company's assets, calculated as Total Debt / Shareholders' Equity.
Debtors
Individuals or entities that owe money to a business, typically for goods or services received on credit.
Deduction (Taxation)
Amounts allowed by tax law to be reduced from a taxpayer's Gross Total Income to arrive at the Net Taxable Income, thereby reducing the tax liability.
Deemed Dividend
Certain payments or advances by a closely-held company to its shareholders treated as dividend and taxed accordingly under income tax law.
Deferred Revenue
Revenue received in advance for goods or services that are yet to be delivered or performed, treated as a liability until earned.
Deferred Revenue Expenditure
Expenditure whose benefit extends over more than one accounting period but which is not represented by any tangible asset.
Deferred Tax Asset
The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses, and the carryforward of unused tax credits.
Depreciation
A measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes.
Derivatives
Financial instruments whose value is derived from the value of one or more underlying variables, such as commodities, stocks, or interest rates.
Detection Risk
The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a material misstatement that exists and could be material, either individually or when aggregated with other misstatements.
Direct Tax
A tax levied directly on the income or wealth of an individual or entity, where the burden cannot be shifted to another person.
Director
An individual appointed to the board of a company to oversee its management, strategic direction, and ensure compliance with legal and regulatory requirements.
Discounting (Finance)
The process of determining the present value of a future cash flow or series of cash flows, using a discount rate to reflect the time value of money and risk.
Diversification
An investment strategy aimed at reducing risk by investing in a variety of assets, industries, and geographies, rather than concentrating investments in a single asset or type.
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, to its shareholders.
Dividend Distribution Tax (DDT)
A tax formerly levied by the Indian Government on companies on the dividend paid to its investors. It was abolished in 2020, shifting the tax burden to the shareholders.
Dividend Payout Ratio
The fraction of net income a firm pays to its stockholders in dividends, indicating how much money a company is returning to shareholders versus retaining for growth.
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Documentation (Auditing)
The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached, forming the basis for the auditor's report.
Dormant Company
A company formed for a future project or to hold an asset or intellectual property, and has no significant accounting transactions. It can apply for dormant status under the Companies Act, 2013.
Double Entry System
An accounting method in which every transaction affects at least two accounts with equal debits and credits.
Double-entry System
An accounting system where every financial transaction affects at least two accounts, with equal debits and credits, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.
DTAA (Double Taxation Avoidance Agreement)
A bilateral agreement between two countries to prevent taxpayers from being taxed twice on the same income by both countries.
Due Diligence
A comprehensive investigation or review conducted by a prospective buyer or investor to assess the assets, liabilities, and commercial potential of a target company before a transaction.
E-way Bill
An electronic document required under the Goods and Services Tax (GST) regime in India for the movement of goods of a value exceeding a specified threshold, either inter-state or intra-state.
Earnings Per Share (EPS)
A company's net profit divided by the number of common shares it has outstanding. It serves as an indicator of a company's profitability.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's overall financial performance and is used as an alternative to simple earnings or net income.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
A measure of a company's operating performance, calculated by adding back interest expense, taxes, depreciation, and amortization to net income. It provides a clearer view of core operational profitability by excluding non-operating and non-cash expenses.
Economic Order Quantity (EOQ)
The ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.
Effective Interest Rate
The rate that exactly discounts estimated future cash payments or receipts to the net carrying amount of a financial instrument.
Effective Interest Rate (EIR)
The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
Emphasis of Matter Paragraph
A paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding.
Employee Stock Option Plan (ESOP)
A scheme under which a company grants its employees the right to purchase a specified number of shares of the company at a predetermined price (exercise price) after a certain period (vesting period).
Encumbrance
A claim or liability against a property or asset that restricts its transferability or limits its use, such as a mortgage, lien, or easement.
Engagement Letter
A formal written agreement between an auditor and their client, outlining the scope of the audit, responsibilities of both parties, objectives of the engagement, and the form of reports to be issued.
Environmental, Social, and Governance (ESG)
A set of criteria used by socially conscious investors to screen potential investments. Environmental factors consider a company's impact on nature, social factors relate to its relationship with employees and communities, and governance factors deal with leadership and transparency.
Equalisation Levy
A direct tax introduced in India on the consideration received by non-resident e-commerce operators from specified services provided to Indian residents or businesses, aimed at taxing digital transactions.
Equity Method of Accounting
An accounting method used for investments in associates (where an investor has significant influence but not control) where the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the associate's profit or loss.
Equity Share
A share representing ownership in a company that carries voting rights and a residual claim on profits and assets.
Equity Share Capital
The capital raised by a company through the issue of equity shares to its shareholders, representing ownership in the company. It forms the primary source of long-term funds for a business.
Equivalent Units
A concept used in process costing to express partially completed units of product in terms of fully completed units.
Escalation Clause
A contractual provision allowing the contract price to be adjusted for changes in the cost of materials or labour.
Escrow Account
A third-party account in which funds or assets are held until specified contractual conditions are met.
Ex-dividend
Describes a stock that is trading without the right to receive the next declared dividend. The share price typically drops by the dividend amount on this date.
Ex-Dividend Date
The date on or after which a buyer of a share is not entitled to the recently declared dividend.
Ex-dividend Date (X-date)
The first day on which a stock trades without the right to receive the recently declared dividend. Investors buying on or after this date will not receive the upcoming dividend.
Ex-rights
Describes a stock that is trading without the right to participate in a rights issue. The value of the rights is typically reflected in a lower share price.
Ex-rights Date (X-rights date)
The first day on which a stock trades without the right to participate in a new rights issue. Shareholders buying on or after this date will not receive the rights to purchase additional shares at a discounted price.
Ex-Rights Price
The theoretical market price of a share after a rights issue, once the value of the rights is removed.
Ex-warrants
Describes a stock that is trading separately from its attached warrants. The warrants can then be traded independently.
Ex-warrants Date (X-warrants date)
The first day on which a stock trades without the attached warrants. Warrants give the holder the right to purchase shares at a specified price and time.
Exempt Income
Income that is not included in the total income for the purpose of calculating income tax under the Income Tax Act, 1961, and is therefore not taxable.
Expected Credit Loss (ECL)
A forward-looking impairment model under Ind AS 109 (Financial Instruments) that requires entities to estimate and recognise losses on financial assets based on expected future defaults, rather than waiting for an actual default event.
External Audit
An independent examination of the financial statements of an entity carried out by an auditor who is not part of the organisation.
Faceless Assessment
An income tax assessment scheme introduced by the Indian government where taxpayers are assessed electronically without any physical interaction with tax authorities, aiming for transparency and efficiency.
Factoring
A financial transaction where a business sells its accounts receivable (invoices) to a third party (the factor) at a discount to obtain immediate cash, improving liquidity.
Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Fiduciary Duty
A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, entrusted with the care of money or property.
FIFO (First In First Out)
An inventory valuation method that assumes the earliest purchased stock is sold first.
FIFO (First-In, First-Out)
An inventory valuation method assuming that the first goods purchased or produced are the first ones sold, meaning the remaining inventory consists of the most recently purchased items.
Finance Lease
A lease that transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee.
Financial Leverage
The degree to which a company uses borrowed money (debt) to finance its assets. High financial leverage implies a greater reliance on debt, which can amplify both returns and risks for shareholders.
Financial Statements
The formal records of the financial activities of an entity, including the balance sheet, statement of profit and loss, and cash flow statement.
Financial Year
The 12-month period for which a company or government prepares its financial statements and calculates its taxes. In India, it typically runs from April 1st to March 31st.
Fixed Assets
Long-term tangible assets held for use in the production or supply of goods and services and not intended for sale.
Foreign Exchange
The process of converting one currency into another, or the global marketplace where currencies are traded. It also refers to the foreign currency itself.
Forensic Accounting
The use of accounting skills to investigate fraud or embezzlement and to analyze financial information for use in legal proceedings.
Forensic Audit
An examination of a company's financial records to derive evidence that can be used in a court of law or for internal investigation, typically conducted when fraud or financial misconduct is suspected.
Form 16
A certificate issued by an employer to an employee in India, detailing the salary paid and the Tax Deducted at Source (TDS) on that salary, essential for filing income tax returns.
Fraud
Intentional deception or misrepresentation made by a person or entity with the knowledge that the deception could result in some unauthorized benefit to themselves or others, a key concern in auditing.
Free Cash Flow (FCF)
The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings, it is difficult to manipulate.
Fringe Benefit
A non-cash benefit provided by an employer to an employee in addition to salary, such as a car or accommodation.
Fund Flow Statement
A statement that shows the sources and applications of funds and the changes in working capital between two balance sheet dates.
GAAP (Generally Accepted Accounting Principles)
A common set of accounting principles, standards, and procedures that companies use to compile their financial statements. In India, this primarily refers to Indian Accounting Standards (Ind AS) or Accounting Standards (AS) issued by the ICAI, depending on the entity's applicability.
Gain on Sale of Assets
The profit realized when a company sells an asset for a price higher than its carrying amount (book value). This is typically recorded as a non-operating income on the income statement.
Gearing Ratio
A measure of financial leverage comparing a company's debt to its equity or capital employed.
General Ledger
The main accounting record of a business, which contains all the accounts (assets, liabilities, equity, revenues, and expenses) necessary to prepare financial statements. All transactions from journals are posted to the general ledger.
General Meeting
A meeting of the members (shareholders) of a company. It includes the Annual General Meeting (AGM), which is held annually to discuss financial results and other routine matters, and Extra-ordinary General Meetings (EGM), called for urgent or special business.
General Reserve
A reserve created out of profits and kept aside for no specific purpose, available to strengthen the financial position of the company.
Going Concern
The fundamental accounting assumption that an enterprise is a going concern and will continue in operation for the foreseeable future.
Going Concern Concept
An accounting principle assuming that a business will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Golden Rules of Accounting
The three traditional rules for debit and credit applied to personal, real, and nominal accounts.
Goods and Services Tax (GST)
A comprehensive, destination-based indirect tax levied on the supply of goods and services in India.
Goodwill
An intangible asset that arises when a buyer acquires an existing business for more than the fair market value of its net identifiable assets.
Government Grant
Assistance by government in the form of transfers of resources to an entity in return for compliance with certain conditions.
Gratuity
A lump-sum payment made by an employer to an employee as a token of appreciation for long-term service, typically upon retirement, resignation (after a minimum service period), death, or disablement. In India, it is governed by the Payment of Gratuity Act, 1972.
Gross Block
The total historical cost of all fixed assets (Property, Plant, and Equipment) owned by a company before deducting accumulated depreciation. It represents the original investment in tangible long-term assets.
Gross Profit
The excess of net sales revenue over the cost of goods sold, before deducting operating expenses.
Group Audit
An audit of the financial statements of a group, which comprises a parent and its subsidiaries. It involves the auditor of the parent company (group auditor) taking responsibility for the audit opinion on the consolidated financial statements, often involving component auditors for subsidiaries.
GST (Goods and Services Tax)
A comprehensive, multi-stage, destination-based tax levied on every value addition. It has subsumed various indirect taxes in India like excise duty, service tax, VAT, etc., and is levied on the supply of goods and services.
Guarantee
An undertaking to answer for the debt, default, or obligation of another person if that person fails to perform.
Head of Income
Under the Indian Income Tax Act, 1961, income is classified into five categories for taxation purposes: Salaries, House Property, Profits and Gains of Business or Profession, Capital Gains, and Other Sources.
Hedge Accounting
An accounting method that recognises the offsetting effects on profit or loss of changes in the fair values of a hedging instrument and the hedged item.
Hedging
A strategy employed to offset potential losses or gains that may be incurred by a companion investment. It is used to reduce risk from adverse price movements in an asset.
Held-to-Maturity Investment
A non-derivative financial asset with fixed payments and a fixed maturity that an entity intends and is able to hold until maturity.
Hindu Undivided Family (HUF)
A distinct entity under Indian tax law, consisting of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. It is managed by a Karta and can own property and file income tax returns separately.
Hire Purchase
An arrangement to acquire an asset by paying instalments, where ownership passes only after the final payment.
Historical Cost
An accounting principle that states that assets should be recorded at their original purchase price, including all costs necessary to get the asset ready for its intended use. This value remains on the balance sheet, unadjusted for market fluctuations.
Historical Cost Concept
An accounting principle requiring that assets be recorded in the accounting records at their original cash value at the time of acquisition.
Holding Company
A company that controls another company (its subsidiary) by holding a majority of its shares or controlling its board.
Honour (of a Bill of Exchange)
The act of accepting and paying a bill of exchange by the drawee (the party on whom the bill is drawn) when it is presented for payment on its due date, thereby fulfilling the obligation.
Horizontal Analysis
A technique of comparing financial statement items over several accounting periods to identify trends.
House Property Income
Income derived from owning a house or building, which can be either rented out or self-occupied. It is one of the five heads of income under the Indian Income Tax Act, subject to specific deductions.
Human Resource Accounting
The process of identifying, measuring, and reporting the value of an organisation's human resources.
Hundi
A traditional Indian financial instrument used as a bill of exchange or credit note in trade and remittance.
Hurdle Rate
The minimum acceptable rate of return (or required rate of return) that a project or investment must achieve to be considered viable by a company or investor. It often reflects the cost of capital or a desired return.
Hybrid Security
A financial instrument that combines characteristics of both debt (like bonds, offering fixed interest payments) and equity (like stocks, offering potential capital appreciation or voting rights).
Hypothecation
A legal arrangement where an asset is pledged as collateral for a loan without transferring its possession to the lender. The borrower retains possession and use of the asset, but the lender has a charge over it.
Impairment
A permanent reduction in the value of an asset, typically occurring when the asset's carrying amount on the balance sheet exceeds its recoverable amount (higher of fair value less costs to sell and value in use).
Impairment Loss
The amount by which the carrying amount of an asset exceeds its recoverable amount.
Income from House Property
A head of income under the Income Tax Act covering income earned from the ownership of buildings or land appurtenant thereto.
Income Statement
A financial statement showing an entity's revenues, expenses, and resulting profit or loss over a period.
Income Tax
A direct tax levied by the government on the income or profits of individuals and corporations, as per the Income Tax Act, 1961 in India.
Ind AS (Indian Accounting Standards)
A set of accounting standards converged with International Financial Reporting Standards (IFRS), notified by the Ministry of Corporate Affairs (MCA) for Indian companies.
Independent Director
A non-executive director of a company who helps the company in improving corporate credibility and governance standards. They do not have any material pecuniary relationship with the company.
Indirect Tax
A tax levied on goods and services rather than on income or profits, ultimately borne by the end consumer.
Inflation
A general increase in prices and fall in the purchasing value of money over time, often measured by indices like the Consumer Price Index (CPI).
Inherent Risk
The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, before consideration of any related controls.
Initial Public Offering (IPO)
The first time a private company offers its shares to the public, allowing it to raise capital from public investors and become a publicly traded company.
Injunction
A judicial order issued by a court that compels a party to do or refrain from doing a specific act, often used to prevent irreparable harm.
Input Tax Credit (ITC)
The mechanism in GST where a business can reduce the tax it has already paid on inputs from the tax it has to pay on its outputs.
Insolvency and Bankruptcy Code (IBC), 2016
A comprehensive law in India that provides a time-bound process for resolving insolvency and bankruptcy cases for companies, individuals, and partnership firms.
Intangible Asset
An identifiable non-monetary asset without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
Intangible Assets
Non-physical assets that have future economic value and are expected to provide benefits for more than one year, such as patents, copyrights, trademarks, and goodwill.
Interest
The cost of borrowing money or the return earned on lending money, typically expressed as a percentage of the principal amount over a period.
Interim Dividend
A dividend declared and paid by the board of directors before the annual accounts are finalised.
Internal Audit
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations, helping it accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Internal Control
The process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.
Internal Rate of Return (IRR)
A metric used in capital budgeting to estimate the profitability of potential investments. It is the discount rate that makes the net present value (NPV) of all cash flows equal to zero.
Inventory
Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventory Valuation
The process of assigning a monetary value to the closing stock of an entity, usually at the lower of cost and net realisable value.
Investment
The commitment of money or capital to purchase financial instruments or other assets in the expectation of obtaining a future return or appreciation in value.
J-Curve Effect
A phenomenon observed in international trade where a country's trade balance initially worsens after a currency depreciation before eventually improving, resembling the letter 'J'.
Job Costing
A method of costing applied where work is undertaken to customers' special requirements and each order is of short duration. Costs are collected and accumulated for each job.
Joint Account
A bank account held by two or more individuals, where each individual has full access to the funds and can perform transactions.
Joint and Several Liability
A liability where each party is independently responsible for the full obligation, allowing recovery of the whole amount from any one of them.
Joint Audit
An audit engagement where two or more independent audit firms are appointed to jointly audit the financial statements of an entity, often for large public sector undertakings or complex entities.
Joint Product
Two or more products produced simultaneously by the same process up to a 'split-off' point, where each product has significant sales value.
Joint Stock Company
A company whose capital is divided into transferable shares held by its members with limited liability.
Joint Venture
A contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control.
Journal
The book of original entry in which transactions are first recorded in chronological order.
Journal Entry
The record of a business transaction in the books of original entry, showing the accounts debited and credited.
Judgmental Sampling
A non-statistical audit sampling method in which items are selected based on the auditor's professional judgement.
Judicial Review
The process by which courts examine the actions of the legislative and executive branches of government to determine whether they are consistent with the constitution or other laws.
Junk Bond
A high-yield, high-risk bond issued by companies with lower credit ratings, offering higher interest rates to compensate investors for the increased risk of default.
Jurisdiction
The official power or authority of a court or other legal body to hear and determine cases, or the geographical area over which such power extends, crucial for tax applicability and legal compliance.
Kaizen Costing
A cost management approach focused on achieving continuous, incremental cost reductions during the manufacturing stage of a product.
Karta
The eldest male member of a Hindu Undivided Family (HUF) who manages its affairs and assets, acting as its legal representative and having significant powers over the family property.
Key Audit Matters (KAM)
Those matters that, in the auditor's professional judgement, were of most significance in the audit of the financial statements and are communicated in the audit report.
Key Audit Matters (KAMs)
Those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period, communicated in the auditor's report as per SA 701.
Key Financial Ratios
Quantitative tools derived from a company's financial statements to assess its performance, liquidity, solvency, efficiency, and profitability, crucial for financial analysis and decision-making.
Key Man Insurance
A life insurance policy taken out by a business on its most important employees (e.g., founders, top executives, key technical staff) whose death or disability would cause significant financial loss to the company.
Key Management Personnel (KMP)
As per the Companies Act, 2013, KMP includes the Chief Executive Officer (CEO), Managing Director (MD), Company Secretary, Chief Financial Officer (CFO), and Whole-time Director, who have significant authority and responsibility in the company.
Key Managerial Personnel (KMP)
Officers such as the CEO, CFO, Managing Director, and Company Secretary who are responsible for the management of a company under the Companies Act.
Key Performance Indicators (KPIs)
Quantifiable measures used to evaluate the success of an organization, department, or individual in meeting specific objectives, often used in financial analysis and management reporting.
Key Risk Indicators (KRIs)
Metrics used to provide an early signal of increasing risk exposure in various areas of an organization, allowing for proactive risk management and timely intervention.
Key Stakeholders
Individuals or groups who have an interest in the success of an organization and can affect or be affected by its actions, including employees, customers, investors, suppliers, creditors, government, and the community.
Kisan Vikas Patra (KVP)
A small savings scheme in India, offered by India Post, where the invested amount doubles in a pre-specified period (currently 124 months), providing a fixed rate of return and tax benefits under Section 80C on investment.
Kiting
A fraudulent practice of exploiting the float time between banks by drawing on uncollected funds to conceal a shortage.
Know Your Customer (KYC)
A regulatory process of verifying the identity of clients to prevent money laundering and fraud.
Knowledge Process Outsourcing (KPO)
The outsourcing of core, information-related business activities that require advanced analytical and technical skills, often involving research, data analysis, and specialized expertise.
Lease
A contract outlining the terms under which one party agrees to rent property owned by another party. In accounting, under Ind AS 116, most leases are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability.
Ledger
The principal book of accounts in which transactions are classified and posted from the journal under separate account heads.
Ledger Posting
The process of transferring entries from the journal to the respective accounts in the ledger.
Legal Entity
A person or organization that has legal rights and obligations, such as the ability to enter into contracts, sue, and be sued, separate from its owners or members.
Letter of Credit (LC)
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. Often used in international trade.
Leverage
The use of fixed-cost sources of finance, such as debt, to magnify the returns to equity shareholders.
Liability
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Lien
A right to retain possession of another person's property until a debt owed by that person is discharged.
LIFO (Last In First Out)
An inventory valuation method that assumes the most recently purchased stock is sold first.
Limited Liability Partnership (LLP)
A body corporate that combines the flexibility of a partnership with the limited liability of a company.
Liquidation
The process of bringing a business to an end and distributing its assets to claimants. It occurs when a company is insolvent or by choice of the shareholders.
Liquidity
The ease with which an asset or security can be converted into cash without affecting its market price. For a business, it refers to its ability to meet short-term financial obligations.
Liquidity Ratio
A ratio that measures an entity's ability to meet its short-term obligations from its liquid assets.
Listed Company
A company whose shares or other securities are traded on a recognized stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) in India.
Loan
A sum of money lent by one party to another, typically with an agreement for repayment along with interest over a specified period.
Long-Term Capital Gain
The profit arising from the transfer of a capital asset held for more than the prescribed period, taxed at concessional rates.
Long-term Capital Gains (LTCG)
Profit arising from the sale of a capital asset (like shares, property) held for more than a specified period (e.g., 12 months for equity shares, 24/36 months for property in India). These gains are subject to specific tax rates.
Long-term Debt
Financial obligations that are due for repayment more than one year from the date of the balance sheet. Examples include debentures, long-term bank loans, and bonds.
Loss
In accounting, it's the excess of expenses over revenues for a period. In taxation, it refers to a negative income, which can sometimes be carried forward or set off against future profits.
Macroeconomics
The branch of economics that studies the behavior and performance of an economy as a whole. It focuses on aggregate changes in the economy such as unemployment, growth rate, gross domestic product, and inflation.
Management Representation Letter
A written letter provided by management to the auditor to confirm certain matters or to support other audit evidence, taking responsibility for the financial statements.
Managerial Remuneration
The total compensation paid to key managerial personnel (KMP) of a company, including directors, managing directors, and whole-time directors, subject to limits prescribed by the Companies Act, 2013 in India.
Margin of Safety
The difference between actual or expected sales and sales at the break-even point. It represents the cushion a company has before it starts making a loss.
Marginal Costing
A costing system where only variable costs are charged to cost units, and the fixed costs of the period are written off in full against the aggregate contribution.
Market Capitalization
The total value of a company's outstanding shares, calculated by multiplying the current share price by the total number of shares issued. It represents the market's valuation of the company.
Matching Principle
An accounting principle that requires expenses to be recognized in the same accounting period as the revenues they helped generate, ensuring a proper measure of periodic income.
Materiality
Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
Memorandum of Association (MoA)
The fundamental legal document of a company containing its name, registered office, objects, liability, and capital clauses. It defines the scope of the company's activities.
Merger
The combination of two or more companies into a single entity, with one absorbing the other or a new entity being formed.
Microeconomics
The branch of economics that studies the behaviour of individual consumers, firms, and markets.
Minimum Alternate Tax (MAT)
A tax levied on companies in India to ensure that companies making large book profits but paying no tax due to various exemptions, pay a minimum amount of tax.
Minority Interest (Non-controlling Interest)
The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent company. It is presented in the consolidated financial statements.
Misstatement
A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure required for the item to be in accordance with the applicable financial reporting framework.
Modified Opinion (Audit Report)
An audit opinion issued when the auditor concludes that the financial statements are not free from material misstatements or when there is insufficient appropriate audit evidence. It can be qualified, adverse, or a disclaimer of opinion.
Monetary Unit Assumption
An accounting principle that states that only transactions and events that can be expressed in monetary terms are recorded in the financial statements. It also assumes the monetary unit is stable.
Money Market
A segment of the financial market where short-term borrowing and lending (typically for periods up to one year) take place, dealing in highly liquid, short-term debt instruments.
Money Measurement Concept
An accounting principle that only transactions capable of being expressed in monetary terms are recorded in the books.
Mutual Fund
A professionally managed investment fund that pools money from multiple investors to purchase a diversified portfolio of securities like stocks, bonds, and other assets.
NCLT (National Company Law Tribunal)
A quasi-judicial body in India established under the Companies Act, 2013, to adjudicate matters related to Indian companies, including insolvency, mergers, and disputes.
Negative Confirmation
An audit procedure where the auditor requests the recipient to respond directly to the auditor only if they disagree with the information stated (e.g., account balance). It is used when the risk of material misstatement is low.
Net Income
The amount of profit a company has left after subtracting all expenses, including taxes, from its total revenue. Also known as the bottom line.
Net Present Value (NPV)
The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to analyze the profitability of a projected investment or project.
Net Profit
The final profit of an entity after deducting all expenses, including taxes and interest, from total revenue.
Net Realisable Value (NRV)
The estimated selling price of an asset in the ordinary course of business less the estimated costs of completion and sale.
Net Taxable Income
The portion of an individual's or entity's gross income that is subject to income tax, after all allowable deductions, exemptions, and adjustments have been applied.
Net Working Capital
The difference between current assets and current liabilities, indicating short-term financial health.
Net Worth
The value of all assets owned by an individual or entity minus all liabilities owed. For a company, it represents the shareholders' equity.
Nominal Account
An account relating to incomes, expenses, gains, and losses that is closed at the end of each accounting period.
Nominee Director
A director appointed by a financial institution, government, or a specific shareholder to represent their interests on the board of a company.
Non-Current Assets
Assets that are not expected to be converted into cash or consumed within one year or one operating cycle, whichever is longer. Also known as fixed assets or long-term assets.
Non-Current Liabilities
Obligations that are not expected to be settled within one year or one operating cycle, whichever is longer. Also known as long-term liabilities.
Non-Executive Director
A director who is not involved in the day-to-day management of the company and does not hold an executive position. They provide independent oversight and strategic guidance.
Non-Performing Asset (NPA)
A loan or advance on which principal or interest has remained overdue for a specified period, usually 90 days.
Non-Resident Indian (NRI)
An Indian citizen who resides outside India for a specified period as per the Income Tax Act, 1961, making their taxability in India different from resident Indians.
Non-Sampling Risk
The risk that an auditor reaches an erroneous conclusion for any reason not related to sampling risk. It includes human errors, misinterpretation of evidence, or inappropriate audit procedures.
Notes Payable
A written promise to pay a specific amount of money on a specific future date, usually with interest. It is a formal debt instrument.
Notes to Accounts
Additional disclosures accompanying the financial statements that explain the accounting policies and provide detail on line items.
Notional Income
Income that is not actually received in cash but is deemed to be received for the purpose of taxation, as per specific provisions of the Income Tax Act.
Notional Profit
A book profit computed for a particular purpose, such as in contract costing, that does not represent an actual realised gain.
Novation
The substitution of a new contract or party in place of an existing one, with the consent of all parties.
Observation (Auditing)
An audit procedure where the auditor watches a process or procedure being performed by others to obtain audit evidence about its execution and effectiveness. It helps in understanding internal controls.
Off-Balance Sheet Financing
A method of raising finance that does not appear as a liability on the balance sheet, such as operating leases.
Officer in Default
As per the Companies Act, 2013, this refers to specific individuals (e.g., Managing Director, Whole-time Director, Key Managerial Personnel, or any director who is aware of non-compliance) who are held liable for non-compliance with the Act's provisions.
Operating Activities
Cash flows arising from the primary revenue-generating activities of an enterprise and other activities that are not investing or financing activities. These are crucial for assessing a company's core business performance.
Operating Cycle
The time it takes a company to buy goods, sell them, and receive cash from the sale of said goods.
Operating Lease
A lease that does not transfer substantially all the risks and rewards incidental to ownership of the asset to the lessee.
Operating Profit
The profit earned from an entity's core business operations, before interest and tax.
Operating Profit (EBIT)
Earnings Before Interest and Taxes. It represents the profit generated from a company's core operations before accounting for financing costs and income taxes, indicating operational efficiency.
Opinion (Audit)
The auditor's conclusion, expressed in the audit report, on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework (e.g., Ind AS).
Opportunity Cost
The value of the next highest-valued alternative use of that resource. If you choose one alternative, the opportunity cost is the value of the alternative you gave up.
Oppression and Mismanagement
Legal provisions under Sections 241-246 of the Companies Act, 2013, allowing minority shareholders to seek relief from the National Company Law Tribunal (NCLT) when the affairs of the company are conducted in a manner prejudicial to public interest or oppressive to any member(s).
Option
A financial derivative contract that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) on or before a specific date.
Ordinary Resolution
A resolution passed by a simple majority of members present and voting at a general meeting.
Ordinary Shares
Shares that carry voting rights and entitle the holder to dividends after preference shareholders have been paid.
Other Sources (Income from)
Under the Indian Income Tax Act, 1961, this is a residual head of income that includes any income not specifically taxable under the other four heads (Salaries, House Property, Business/Profession, Capital Gains).
Output Tax
The GST charged by a registered person on the taxable supply of goods or services made by them.
Outstanding Expenses
Expenses that have been incurred during an accounting period but have not yet been paid. They are treated as current liabilities in the balance sheet, reflecting an obligation to pay in the near future.
Overall Materiality
The maximum amount of misstatement or omission that could individually or in aggregate influence the economic decisions of users taken on the basis of the financial statements as a whole. It guides the scope of the audit.
Overdraft
A short-term credit facility provided by banks, allowing an account holder to withdraw money even if the account balance goes below zero, up to a pre-approved limit. It's a flexible financing option for working capital needs.
Overhead
Indirect costs of production such as rent, power, and supervision that cannot be traced directly to a specific product.
Overtrading
A situation where a business expands its operations beyond the capacity of its available working capital.
Owner's Equity
The residual claim on the assets of a business after deducting all its liabilities. It represents the owners' stake in the company, comprising capital contributed and accumulated profits.
Paid-up Capital
The amount of money a company has received from shareholders in exchange for shares. It is the portion of the authorized capital that has been subscribed and paid for by investors.
Partnership Firm
A business structure where two or more individuals agree to share profits or losses of a business carried on by all or any of them acting for all. Governed by the Indian Partnership Act, 1932.
Peer Review
An examination of a CA firm's quality control system and its adherence to technical and ethical standards, conducted by an independent peer (another practicing CA).
Permanent Differences
Differences between taxable income and accounting profit that will not reverse in future periods. They arise when certain items are included in accounting profit but never in taxable income, or vice-versa.
Perquisite
Any casual emolument, fee, or profit attached to an office or position in addition to salary or wages. Commonly referred to as 'perks'.
Perquisites
Benefits or amenities provided by an employer to an employee in addition to their regular salary, which are taxable under the head 'Salaries' in the Income Tax Act, 1961.
Pledge
A type of bailment where a debtor (pledgor) transfers possession of goods to a creditor (pledgee) as security for a debt or performance of a promise. Ownership remains with the pledgor.
Preference Shares
A type of share capital that carries preferential rights over equity shares regarding dividend payment and repayment of capital during liquidation.
Prepaid Expenses
Expenses paid in advance for which the benefits will be received in a future accounting period. They are treated as an asset until consumed.
Presumptive Taxation
A scheme under the Income Tax Act allowing small taxpayers to declare a prescribed percentage of their turnover as income, relieving them from maintaining detailed books of accounts.
Prior Period Items
Income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.
Private Placement
An offer of securities or invitation to subscribe to securities to a select group of persons (not exceeding 200 in a financial year, excluding QIBs and employees under ESOP) by a company, other than by way of public offer.
Process Costing
A method of costing used to ascertain the cost of a product at each stage of manufacture where material is passed through various continuous operations or processes.
Professional Ethics
A set of moral principles and values that guide the conduct of professionals, particularly in fields like Chartered Accountancy, ensuring integrity, objectivity, confidentiality, and professional competence.
Professional Skepticism
An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Profit and Loss Account (P&L)
A financial statement that summarizes the revenues, costs, and expenses incurred during a specific accounting period, showing the company's financial performance.
Promoter
A person who has been named as such in a prospectus or is identified by the company in the annual return, or who has control over the affairs of the company.
Prospectus
Any document described or issued as a prospectus and includes a red herring prospectus or shelf prospectus or any notice, circular, advertisement, or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.
Provision
A liability of uncertain timing or amount. It is recognized when an entity has a present obligation as a result of a past event, and it is probable that an outflow of resources will be required.
Provisional Assessment
An assessment made by a tax authority on a temporary basis when the final assessment cannot be completed immediately due to lack of information or ongoing disputes, allowing for tax collection based on available information.
Provisions
Liabilities of uncertain timing or amount. They are recognized when an entity has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made.
Prudence Concept
An accounting principle that dictates that when in doubt, accountants should err on the side of caution, anticipating no profits but providing for all probable losses.
Public Company
A company that is not a private company, typically one whose shares are traded on a stock exchange and can be purchased by the general public.
Public Provident Fund (PPF)
A long-term savings-cum-investment scheme in India, backed by the government, offering tax benefits under Section 80C of the Income Tax Act, 1961, with a 15-year lock-in period.
Purchase Consideration
The total value paid by an acquiring company to the selling company or its shareholders for the acquisition of a business or assets. It can be paid in cash, shares, or other assets.
Qualified Institutional Buyer (QIB)
A category of sophisticated institutional investors, as defined by SEBI regulations in India, such as mutual funds, foreign institutional investors, and scheduled commercial banks, who are eligible to participate in certain capital market issues.
Qualified Opinion
An audit opinion expressed when misstatements are material but not pervasive, or the auditor is unable to obtain sufficient evidence.
Qualifying Asset
An asset that necessarily takes a substantial period of time to get ready for its intended use or sale, for which borrowing costs may be capitalised.
Qualitative Characteristics
The attributes that make accounting information useful to users, primarily relevance (information capable of making a difference in decisions) and faithful representation (complete, neutral, and free from error).
Quality of Earnings
An assessment of the sustainability, reliability, and transparency of a company's reported earnings, often scrutinizing accounting policies and practices to identify any aggressive or manipulative methods that might inflate profits.
Quantifiable Risk
A type of risk that can be measured and expressed numerically, often using statistical models, probability distributions, or financial metrics, allowing for more objective risk management and decision-making.
Quantitative Analysis
The application of mathematical and statistical methods to analyze financial data, identify patterns, and make investment or business decisions.
Quantity Variance
The difference between the standard and actual quantity of materials used, valued at the standard price.
Quarterly Financials
Financial statements, including the Balance Sheet, Profit & Loss Account, and Cash Flow Statement, prepared and published by listed companies every three months to provide timely information on their performance and financial position.
Quasi-Capital
Financial instruments that possess characteristics of both debt and equity, such as preference shares, convertible debentures, or subordinated debt, often used to strengthen a company's capital base without diluting ownership immediately.
Quasi-Contract
An obligation imposed by law to prevent unjust enrichment, in the absence of an actual agreement between the parties.
Quasi-Reorganization
A procedure, typically approved by shareholders and regulatory bodies, where a company with a significant accumulated deficit restates its assets and liabilities to fair value and eliminates the deficit, without undergoing formal liquidation and re-establishment.
Query (Auditing)
A formal or informal question raised by an auditor to management or staff, seeking clarification, additional information, or supporting documentation for a specific transaction, account balance, or internal control process.
Questioned Costs
Costs identified during an audit, particularly in government contracts or grant audits, that are deemed unallowable, unreasonable, or not in compliance with applicable laws, regulations, or contract terms.
Quick Ratio
A liquidity ratio measuring the ability to meet short-term liabilities with the most liquid assets, excluding inventory.
Quick Ratio (Acid-Test Ratio)
A stringent liquidity ratio that measures a company's ability to meet its short-term obligations using only its most liquid assets (current assets minus inventory and prepaid expenses) relative to its current liabilities.
Quorum
The minimum number of members of a deliberative assembly (like a Board of Directors or general meeting) necessary to conduct the business of that group.
Quotation
A formal statement of the price at which a supplier is willing to sell goods or services.
Quoted Company
A public company whose shares or other securities are listed and actively traded on a recognized stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) in India.
Ratio Analysis
A technique of analysing financial statements by computing and interpreting relationships between figures.
Receivables
Amounts owed to a business by its customers or other entities for goods or services delivered or performed, or for other claims. These are current assets on the balance sheet.
Reconciliation
The process of ensuring that two sets of records (e.g., internal records and external statements) are in agreement. It involves identifying and explaining any differences to ensure accuracy.
Rectification of Errors
The process of correcting mistakes made while recording, classifying, or summarising accounting transactions.
Redemption
The act of repaying a debt instrument (like a bond or debenture) or repurchasing shares (like preference shares) at or before their maturity date, as per the terms of issue.
Registered Valuer
An individual or entity registered with the Insolvency and Bankruptcy Board of India (IBBI) to conduct valuations of assets or liabilities as required under various laws, including the Companies Act, 2013 and IBC.
Regulatory Compliance
The act of adhering to laws, regulations, guidelines, and specifications relevant to a business. In India, this includes compliance with SEBI, RBI, MCA, Income Tax Act, GST laws, and other sector-specific regulations.
Related Party Transaction
A transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
Related Party Transactions
Transactions between two parties that are connected by a special relationship, such as common ownership, control, or significant influence. These require specific disclosure under Ind AS 24 and Section 188 of the Companies Act, 2013.
Reserve
An amount set aside out of profits to strengthen the financial position or meet future contingencies.
Reserves and Surplus
A component of shareholders' equity on the balance sheet, representing accumulated profits not distributed as dividends, and other reserves created out of profits or share premium, such as General Reserve, Capital Reserve, etc.
Residual Value
The estimated amount an entity would obtain from the disposal of an asset at the end of its useful life, net of disposal costs.
Resolution Professional
An insolvency professional appointed under the Insolvency and Bankruptcy Code, 2016 (IBC) to manage the affairs of a corporate debtor during the Corporate Insolvency Resolution Process (CIRP) or liquidation.
Retained Earnings
The accumulated portion of a company's net profits that is reinvested in the business rather than distributed as dividends.
Return on Equity (ROE)
A measure of financial performance calculated by dividing net income by shareholders' equity. It shows how efficiently management is using equity to generate profit.
Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. It measures the amount of return on an investment relative to its cost.
Revaluation Reserve
A reserve created when the value of an asset is increased over its historical cost due to revaluation to fair market value.
Revenue Audit
An audit specifically focused on examining the revenue cycle of an entity to ensure that all revenue is properly recognized, recorded, and collected, and to identify any potential leakages or misstatements.
Revenue Recognition
The accounting principle determining the timing and amount at which revenue is recorded in the financial statements.
Reverse Charge Mechanism (RCM)
Under GST, the liability to pay tax rests on the recipient of the goods or services rather than the supplier.
Rights Issue
An invitation to existing shareholders to purchase additional new shares in the company in proportion to their current holdings. It's a way for companies to raise capital without diluting the ownership percentage of existing shareholders significantly.
Sampling Risk
The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.
Secretarial Audit
A process to check compliance with the provisions of various laws and regulations, including the Companies Act, SEBI regulations, and other corporate laws, conducted by a Company Secretary in Practice for specified companies.
Section 80C
A section under the Indian Income Tax Act, 1961, that allows individuals and Hindu Undivided Families (HUFs) to claim deductions from their gross total income for investments in specified instruments and certain expenses, up to a maximum limit (currently ₹1.5 lakh).
Segment Reporting
The reporting of the operating segments of a company in the disclosures accompanying its financial statements, breaking down revenues, profits, and assets by division.
Self-Assessment Tax
The tax paid by an assessee on the income computed by them after adjusting for TDS (Tax Deducted at Source), TCS (Tax Collected at Source), and advance tax, before filing their income tax return.
Set-off and Carry Forward
The mechanism in income tax allowing a taxpayer to adjust losses from one source against income from another, and to carry forward unadjusted losses to future years.
Set-off and Carry Forward of Losses
Provisions in income tax law allowing an assessee to adjust current year's losses against other current year's income (set-off) or against future years' income (carry forward) to reduce taxable income.
Share Capital
The capital raised by a company from its shareholders through the issue of shares, representing the ownership stake in the company. It includes equity share capital and preference share capital.
Special Resolution
A resolution passed by a company's shareholders requiring a majority of not less than three-fourths (75%) of the votes cast by members present and voting, as per the Companies Act, 2013.
Standard Costing
A control technique that reports variances by comparing actual costs to pre-set standards facilitating management by exception.
Statement of Cash Flows
A financial statement that reports the cash generated and used by a company during a period, categorized into operating, investing, and financing activities.
Statutory Audit
A legally required review of the accuracy of a company's or government's financial statements and records by an independent external auditor.
Straight-line Depreciation
A method of depreciation that allocates an equal amount of an asset's depreciable cost (cost minus salvage value) over its useful life.
Subsequent Events
Events occurring between the date of the financial statements and the date of the auditor's report, and facts that become known to the auditor after the date of the auditor's report.
Subsidiary Company
A company whose control is held by another company (the holding or parent company), typically through ownership of more than 50% of its voting share capital or control over its board of directors.
Substance over Form
An accounting principle that dictates that transactions and events should be accounted for and presented according to their economic reality and not merely their legal form.
Substantive Procedures
Audit procedures designed to detect material misstatements at the assertion level. They comprise tests of details (classes of transactions, account balances, and disclosures) and substantive analytical procedures.
Sufficiency and Appropriateness of Audit Evidence
Sufficiency refers to the quantity of audit evidence, while appropriateness refers to its quality (relevance and reliability). Both are crucial for the auditor to form an opinion.
Sunk Cost
A cost that has already been incurred and cannot be recovered. It should not be considered in future decision-making as it is irrelevant to current choices.
Surcharge
An additional tax levied on the tax payable, applicable usually when the total income exceeds a specified threshold.
Sweat Equity
Non-monetary contribution that individuals or founders make towards a venture, compensated by issuing shares at a discount or for consideration other than cash.
Sweat Equity Shares
Equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property.
Systematic Risk
The risk inherent to the entire market or market segment, also known as non-diversifiable risk or market risk. It cannot be eliminated through diversification.
Takeover Code
Refers to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which govern the acquisition of shares and control of listed companies in India, ensuring transparency and protecting minority shareholders' interests.
Tangible Asset
A physical asset with a monetary value, such as land, buildings, plant, and machinery.
Tangible Assets
Physical assets that have a definite physical form, can be touched, and are used in the business for more than one accounting period to generate revenue.
Tax Audit
An examination of a taxpayer's books of accounts and other records by a Chartered Accountant, mandated under Section 44AB of the Income Tax Act, 1961, if their turnover/gross receipts exceed prescribed limits.
Tax Avoidance
The legal usage of the tax regime to one's own advantage to reduce the amount of tax that is payable by means that are within the law.
Tax Collected at Source (TCS)
A mechanism under the Income Tax Act, 1961, where a seller collects tax from the buyer at the time of sale of certain goods (e.g., scrap, timber, motor vehicles) or services, and remits it to the government.
Tax Deducted at Source (TDS)
A mechanism under the Income Tax Act, 1961, where a person making certain payments (e.g., salary, rent, professional fees) deducts tax at prescribed rates before making the payment and remits it to the government.
Taxable Event
An event or transaction that triggers a tax liability under a specific tax law, making it subject to taxation.
TDS (Tax Deducted at Source)
A means of collecting income tax in India, under the Indian Income Tax Act of 1961, requiring the payer to deduct tax before making specific payments like salary, rent, or professional fees.
Term Loan
A loan provided by a financial institution for a specific period (term), typically more than one year, with a fixed or floating interest rate and a structured repayment schedule.
Total Income
For income tax purposes, it is the aggregate of income computed under the five heads of income (Salaries, House Property, Business/Profession, Capital Gains, Other Sources), after making adjustments for set-off of losses and deductions under Chapter VI-A.
Trade Discount
A reduction in the list price of goods allowed by a seller to a buyer, not recorded separately in the books.
Trade Payables
Amounts owed by a business to its suppliers for goods or services purchased on credit in the normal course of business, typically short-term liabilities.
Trade Receivables
Amounts owed to a business by its customers for goods or services sold on credit in the normal course of business, typically short-term assets.
Trading Account
An account prepared to determine the gross profit or loss from the buying and selling of goods during a period.
Transfer Pricing
The rules and methods for pricing transactions within and between enterprises under common ownership or control, typically across different tax jurisdictions.
Transfer Pricing Officer (TPO)
A specialized tax officer tasked with determining the arm's length price of international or specified domestic transactions to prevent base erosion and profit shifting.
Treasury Bills (T-Bills)
Short-term debt instruments issued by the Government of India, typically for periods of 91, 182, or 364 days, to meet its short-term funding requirements. They are zero-coupon instruments.
Treasury Stock
A company's own shares that have been repurchased and are held by the company rather than cancelled.
Trial Balance
A statement listing the debit and credit balances of all ledger accounts to check the arithmetical accuracy of the books.
True and Fair View
The fundamental concept in auditing that financial statements should accurately reflect the reality of a company's financial position and performance, without material misstatement.
Turnover
The total value of sales of goods and services during a specific accounting period, often referred to as 'revenue from operations' in financial statements.
UIN (Unique Identification Number)
Under India's GST regime, a special identification number issued to certain specified entities (e.g., UN bodies, embassies, foreign consulates) that are not liable to pay GST but need to claim a refund of taxes paid on inward supplies.
Ultra Vires
Latin for 'beyond the powers.' In corporate law, it refers to acts undertaken by a company that are beyond the scope of its powers as defined in its Memorandum of Association or by statute.
Unabsorbed Depreciation
Depreciation that could not be set off against income in a year and is carried forward to subsequent years under income tax law.
Under-capitalization
A situation where a company has insufficient capital (equity and/or debt) to support its operations, growth, or meet its financial obligations, leading to financial instability and potential business failure.
Underwriting
An agreement by which an underwriter undertakes to subscribe to any shares or debentures not taken up by the public.
Unearned Income
Income received in advance for which the related goods or services are yet to be provided.
Unearned Revenue
A liability account representing cash received from customers for goods or services that have not yet been delivered or performed. It is also known as deferred revenue.
Unilateral Relief
A mechanism provided in the domestic tax laws of a country to relieve double taxation, even in the absence of a Double Taxation Avoidance Agreement (DTAA) with the other country involved.
Unit Cost
The total cost incurred by a company to produce, store, and sell one unit of a particular product or service. It includes direct materials, direct labour, and manufacturing overhead.
Unlisted Company
A company whose shares are not traded on a recognized stock exchange (like BSE or NSE). Its shares are typically held by a small group of investors, founders, or private equity firms.
Unpaid Dividend Account
As per the Companies Act, 2013, if a dividend declared by a company remains unpaid or unclaimed for 30 days from the date of declaration, it must be transferred to a special 'Unpaid Dividend Account' within 7 days thereafter.
Unqualified Opinion
A clean audit opinion expressed when the financial statements give a true and fair view in accordance with the applicable framework.
Unrealised Gain
An increase in the value of an asset that has not yet been realised through a sale or settlement.
Unrealized Gain/Loss
A profit or loss on an investment that has not yet been sold. It exists only on paper as the asset's market value has changed but the transaction has not been completed.
Unsecured Creditor
A creditor whose claim is not secured by any charge over the assets of the debtor.
Unsecured Loan
A loan that is not backed by any collateral or charge on the assets of the borrower.
Useful Life
The period over which an asset is expected to be available for use by an entity, used to compute depreciation.
Valid Contract
An agreement that is legally binding and enforceable in a court of law, possessing all essential elements such as offer, acceptance, lawful consideration, capacity of parties, free consent, and lawful object.
Valuation
The systematic process of estimating the economic value of an asset, liability, or an entire business. It is crucial for investment decisions, mergers & acquisitions, financial reporting, and taxation.
Valuation of Goodwill
The process of determining the monetary worth of a firm's goodwill, often at the time of admission, retirement, or amalgamation.
Valuation Reserve
A component of equity in financial statements, representing unrealized gains or losses arising from the revaluation of certain assets (e.g., property, plant, and equipment under revaluation model) or fair value changes of financial instruments.
Value Added
The difference between the value of a firm's output and the cost of bought-in materials and services.
Value Added Tax (VAT)
An indirect tax levied on the value added at each stage of production and distribution of goods and services. It is ultimately borne by the final consumer. (In India, GST replaced VAT for most goods and services).
Value Chain Analysis
A business management concept that describes the full range of activities needed to create a product or service. It helps identify sources of competitive advantage by examining primary activities (e.g., operations, marketing) and support activities (e.g., HR, technology).
Variable Cost
A cost that changes in direct proportion to the level of output or activity.
Variance Analysis
The process of analysing the differences between standard (budgeted) costs and actual costs.
Venture Capital
Financing provided to early-stage, high-potential companies in exchange for an equity stake.
Verification (of Assets & Liabilities)
An auditing process to confirm the existence, ownership, valuation, and proper presentation of assets and liabilities in the financial statements. It ensures that recorded balances are accurate and supported by evidence.
Vertical Analysis
A technique of expressing each item in a financial statement as a percentage of a base figure, such as total sales or total assets.
Vesting
The process by which an employee earns full ownership rights to benefits, typically stock options or retirement plan contributions, over a period of time or upon meeting certain conditions.
Virtual Digital Asset (VDA)
As per Indian tax laws, any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, providing a digital representation of value exchanged with or without consideration, with the promise or expectation of a store of value or income or profit, and includes NFTs and other similar assets.
Void Contract
An agreement that lacks legal enforceability from its inception, meaning it was never valid and cannot be enforced by law. It is often due to illegality, impossibility of performance, or lack of capacity.
Voluntary Winding Up
A method of dissolving a company initiated by its members (shareholders) or creditors, without the intervention of a court, typically when the company is solvent or unable to continue its business due to losses.
Voting Rights
The entitlement of a shareholder to vote on matters of corporate policy at general meetings.
Voucher
A documentary evidence supporting a business transaction, on the basis of which entries are recorded.
Vouching
The practice of reviewing documentary evidence to see if it supports the entries made in the accounting records.
Wages
Compensation paid to employees, typically on an hourly, daily, or weekly basis, for their labor or services.
Warrants
A long-term option to buy a company's stock at a predetermined price, usually issued in conjunction with bonds or preferred stock, providing the holder with the right, but not the obligation, to purchase shares.
Warranty
A guarantee made by a seller to a buyer that the product or service will meet certain specifications or standards, often requiring the seller to repair or replace it if defects arise within a specified period. In accounting, it creates a contingent liability.
Warranty Provision
A liability recognised for the estimated cost of honouring warranty obligations on goods already sold.
Wash Sale
A tax rule that prevents an investor from claiming a loss on the sale of a security if they repurchase a 'substantially identical' security within 30 days before or after the sale, to avoid artificial tax losses.
Wasting Asset
A natural resource asset, such as a mine or oil well, that is depleted through extraction over time.
Wealth Maximisation
The financial objective of increasing the market value of a firm and thereby the wealth of its shareholders.
Weighted Average Cost of Capital (WACC)
The average rate of return a company is expected to pay to all its security holders, weighted by their proportion in the capital structure.
Weighted Average Method
An inventory valuation method that values stock at the average cost of all units available for sale during the period.
Weighted Average Method (Inventory)
An inventory costing method that uses the average cost of all goods available for sale during a period to determine the cost of goods sold and the value of ending inventory.
Whistleblower Policy
A formal policy established by an organization to encourage employees to report unethical, illegal, or improper conduct without fear of retaliation, often mandated by corporate governance regulations to promote transparency.
Wholly Owned Subsidiary
A company whose common stock is 100% owned by another company (the parent company), giving the parent complete control over its operations and management.
Winding Up
The process of bringing a company to an end, realizing its assets, paying off its liabilities, and distributing the surplus, if any, among members.
Winding Up (Liquidation)
The process of dissolving a company, involving the realization of assets, payment of liabilities, and distribution of any remaining surplus to shareholders, leading to the cessation of its legal existence.
Window Dressing
Accounting practices used to make a company's financial statements appear more favorable than they actually are, often by manipulating figures or timing transactions, especially at year-end, to mislead stakeholders.
Withholding Tax
Tax deducted at source from payments such as interest, dividends, or fees before they reach the recipient.
Work-in-Progress (WIP)
Partly finished goods that are still in the production process and not yet ready for sale.
Working Capital
The capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.
Working Capital Management
The effective management of current assets and current liabilities to ensure a company has sufficient liquidity to meet its short-term obligations while maximizing profitability and efficient use of resources.
Write-down
The act of reducing the book value of an asset because its fair market value has fallen below its carrying amount, but it still has some value, reflecting a permanent impairment.
Write-Off
The removal of an asset or a bad debt from the books of accounts when it is no longer recoverable.
Wrongful Trading
A concept in corporate law (primarily UK, with similar principles in India) where directors continue to trade a company when they knew or should have known that there was no reasonable prospect of avoiding insolvency, making them personally liable.
X-axis (in financial charts)
In financial charts and graphs, the X-axis typically represents the independent variable, most commonly time (e.g., dates, months, years) for tracking trends.
X-efficiency
A concept referring to the efficiency with which a given set of inputs is used to produce outputs. It measures how close a firm's actual output is to its potential output given its resources and technology.
XBRL (eXtensible Business Reporting Language)
A global standard electronic format for exchanging business and financial reporting data, mandated for filing by certain companies.
Xenocurrency
A currency that is traded in a market outside its domestic jurisdiction. For example, US dollars traded in London are considered xenocurrency.
Year of Assessment (AY)
In Indian taxation, the period of 12 months commencing on April 1st immediately following the financial year (Previous Year) for which income is assessed to tax.
Year-End
The closing date of an entity's accounting period, on which the annual financial statements are prepared.
Year-End Adjustments
Journal entries made at the end of an accounting period to record revenues and expenses in the period in which they occurred, ensuring financial statements comply with the accrual basis of accounting.
Year-on-Year (Y-o-Y)
A common financial comparison method that compares a statistic for one period with the same period in the previous year, often used to eliminate seasonality.
Year-to-Date (YTD)
The period beginning from the start of the current financial year up to the present date, used for reporting.
Yearly Return (Annual Return)
A mandatory annual filing by companies with the Registrar of Companies (RoC) under the Companies Act, providing details about the company's share capital, indebtedness, directors, shareholders, and other statutory information.
Yield
The income return on an investment, expressed as a percentage of its cost or current market value.
Yield Curve
A graph plotting the yields of bonds of equal credit quality against their differing maturity dates.
Yield Gap
The difference between the earnings yield of stocks and the yield on bonds. It's used by investors to compare the relative attractiveness of equities versus fixed-income securities.
Yield Management
A dynamic pricing strategy that aims to maximize revenue by adjusting prices based on demand, capacity, and customer segmentation, particularly for perishable assets or services.
Yield Spread
The difference in yield between two different bonds or bond categories, often used to measure the additional compensation investors receive for taking on greater risk or for differences in liquidity.
Yield to Maturity (YTM)
The total return anticipated on a bond if it is held until it matures, expressed as an annual rate.
Z-Score
A statistical model, developed by Altman, that predicts the probability of a company facing bankruptcy.
Z-Score (Altman Z-Score)
A multivariate formula used to predict the probability of a company going into bankruptcy within two years. It combines five financial ratios (working capital, retained earnings, EBIT, market value of equity, sales) weighted by coefficients.
Zero Base Review
A periodic re-examination of an activity or cost from a zero base to justify its continuation, as used in zero-based budgeting.
Zero Coupon Bond
A bond issued at a discount to its face value that pays no periodic interest, the return being the difference at maturity.
Zero-Balance Account (ZBA)
A checking account that maintains a zero balance by automatically transferring funds from a master account in the exact amount needed to cover checks presented for payment. This optimizes cash management and reduces idle cash.
Zero-Based Budgeting (ZBB)
A method of budgeting in which all expenses must be justified for each new period. The process starts from a 'zero base', and every function within an organization is analyzed for its needs and costs.
Zero-Coupon Bond
A debt instrument that does not pay interest periodically but is sold at a discount to its face value, maturing at par. The investor's return comes from the difference between the purchase price and the face value received at maturity.
Zero-Default Risk
The theoretical absence of risk that a borrower will fail to meet its financial obligations, such as interest payments or principal repayment. Government securities of highly stable economies are often considered to have near zero-default risk.
Zero-Dividend Stock
A stock that has never paid a dividend or has stopped paying dividends. Investors in such stocks typically expect returns through capital appreciation rather than regular income.
Zero-Growth Stock
A stock of a company whose earnings and dividends are expected to remain constant indefinitely. Its value is typically calculated as a perpetuity using the dividend discount model.
Zero-Interest Loan
A loan where the borrower is not charged any interest on the principal amount borrowed. Such loans are often offered for promotional purposes, as a form of subsidy, or between related parties.
Zero-Net-Worth
A financial state where a company's or individual's total assets are equal to their total liabilities, resulting in an equity or net worth of zero. This indicates a precarious financial position, often preceding insolvency.
Zero-Rate (GST)
Under India's Goods and Services Tax (GST) regime, 'zero-rated' supplies are those on which GST is applicable but the rate is 0%. This means no tax is collected from the customer, and the supplier can claim Input Tax Credit (ITC) on inputs used for making such supplies.
Zero-Rated Supply
A taxable supply of goods or services under GST on which tax is charged at 0%, allowing the supplier to claim input tax credit.
Zero-Tax Jurisdiction
A country or territory that imposes no corporate income tax, or very low rates, on certain types of income or for certain entities, often used by multinational corporations for tax planning purposes.
Zombie Company
A company that is able to service the interest on its debt but not the principal, or one that requires bailouts to continue operating. Such companies are typically unprofitable or barely profitable and rely on low-interest rates to survive.
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