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One-liners covering Accountancy and Auditing, for the UPSC EPFO (EO/AO & APFC) exam.

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Part 1: General Accounting Principles & Concepts

  1. Accounting is often called the “language of business.”
  2. GAAP stands for Generally Accepted Accounting Principles.
  3. Entity Concept treats the business and the owner as separate legal entities.
  4. Money Measurement Concept records only transactions that can be expressed in monetary terms (quality of management is ignored).
  5. Going Concern Concept assumes the business will continue for the foreseeable future; this justifies charging depreciation instead of full cost expensing.
  6. Accounting Period Concept divides the life of the business into regular intervals (usually 1 year) for reporting.
  7. Cost Concept (Historical Cost) requires assets to be recorded at their purchase price, not market value.
  8. Dual Aspect Concept is the basis of Double Entry System: Assets = Liabilities + Capital.
  9. Revenue Recognition Concept states revenue is realized when the legal right to receive it arises, not necessarily when cash is received.
  10. Matching Concept requires that expenses incurred to earn revenue must be recognized in the same period as the revenue (basis for accrual accounting).
  11. Full Disclosure Concept requires all significant information to be reported (e.g., contingent liabilities in footnotes).
  12. Consistency Concept implies accounting methods (like depreciation) should remain the same year over year for comparability.
  13. Conservatism (Prudence) Concept states: “Anticipate no profit, but provide for all possible losses” (e.g., Valuing stock at lower of cost or NRV).
  14. Materiality Concept allows ignoring trivial items (like a stapler) as assets, expensing them immediately instead.
  15. Accrual Basis records income when earned and expenses when incurred, regardless of cash flow.
  16. Cash Basis records transactions only when cash is received or paid (not GAAP compliant for companies).
  17. Hybrid Basis is a mix of cash and accrual (often used by professionals like lawyers/doctors).
  18. Double Entry System was first codified by Luca Pacioli in 1494.
  19. Assets are resources owned by the business (Current vs. Non-Current).
  20. Liabilities are obligations owed to outsiders.
  21. Capital (Equity) is the owner’s claim on assets (Assets – Liabilities).
  22. Drawings are cash/goods withdrawn by the owner for personal use (reduces Capital).
  23. Expenditure is money spent; Expense is the portion of expenditure consumed to earn revenue in the current period.
  24. Capital Expenditure (CapEx) yields benefits for >1 year (Purchase of Machinery).
  25. Revenue Expenditure (RevEx) benefits the current period only (Repairs, Salaries).
  26. Deferred Revenue Expenditure is heavy revenue spend with future benefits (e.g., huge advertising launch cost), written off over years.
  27. Receipts: Capital Receipts (Loan taken, Sale of Asset) vs. Revenue Receipts (Sales income).
  28. Fictitious Assets are valueless assets like unwritten-off losses or preliminary expenses (shown on Asset side).
  29. Intangible Assets have no physical form (Goodwill, Patents, Trademarks).
  30. Wasting Assets deplete over time (Mines, Oil wells).
  31. Contingent Liability is a potential obligation depending on an uncertain future event (e.g., a pending lawsuit); shown in footnotes.
  32. Window Dressing is the manipulation of accounts to show a better picture than reality.
  33. Golden Rule (Personal A/c): Debit the Receiver, Credit the Giver.
  34. Golden Rule (Real A/c): Debit what comes in, Credit what goes out.
  35. Golden Rule (Nominal A/c): Debit all expenses/losses, Credit all incomes/gains.
  36. Journal is the “Book of Original Entry” where transactions are recorded chronologically.
  37. Ledger is the “Principal Book” where transactions are classified into accounts (T-format).
  38. Posting is the process of transferring entries from Journal to Ledger.
  39. Folio refers to the page number reference.
  40. Cash Book acts as both a Journal and a Ledger.
  41. Petty Cash Book operates on the Imprest System (fixed float replenished).
  42. Contra Entry involves both Cash and Bank (e.g., Cash deposited into Bank); denoted by ‘C’.
  43. Subsidiary Books (Day Books) are for specific credit transactions (Purchase Book, Sales Book).
  44. Purchase Book records only credit purchases of goods (not assets).
  45. Journal Proper records transactions not covered in other subsidiary books (e.g., Depreciation, Rectification).

Part 2: Financial Statements & Adjustments

  1. Trial Balance is a statement (not an account) checking arithmetical accuracy of ledger balances.
  2. Suspense Account is used to temporarily tally a Trial Balance if errors exist.
  3. Errors of Omission: Transaction completely ignored (Trial Balance still tallies).
  4. Errors of Commission: Wrong amount or wrong side posting (Trial Balance may mismatch).
  5. Errors of Principle: Violating accounting rules (e.g., treating Purchase of Machinery as Purchase of Goods); Trial Balance still tallies.
  6. Compensating Errors: One error hides another; Trial Balance tallies.
  7. Bank Reconciliation Statement (BRS) is prepared by the customer to reconcile Pass Book and Cash Book balances.
  8. Unpresented Cheques: Issued but not yet cleared (Add to CB balance if starting with CB).
  9. Uncredited Cheques: Deposited but not yet collected by bank.
  10. Depreciation is the gradual fall in value of tangible fixed assets due to wear/tear or obsolescence.
  11. Amortization is the gradual write-off of intangible assets.
  12. Depletion applies to wasting assets (mines).
  13. Straight Line Method (SLM) charges constant depreciation on original cost.
  14. Diminishing Balance Method (WDV) charges depreciation on the book value (better for machinery with high repairs later).
  15. Provision is a charge against profit for a known liability of uncertain amount (e.g., Provision for Bad Debts).
  16. Reserve is an appropriation of profit for unknown future needs (General Reserve).
  17. Secret Reserve is created by understating assets or overstating liabilities (Banks/Insurance often use this).
  18. Capital Reserve is created from capital profits (e.g., Premium on issue of shares) and cannot be used for dividends generally.
  19. Sinking Fund is a fund created to repay a liability or replace an asset.
  20. Trading Account reveals Gross Profit/Loss.
  21. Gross Profit = Net Sales – Cost of Goods Sold (COGS).
  22. COGS = Opening Stock + Purchases + Direct Expenses – Closing Stock.
  23. Profit & Loss A/c reveals Net Profit/Loss.
  24. Operating Profit = Net Profit + Non-operating Expenses – Non-operating Incomes.
  25. Balance Sheet reveals the financial position on a specific date.
  26. Marshalling is the arrangement of assets/liabilities in Balance Sheet (Liquidity order vs. Permanence order).
  27. Closing Stock in Trial Balance is taken directly to Balance Sheet (Asset).
  28. Closing Stock outside Trial Balance is adjusted in Trading A/c (Credit) and Balance Sheet (Asset).
  29. Prepaid Expense is a Current Asset.
  30. Outstanding Expense is a Current Liability.
  31. Accrued Income (earned but not received) is a Current Asset.
  32. Unearned Income (received in advance) is a Current Liability.
  33. Bad Debts are irrecoverable receivables (Nominal A/c – Loss).
  34. Provision for Bad Debts is deducted from Debtors in Balance Sheet.

Part 3: Special Accounting Topics (Partnership, Consignment, Shares)

  1. Partnership Deed is the written agreement between partners; if absent, Indian Partnership Act 1932 applies.
  2. In absence of Deed: Profits shared equally, No interest on capital/drawings, Interest on Loan @ 6% p.a.
  3. Fixed Capital Method: Two accounts maintained (Capital + Current).
  4. Fluctuating Capital Method: Only one Capital account maintained.
  5. Sacrificing Ratio (Old Ratio – New Ratio) is used for Goodwill distribution during admission.
  6. Gaining Ratio (New Ratio – Old Ratio) is used during retirement/death.
  7. Revaluation A/c is prepared to revalue assets/liabilities on admission/retirement.
  8. Realization A/c is prepared on Dissolution of a firm to close books.
  9. Garner vs. Murray Rule: Loss due to insolvency of a partner is borne by solvent partners in Capital Ratio.
  10. Consignment: Consignor sends goods to Consignee to sell.
  11. Ownership in Consignment remains with Consignor until goods are sold.
  12. Del Credere Commission is paid to Consignee to bear the risk of Bad Debts.
  13. Account Sales is the periodic statement sent by Consignee to Consignor.
  14. Joint Venture is a temporary partnership for a specific project.
  15. Memorandum Joint Venture A/c is used when separate books are not maintained.
  16. Not-for-Profit Organizations (NPO) prepare Receipts & Payments A/c (like Cash Book) and Income & Expenditure A/c (like P&L).
  17. Subscription is the main income for NPOs.
  18. Authorized Capital is the maximum capital a company can issue.
  19. Paid-up Capital is the actual amount received from shareholders.
  20. Reserve Capital is the portion of uncalled capital called only during winding up.
  21. Security Premium can be used for issuing bonus shares or writing off preliminary expenses (Sec 52).
  22. Shares can be issued at Par or Premium, but NOT at Discount (Sec 53, except Sweat Equity).
  23. Forfeiture of Shares: Canceling shares due to non-payment of calls.
  24. Discount on Re-issue of Forfeited Shares cannot exceed the amount previously forfeited on those shares.
  25. Debentures represent debt/loan; debenture holders are creditors.
  26. Collateral Security: Issuing debentures as secondary security for a loan.

Part 4: Auditing Fundamentals & Companies Act 2013

  1. Auditing is the independent examination of financial information to express an opinion.
  2. Primary Objective of Audit: Reporting if FS show a “True and Fair view”.
  3. Secondary Objective: Detection and prevention of fraud and errors.
  4. Auditor is a watchdog, not a bloodhound (Kingston Cotton Mill Case).
  5. Interim Audit: Conducted between two annual audits.
  6. Continuous Audit: Detailed audit throughout the year (good for banks/large firms).
  7. Internal Audit: Conducted by staff/external to review internal controls (Sec 138).
  8. Statutory Audit: Compulsory by law (e.g., for Companies).
  9. Management Audit: Appraising the performance of management functions.
  10. Audit Note Book: Diary maintained by audit staff for queries/points.
  11. Audit Working Papers: Property of the Auditor (retains for 7 years).
  12. Audit Program: Detailed plan of audit procedures.
  13. Vouching: “Backbone of Auditing”; checking documentary evidence for transactions.
  14. Verification: Proving physical existence, ownership, and valuation of assets/liabilities.
  15. Teeming and Lading (Lapping): Fraud by misappropriating cash from one customer to hide a shortage from another.
  16. Internal Check: Work of one staff automatically checked by another.
  17. Sec 139: Appointment of Auditors.
  18. First Auditor (Non-Govt): Appointed by Board within 30 days of registration.
  19. First Auditor (Govt Co): Appointed by CAG within 60 days.
  20. Subsequent Auditor: Appointed at AGM, holds office from 1st to 6th AGM (5 years).
  21. Rotation of Auditors: Mandatory for listed companies (Individual: 1 term of 5 yrs; Firm: 2 terms of 5 yrs).
  22. Sec 140: Removal/Resignation of Auditor.
  23. Removal before expiry: Requires Special Resolution + Central Govt approval.
  24. Sec 141: Qualifications/Disqualifications.
  25. Qualification: Must be a Chartered Accountant (CA).
  26. Disqualification: Officer/employee, person holding security in company (relative allowed up to ₹1 Lakh face value), person indebted > ₹5 Lakh.
  27. Sec 143: Powers and Duties.
  28. Duty to Report: On fraud (to Central Govt if amount > ₹1 Cr).
  29. Sec 144: Prohibited Services (Auditor cannot provide accounting, investment banking, etc., to the auditee).
  30. Sec 148: Cost Audit.
  31. Cost Auditor: Appointed by Board; must be a Cost Accountant.
  32. CAG (Comptroller and Auditor General): Audits Govt companies and accounts (Art 148 of Constitution).
  33. Qualified Report: “True and fair… subject to…” (Negative remarks).
  34. Unqualified (Clean) Report: Everything is fine.
  35. Disclaimer of Opinion: Auditor unable to form an opinion due to lack of evidence.
  36. Adverse Opinion: Financial statements do NOT show true and fair view.
  37. CARO 2020: Companies (Auditor’s Report) Order – additional reporting requirements.

Part 5: Cost Accounting & Financial Management

  1. Cost Accounting focuses on cost ascertainment and control.
  2. Direct Costs: Directly traceable to the product (Raw material).
  3. Indirect Costs (Overheads): Not directly traceable (Factory rent, Electricity).
  4. Prime Cost = Direct Material + Direct Labor + Direct Expenses.
  5. Factory Cost = Prime Cost + Factory Overheads.
  6. Cost of Production = Factory Cost + Admin Overheads.
  7. Total Cost = Cost of Production + Selling & Distribution Overheads.
  8. Fixed Cost: Remains constant in total, varies per unit (Rent).
  9. Variable Cost: Varies in total, constant per unit (Raw Material).
  10. Marginal Costing: Only variable costs are treated as product costs.
  11. Break-Even Point (BEP): No Profit, No Loss (Total Revenue = Total Cost).
  12. BEP Formula (Units): Fixed Cost / Contribution Per Unit.
  13. Contribution: Sales – Variable Cost.
  14. P/V Ratio: (Contribution / Sales) × 100.
  15. Margin of Safety: Actual Sales – BEP Sales (Zone of profit).
  16. Standard Costing: Comparing ‘Standard’ (pre-determined) costs with ‘Actuals’ to find Variance.
  17. Job Costing: For customized work (Printing press, repair shop).
  18. Batch Costing: For goods produced in lots (Pharma).
  19. Process Costing: For continuous production (Chemicals, Oil refining).
  20. Contract Costing: For large construction projects (Escalation clause is common here).
  21. Operating Costing: For service industries (Transport, Hospitals).
  22. Working Capital = Current Assets – Current Liabilities.
  23. Current Ratio = Current Assets / Current Liabilities (Ideal 2:1).
  24. Quick Ratio (Acid Test) = (CA – Stock – Prepaid Exp) / CL (Ideal 1:1).
  25. Debt-Equity Ratio = Long Term Debt / Shareholders’ Equity (Solvency ratio).
  26. Inventory Turnover Ratio = COGS / Average Inventory.
  27. ROI (Return on Investment) = (EBIT / Capital Employed) × 100.
  28. Cash Flow Statement (AS-3): Operating, Investing, and Financing activities.

Part 6: Important Accounting Standards (AS)

  1. AS-1: Disclosure of Accounting Policies.
  2. AS-2: Valuation of Inventories (Cost or NRV, whichever is lower).
  3. AS-3: Cash Flow Statements.
  4. AS-6: Depreciation Accounting (Withdrawn, now under AS-10).
  5. AS-9: Revenue Recognition.
  6. AS-10: Property, Plant and Equipment (Fixed Assets).
  7. AS-13: Accounting for Investments.
  8. AS-26: Intangible Assets.
  9. Ind AS: Indian Accounting Standards converged with IFRS.
  10. IFRS: International Financial Reporting Standards.

Part 7: Rapid Fire Exam Trivia

  1. Heavy advertising for a new product is Deferred Revenue Expenditure.
  2. Wages paid for installation of machinery is debited to Machinery A/c (Capital Exp).
  3. Goods given as charity are credited to Purchases A/c.
  4. Insurance Claim admitted: Debit Insurance Co, Credit P&L/Trading.
  5. Closing entries transfer nominal accounts to Trading/P&L at year-end.
  6. Computerized Accounting: Utilizes “Garbage In, Garbage Out” (GIGO) principle.
  7. Audit fees are generally Revenue Expenditure.
  8. Preliminary Expenses are written off over time (Fictitious asset).
  9. Debentures issued at discount: Discount is a capital loss.
  10. Calls-in-Arrears appears as a deduction from Paid-up Capital.
  11. Pro-rata allotment happens in case of over-subscription of shares.
  12. Rights Issue: Shares offered to existing shareholders first.
  13. Bonus Shares: Free shares issued from accumulated profits (No cash flow).
  14. Sweat Equity: Issued to employees/directors for know-how/IP rights.
  15. Buy-back of shares: Must be authorized by Articles (Sec 68).
  16. Statutory Meeting: No longer mandatory under Companies Act 2013.
  17. Minute Book: Record of proceedings of meetings.
  18. Quorum: Minimum members required to validly conduct a meeting.
  19. Proxy: Person attending meeting on behalf of a member (cannot vote by show of hands).
  20. Financial Year: Usually 1st April to 31st March (Sec 2(41)).

Part 8: Corporate Accounting & Share Capital

  1. Minimum Subscription: A company must receive 90% of the issued amount within 30 days; otherwise, money must be refunded.
  2. Table F: The standard set of Articles of Association under Companies Act 2013.
  3. Interest on Calls-in-Arrears: Max 10% p.a. (acc. to Table F).
  4. Interest on Calls-in-Advance: Max 12% p.a. (acc. to Table F); company pays this to shareholder.
  5. Underwriting Commission: Max 5% for Shares, 2.5% for Debentures.
  6. ESOP (Employee Stock Option Plan): Option given to employees to buy shares at a future date at a pre-determined price.
  7. Vesting Period: The time an employee must wait before exercising ESOP options.
  8. Right Shares: Do not require a prospectus/offer document.
  9. Capital Redemption Reserve (CRR): Created when buying back shares or redeeming Preference Shares out of profits; can only be used to issue Bonus Shares.
  10. Debenture Redemption Reserve (DRR): Companies must create DRR (usually 10% of outstanding value) before redemption (relaxed for certain listed companies/banks).
  11. Own Debentures: Company buying its own debentures from the market for cancellation or investment.
  12. Ex-Interest vs. Cum-Interest: ‘Ex’ excludes interest cost in price; ‘Cum’ includes it.
  13. Dividend: Usually paid on Paid-up Capital (not Authorized).
  14. Interim Dividend: Declared by Board between two AGMs; becomes a debt once declared.
  15. Proposed Dividend: Now treated as a Contingent Liability in footnotes (AS-4 Revised), not a provision.
  16. Unclaimed Dividend: Must be transferred to “Unpaid Dividend Account” after 30 days; after 7 years, it goes to IEPF (Investor Education and Protection Fund).
  17. Managerial Remuneration: Overall limit is 11% of Net Profits for a public company (Sec 197).
  18. Schedule III: Prescribes the format of Balance Sheet (Part I) and Statement of P&L (Part II).

Part 9: Advanced Cost Accounting

  1. Cost Sheet: A statement showing total cost and cost per unit at different stages of production.
  2. Direct Material + Direct Labor = Prime Cost.
  3. Prime Cost + Factory Overheads = Works Cost (Factory Cost).
  4. Works Cost + Admin Overheads = Cost of Production.
  5. Cost of Production + Opening Stock – Closing Stock = Cost of Goods Sold (COGS).
  6. Sunk Cost: Historical costs already incurred; irrelevant for future decision-making (e.g., R&D of a failed product).
  7. Opportunity Cost: The benefit lost from the “next best alternative” foregone.
  8. Imputed Cost: Notional cost not involving cash outlay (e.g., Rent on own building, Interest on own capital); recorded in Costing but not Financial Accounts.
  9. Conversion Cost: Cost of converting raw material into finished goods (Labor + Factory Overheads).
  10. Economic Order Quantity (EOQ): The order size that minimizes total ordering and holding costs.
  11. EOQ Formula: $\sqrt{\frac{2AO}{C}}$ (A=Annual Demand, O=Ordering Cost, C=Carrying Cost).
  12. Re-order Level: Usage Rate × Lead Time.
  13. Safety Stock: Buffer stock held to prevent stock-outs during delays.
  14. ABC Analysis: Inventory control technique based on value (A=High value/Low qty, C=Low value/High qty).
  15. VED Analysis: For spare parts (Vital, Essential, Desirable).
  16. FIFO (First-In-First-Out): Inventory valued at latest prices; higher profit in inflation.
  17. LIFO (Last-In-First-Out): Inventory valued at older prices; lower profit in inflation (Not permitted under AS-2).
  18. Weighted Average Method: Good for items that are intermingled and lose identity (liquids, grains).
  19. Bin Card: Quantitative record of stores kept in the warehouse (no value shown).
  20. Stores Ledger: Quantitative and value record kept by Cost Accounting department.
  21. Normal Loss: Unavoidable (e.g., evaporation); cost absorbed by good units.
  22. Abnormal Loss: Avoidable (e.g., theft, fire); cost transferred to Costing P&L.
  23. Labour Turnover: Rate at which employees leave and are replaced.
  24. Idle Time: Time paid for but no production (e.g., power failure).
  25. Piece Rate System: Payment based on units produced.
  26. Halsey Plan: Bonus is 50% of time saved.
  27. Rowan Plan: Bonus is proportion of time saved to standard time.

Part 10: Audit Standards & Procedures

  1. Standards on Auditing (SAs): Issued by ICAI.
  2. SA 200: Overall Objectives of Independent Auditor.
  3. SA 210: Agreeing to the Terms of Audit Engagements.
  4. SA 230: Audit Documentation (Working papers).
  5. SA 300: Planning an Audit of Financial Statements.
  6. SA 500: Audit Evidence (Must be “Sufficient and Appropriate”).
  7. SA 530: Audit Sampling.
  8. SA 700: Forming an Opinion and Reporting on Financial Statements.
  9. Substantive Procedures: Tests to detect material misstatements (Vouching, Verification).
  10. Compliance Procedures: Tests to check if Internal Controls are working effectively.
  11. Test Checking: Checking a representative sample instead of 100% data.
  12. Routine Checking: Checking casts, sub-casts, and carry-forwards.
  13. Cut-off Procedures: Ensuring transactions near year-end are recorded in the correct period (key for Sales/Stock).
  14. Analytical Procedures: Analyzing trends and ratios to identify unusual fluctuations.
  15. Audit Risk: Risk that auditor expresses an inappropriate opinion when FS are materially misstated.
  16. Inherent Risk: Susceptibility to error before considering controls (e.g., Cash is inherently risky).
  17. Control Risk: Risk that internal controls fail to prevent/detect errors.
  18. Detection Risk: Risk that auditor’s procedures fail to detect an error.
  19. EDP Audit: Auditing in a computerized environment (Electronic Data Processing).
  20. Audit Trail: The step-by-step history of a transaction; often invisible in EDP.
  21. CAATs: Computer Assisted Audit Techniques (using software to audit data).
  22. Social Audit: Evaluating the social impact/performance of an organization.
  23. Propriety Audit: Checking not just accuracy, but wisdom and economy of expenditure (common in Govt audit).
  24. Performance Audit: Assessing Efficiency, Economy, and Effectiveness (3 Es).
  25. Letter of Weakness: Communication to management regarding internal control deficiencies.

Part 11: Financial Management & Ratios

  1. Time Value of Money: A rupee today is worth more than a rupee tomorrow.
  2. Compounding: Interest on interest (Future Value).
  3. Discounting: Finding Present Value of future cash flows.
  4. NPV (Net Present Value): PV of Inflows – PV of Outflows. If positive, accept project.
  5. IRR (Internal Rate of Return): The discount rate where NPV = 0.
  6. Payback Period: Time required to recover the initial investment cost.
  7. Operating Leverage: Impact of Fixed Costs on Operating Profit (EBIT).
  8. Financial Leverage: Impact of Debt/Interest on EPS.
  9. Trading on Equity: Using debt to increase return for equity shareholders.
  10. Capital Budgeting: Long-term investment decisions (Purchase of new plant).
  11. Working Capital Management: Managing short-term assets/liabilities.
  12. Gross Working Capital: Total Current Assets.
  13. Net Working Capital: CA – CL.
  14. Operating Cycle: Time to convert Cash $\rightarrow$ Raw Material $\rightarrow$ WIP $\rightarrow$ Finished Goods $\rightarrow$ Sales $\rightarrow$ Cash.
  15. Proprietary Ratio: Shareholder’s Funds / Total Assets.
  16. Interest Coverage Ratio: EBIT / Interest Expense (Ability to pay interest).
  17. EPS (Earnings Per Share): (Net Profit – Pref Dividend) / Number of Equity Shares.
  18. P/E Ratio: Market Price / EPS.
  19. DuPont Analysis: Breaks down ROE into Net Profit Margin × Asset Turnover × Financial Leverage.

Part 12: Specific Accounting Scenarios

  1. Branch Accounts: Dependent Branch (Books kept by HO) vs. Independent Branch (Keeps own books).
  2. Debtors System (Branch): HO prepares Branch A/c to find profit.
  3. Stock and Debtors System: HO maintains Branch Stock, Branch Debtors, Branch Adjustment A/c.
  4. Goods sent at Invoice Price: Includes ‘Loading’ (profit element) which must be removed to find actual profit.
  5. Hire Purchase: Ownership transfers only after payment of last installment.
  6. Installment System: Ownership transfers immediately on signing agreement.
  7. Repossession: Vendor taking back goods if Hire Purchaser defaults.
  8. Departmental Accounts: Separate trading account for each department to judge individual efficiency.
  9. Inter-departmental transfers: Should be recorded (usually at cost or market price).
  10. Royalty: Periodic payment to owner of an asset (Mine/Patent) for user rights.
  11. Minimum Rent (Dead Rent): Fixed amount payable to landlord even if production is low.
  12. Short-workings: Minimum Rent – Actual Royalty (Recoverable in future years if agreed).
  13. Insurance Claims (Fire): Claim for Loss of Stock and Loss of Profit.
  14. Average Clause: Applied if property is under-insured; Claim reduced proportionately.
  15. Memorandum Trading A/c: Prepared to estimate value of stock on the date of fire.

Part 13: Computerized Accounting & Recent Trends

  1. MIS: Management Information System.
  2. DBMS: Database Management System (e.g., SQL, Oracle).
  3. Real-time Processing: Immediate update of records (e.g., ATM withdrawal).
  4. Batch Processing: Transactions collected and processed in groups (e.g., Payroll).
  5. ERP (Enterprise Resource Planning): Integrated software for all business functions (SAP, Oracle, Tally).
  6. Chart of Accounts: List of all ledger account names and codes.
  7. Cloud Computing: Storing/accessing accounting data over the internet.
  8. Forensic Accounting: Accounting suitable for legal review/court (fraud investigation).
  9. Human Resource Accounting (HRA): Identifying and reporting investments in human resources (not recognized by Indian GAAP yet).
  10. Inflation Accounting: Adjusting accounts for price level changes (CPP or CCA methods).
  11. Environmental Accounting: Tracking green costs (pollution control, restoration).
  12. GST (Goods and Services Tax): A value-added tax levied on supply of goods/services.
  13. Input Tax Credit (ITC): Credit of GST paid on purchase, used to set off GST liability on sales.
  14. IGST: Integrated GST (Inter-state supply).
  15. CGST + SGST: Intra-state supply.
  16. TDS (Tax Deducted at Source): Collecting tax at the very source of income.

Part 14: Banking & Insurance Companies (Special Acts)

  1. Banking Regulation Act, 1949: Governs banking companies.
  2. NPA (Non-Performing Asset): Loan where interest/principal is overdue for > 90 days.
  3. Standard Assets: Regular payment (Risk weightage usually low).
  4. Sub-standard Assets: NPA for $\le$ 12 months.
  5. Doubtful Assets: NPA for > 12 months.
  6. Loss Assets: Uncollectible, should be written off.
  7. SLR (Statutory Liquidity Ratio): % of deposits banks must hold in liquid assets (Gold, Cash, Govt Securities).
  8. CRR (Cash Reserve Ratio): % of deposits banks must keep with RBI (No interest earned).
  9. Rebate on Bills Discounted: Discount income received but pertaining to the next financial year (Unearned Income).
  10. Form A: Balance Sheet for Banks.
  11. Form B: Profit & Loss for Banks.
  12. IRDAI: Insurance Regulatory and Development Authority of India.
  13. Life Insurance: Contract of “Assurance” (Event is certain, timing is not).
  14. General Insurance: Contract of “Indemnity” (Makes good the loss).
  15. Reinsurance: Insurance company insuring its risk with another insurer.
  16. Bonus in reduction of premium: Policyholder uses bonus to pay less premium.
  17. Surrender Value: Amount payable to policyholder if policy is terminated before maturity.
  18. Annuity: Series of fixed payments paid by insurer to insured.
  19. Schedule 13 (Banks): Interest Earned.
  20. Schedule 15 (Banks): Interest Expended.

Part 15: Revision of Basic Confusing Terms

  1. Marshalling of Assets: Order in which assets are shown (Liquidity or Permanence).
  2. Amortization: Used for Intangible assets (Patents).
  3. Obsolescence: Loss of value due to new technology/fashion (not physical wear).
  4. Impairment: Sudden fall in market value of asset (Recoverable amount < Carrying amount).
  5. Contingent Asset: Possible asset from past events (e.g., a court case we might win); disclosed in Director’s Report, not FS.
  6. Books of Original Entry: Journal, Cash Book, Subsidiary Books.
  7. Principal Book: Ledger.
  8. Casting: Totaling a page/account.
  9. Voucher: Documentary evidence in support of a transaction.
  10. Narrations: Brief explanation written below a journal entry.

Part 16: Income Tax Concepts (Relevant to Accounting)

  1. Assessment Year (AY): The year in which income is taxed (starts April 1 after the Financial Year).
  2. Previous Year (PY): The financial year in which income is earned.
  3. Person (Sec 2(31)): Includes Individual, HUF, Firm, Company, AOP, BOI, Local Authority.
  4. Assessee: A person liable to pay tax or any other sum under the Income Tax Act.
  5. Residential Status: Determines the scope of taxable income (Resident vs. Non-Resident).
  6. Incidence of Tax: A Resident is taxed on global income; a Non-Resident is taxed only on Indian income.
  7. Five Heads of Income: Salary, House Property, PGBP (Business/Profession), Capital Gains, Other Sources.
  8. Capital Asset: Property of any kind held by assessee (excludes stock-in-trade/personal effects).
  9. Short Term Capital Asset (Shares): Held for $\le$ 12 months.
  10. Long Term Capital Asset (Shares): Held for > 12 months.
  11. Indexation: Adjusting the cost of acquisition for inflation (used for Long Term Capital Gains).
  12. Deductions (Chapter VI-A): Subtracted from Gross Total Income (Sec 80C to 80U).
  13. Sec 80C: Investments in PPF, LIC, EPF (Max limit ₹1.5 Lakh).
  14. TDS (Tax Deducted at Source): A mechanism to collect tax at the time of payment generation.
  15. Advance Tax: “Pay as you earn” scheme; mandatory if tax liability > ₹10,000.
  16. PAN (Permanent Account Number): 10-digit alphanumeric number issued by Income Tax Dept.
  17. TAN: Tax Deduction and Collection Account Number (required for deducting TDS).

Part 17: Public Financial Management & Govt Accounts

  1. Consolidated Fund of India (Art 266): All revenues received by Govt flow here; requires Parliament approval to withdraw.
  2. Public Account of India (Art 266): Money held by Govt as a banker (PF, Small Savings); no Parliament approval needed for payments.
  3. Contingency Fund of India (Art 267): For unforeseen emergencies; held by President (Corpus ₹30,000 Cr).
  4. Vote on Account: Permission to spend money for a part of the year (usually 2 months) until Budget is passed.
  5. Government Accounting: Generally follows Cash Basis (except for some transitions to Accrual).
  6. CAG (Comptroller and Auditor General): Guardian of the Public Purse (Art 148).
  7. CAG’s DPC Act, 1971: Defines Duties, Powers, and Conditions of Service of CAG.
  8. Public Accounts Committee (PAC): Examines CAG reports; 22 members (15 Lok Sabha + 7 Rajya Sabha).
  9. Estimates Committee: Examines budget estimates; 30 members (All from Lok Sabha).
  10. Committee on Public Undertakings (COPU): Examines reports of PSUs.
  11. Appropriation Bill: Gives Govt legal authority to withdraw money from Consolidated Fund.
  12. Finance Bill: Contains tax proposals (Revenue side of Budget).
  13. Deficit Financing: Printing currency or borrowing to bridge the Fiscal Deficit.
  14. Fiscal Deficit: Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts).
  15. Primary Deficit: Fiscal Deficit – Interest Payments.

Part 18: Corporate Restructuring & Liquidation (AS-14)

  1. Amalgamation: Blending of two or more companies into one.
  2. Amalgamation in nature of Merger: All assets/liabilities transferred; shareholders holding 90% equity continue.
  3. Amalgamation in nature of Purchase: If conditions of Merger are not met.
  4. Pooling of Interests Method: Used for accounting for Mergers.
  5. Purchase Method: Used for accounting for Purchases.
  6. Purchase Consideration: Amount paid by Transferee company to shareholders of Transferor company.
  7. Internal Reconstruction: Reorganization of capital structure without dissolving the company (e.g., writing off losses against capital).
  8. External Reconstruction: Existing company is liquidated, and a new one is formed to take over its business.
  9. Liquidation/Winding Up: The legal process of ending a company’s existence.
  10. Liquidator: Officer appointed to settle affairs (sell assets, pay liabilities).
  11. Order of Payment in Liquidation: Legal charges $\rightarrow$ Liquidator remuneration $\rightarrow$ Secured creditors $\rightarrow$ Workmen dues $\rightarrow$ Unsecured creditors $\rightarrow$ Shareholders.
  12. Preferential Creditors: Govt taxes, employee wages (paid before unsecured creditors).
  13. Deficiency Account: Prepared in liquidation to show how the capital was lost.

Part 19: Analysis of Financial Statements

  1. Horizontal Analysis: Comparing financial data of several years (Dynamic Analysis).
  2. Vertical Analysis: Analyzing data of a single year (Static Analysis).
  3. Comparative Statements: Show absolute figures and percentage changes over years.
  4. Common-Size Statements: Each item expressed as % of a common base (e.g., Sales = 100% in Income Statement).
  5. Trend Analysis: Calculating trend percentages taking a base year as 100.
  6. Cash Flow Analysis: Evaluating ability to generate cash (AS-3).
  7. Fund Flow Statement: Analyzes changes in Working Capital (Sources and Applications of Funds).
  8. Limitation of Ratio Analysis: Ignores qualitative factors and price level changes.
  9. Gearing Ratio: Relationship between Equity capital and Fixed Interest-bearing funds (Debt/Pref Shares).
  10. Highly Geared: High Debt compared to Equity (High risk).
  11. Low Geared: Low Debt compared to Equity.

Part 20: Standard Costing & Variances

  1. Variance Analysis: Process of analyzing differences between Standard and Actual costs.
  2. Favorable Variance (F): Actual Cost < Standard Cost (Good for profit).
  3. Adverse/Unfavorable Variance (A): Actual Cost > Standard Cost (Bad for profit).
  4. Material Cost Variance: (Std Qty × Std Price) – (Actual Qty × Actual Price).
  5. Material Price Variance: (Std Price – Actual Price) × Actual Qty.
  6. Material Usage Variance: (Std Qty – Actual Qty) × Std Price.
  7. Labor Cost Variance: Difference between Standard Wages and Actual Wages paid.
  8. Labor Efficiency Variance: Arises due to difference in efficiency of workers.
  9. Overhead Variance: Difference between standard overhead absorbed and actual overhead incurred.

Part 21: Corporate Social Responsibility (CSR) & Ethics

  1. Sec 135 (Companies Act): Mandates CSR.
  2. Applicability: Net Worth ₹500 Cr OR Turnover ₹1000 Cr OR Net Profit ₹5 Cr.
  3. CSR Spend Requirement: At least 2% of Average Net Profits of preceding 3 years.
  4. CSR Committee: Must have at least 3 directors (1 independent).
  5. Schedule VII: Lists activities eligible for CSR (Education, Poverty, Gender Equality, etc.).
  6. Unspent CSR Amount: Must be transferred to a specified fund (like PM Relief Fund) within 6 months of FY end (if no ongoing project).
  7. Whistle Blower Policy: Mechanism for directors/employees to report genuine concerns/fraud.
  8. Code of Ethics: fundamental principles: Integrity, Objectivity, Confidentiality, Professional Competence.

Part 22: Recent Trends & Digital Terms

  1. Cryptocurrency Accounting: Generally treated as Intangible Assets or Inventory (if held for sale), not Cash.
  2. Block Chain: Distributed ledger technology ensuring immutable records.
  3. Forensic Audit: Audit conducted specifically for use in a court of law (fraud detection).
  4. XBRL (eXtensible Business Reporting Language): Standard format for electronic communication of business data (mandatory for listed companies).
  5. Fintech: Technology-enabled financial innovation.
  6. Crowdfunding: Raising small amounts of money from a large number of people (via internet).
  7. Angel Investor: Individual providing capital for a startup, usually in exchange for convertible debt or equity.
  8. Venture Capital: Financing provided to startups with long-term growth potential.
  9. Green Accounting: Incorporating environmental costs into financial results.

Part 23: Advanced Audit Concepts

  1. CARO 2020: Companies (Auditor’s Report) Order; applicable to all companies except Banking, Insurance, Sec 8, and Small Companies.
  2. Small Company (Sec 2(85)): Paid-up capital $\le$ ₹4 Cr AND Turnover $\le$ ₹40 Cr.
  3. Audit of Hospital: Check income from OP/IP, pharmacy, grants, donations.
  4. Audit of Hotel: Check Room Occupancy Rate, room service, banquet income.
  5. Audit of Educational Inst: Check Fees, Grants, Caution Money, Student Funds.
  6. Audit of Cinema Hall: Check Sale of Tickets (Entertainment Tax), Canteen, Ads.
  7. Investigation: Specific enquiry for a special purpose (e.g., suspected fraud); not the same as Audit.
  8. Investigation period: Can cover several years (Audit is usually 1 year).
  9. Surprise Check: Visit by auditor without notice to check cash/stock.
  10. Management Representation Letter (MRL): Written statement by management to confirm validity of accounts/info given to auditor.
  11. Peer Review: Review of one CA firm’s work by another CA firm to ensure quality.
  12. Quality Review Board (QRB): Established by Govt to review quality of services of CAs.

Part 24: GST Basics for Accountants

  1. One Nation, One Tax: GST subsumed VAT, Excise, Service Tax, Octroi, etc.
  2. Dual GST Model: Both Centre and State levy tax simultaneously (CGST + SGST).
  3. GST Council (Art 279A): Constitutional body chaired by Union Finance Minister to decide rates/rules.
  4. Composition Scheme: For small taxpayers (Turnover < ₹1.5 Cr); lower fixed rate, no Input Tax Credit allowed.
  5. GSTR-1: Return for Outward Supplies (Sales).
  6. GSTR-3B: Summary return of self-declared tax liability.
  7. GSTR-9: Annual Return.
  8. E-Way Bill: Electronic document for movement of goods > ₹50,000.
  9. Reverse Charge Mechanism (RCM): Recipient of goods/service pays tax instead of supplier.
  10. Zero Rated Supply: Exports and supplies to SEZ (Tax is zero).
  11. Exempt Supply: Essential goods with 0% tax (e.g., fresh milk, grains).

Part 25: Final Mixed Bag (High Probability Facts)

  1. Accounting Equation: Assets = Liabilities + Equity.
  2. Income: Revenue + Gains.
  3. Solvency: Ability to pay long-term debts.
  4. Liquidity: Ability to pay short-term debts.
  5. Capital Employed: Shareholder’s Funds + Long Term Debts.
  6. Net Worth: Assets – External Liabilities.
  7. Book Value: Cost – Accumulated Depreciation.
  8. Market Value: Price at which asset can be sold in open market.
  9. Scrap Value: Value of asset at end of useful life.
  10. Substance over Form: Economic reality is more important than legal form (e.g., Hire Purchase).
  11. Operating Cycle: Average time between acquiring materials and collecting cash from sales.
  12. Deferrals: Receipts/Payments recorded before they are earned/incurred (Prepaid exp).
  13. Accruals: Earned/Incurred but not yet recorded (Outstanding exp).
  14. Closing Stock Valuation: If Cost > NRV, value at NRV; If Cost < NRV, value at Cost.
  15. Profit prior to incorporation: Capital Profit (cannot be used for dividends).
  16. Calls-in-Advance: Shown under “Other Current Liabilities” in Balance Sheet.
  17. Contingent Liability examples: Guarantees given, Bills discounted but not matured.
  18. Statutory Books: Books required by law (Register of Members, Register of Charges).
  19. Window Dressing: Showing a better position than actual (Fraudulent).
  20. Secret Reserve: Showing a worse position than actual (Conservative/Fraudulent).
  21. Imprest System: Used for Petty Cash to maintain liquidity control.
  22. Bank Overdraft: Credit balance in Cash Book (Bank column).
  23. Dishonor of Cheque: Entry is reversed.
  24. Rebate: Reduction in price allowed for reasons other than credit terms (e.g., poor quality).
  25. Trade Discount: Deduction from list price; not recorded in books.
  26. Cash Discount: Deduction for early payment; recorded in books.
  27. Provisions: Charge against profit (Reduces Net Profit).
  28. Reserves: Appropriation of profit (Reduces Divisible Profit).
  29. Specific Reserve: Created for specific purpose (e.g., Workmen Compensation Fund).
  30. General Reserve: Free reserve for any purpose.
  31. Revenue Reserve: Created from normal operating profits.
  32. Capital Reserve: Created from capital profits (Sale of fixed asset).
  33. Drawing Power: Limit up to which money can be withdrawn from Cash Credit account (based on stock/debtors).
  34. Kiting: A fraud scheme using the “float” time of check clearing between two banks.
  35. Casting Error: Error in totaling.
  36. Posting Error: Error in transferring from journal to ledger.
  37. Voucher: The primary evidence for recording a transaction.
  38. Debit Note: Sent when returning goods to a supplier (Purchase Return).
  39. Credit Note: Sent when receiving returned goods from a customer (Sales Return).
  40. FOB (Free on Board): Seller pays costs until goods are on the ship; Buyer pays freight.
  41. CIF (Cost, Insurance, Freight): Seller pays all costs to destination port.
  42. Ex-dividend: Buyer of share does not get the upcoming dividend.
  43. Cum-dividend: Buyer gets the upcoming dividend (Price is usually higher).
  44. Blue Chip Companies: Large, well-established, financially sound companies.
  45. Auditor’s Lien: Right to retain client’s books if fees are unpaid (subject to conditions).

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