1. Break-even Point (BEP)

• The level of sales where Total Revenue = Total Cost.
• No profit, no loss.
• BEP (Units) = Fixed Costs ÷ (Selling Price per unit – Variable Cost per unit)
• Useful in marginal costing and decision-making.

2. Depreciation

• Systematic allocation of cost of a tangible asset over its useful life.
• Non-cash expense – affects profit, not cash flow.
• SLM: Equal depreciation every year = (Cost – Scrap Value) / Life
• WDV: Depreciation % applied on reducing balance.

3. Double Entry System

• Every transaction has two aspects: Debit and Credit.
• → Debit what comes in / expenses
• → Credit what goes out / income

4. Ledger & Cash Book

• Journal → primary book of entries (chronological order).
• Ledger → principal book where transactions are classified account-wise.
• Cash Book → records only cash & bank transactions.

5. Final Accounts

• Trading Account → determines Gross Profit / Loss
• Profit & Loss Account → determines Net Profit / Loss
• Balance Sheet → shows financial position (assets, liabilities, capital)

6. Accounting Concepts & Principles

• Matching Concept: Match expenses with related revenues.
• Conservatism (Prudence): Anticipate no profits, but provide for all losses.
• Going Concern: Business will continue.
• Accrual: Record income/expenses when earned/incurred, not when cash received/paid.

7. Reserves & Suspense Account

• Securities Premium Reserve: Premium on issue of shares is transferred here.
• Suspense Account: Temporary holding account for unclassified or unbalanced entries.

8. Valuation & Standards

• AS 2 – Valuation of Inventories (Lower of Cost or NRV).
• AS 17 – Segment Reporting.
• AS 18 – Related Party Disclosures.
• AS 20 – Earnings Per Share.
• AS 21 – Consolidated Financial Statements.

9. Financial Management

• Concerned with procurement, allocation, and control of financial resources.
• Key decisions:
• 1. Investment (Capital Budgeting)
• 2. Financing (Capital Structure)
• 3. Dividend Policy

10. Working Capital

• Working Capital = Current Assets – Current Liabilities
• Indicates liquidity and short-term solvency.
• Gross Working Capital: Total Current Assets
• Net Working Capital: CA – CL

11. Capital Budgeting

• Long-term investment decisions (projects, machinery, etc.).
• NPV: PV of inflows – PV of outflows (considers time value).
• IRR: Discount rate where NPV = 0.
• Payback Period: Time to recover investment (ignores time value).
• Profitability Index: PV inflows ÷ PV outflows.

12. Leverage

• Use of fixed-cost capital (like debt) to magnify returns.
• Financial Leverage: Impact of debt on EPS.
• Operating Leverage: Impact of fixed operating costs on EBIT.
• Combined Leverage: Operating × Financial leverage.
• DuPont Analysis: ROE = (Net Profit Margin × Asset Turnover × Equity Multiplier)

13. Dividend Policy

Balances shareholder returns and business growth needs. Affects market value and wealth of shareholders.

14. Working Capital Financing

Can be aggressive (short-term borrowings) or conservative (long-term funds).

15. Factoring

Selling trade receivables to a factor (financial intermediary) for cash. Helps in receivables management and liquidity.

16. Treasury & Hedging

• Treasury Management: Managing liquidity, investments, and risk.
• Hedging: Protecting against adverse financial risks (exchange, interest, commodity).

17. Cost Accounting

• Determines cost of products/services for control and decision-making.
• Job Costing: Customized products (e.g. furniture, projects).
• Contract Costing: Long-term jobs like construction.
• Process Costing: Continuous production (cement, chemicals).
• Operating Costing: Service industries (transport, hospitals).

18. Marginal Costing

• Considers variable costs only for decision making.
• Contribution = Sales – Variable Cost
• Useful for BEP, Make or Buy, Pricing, etc.

19. Standard Costing & Variance Analysis

• Sets standard cost for materials, labour, overheads.
• Variance = Actual – Standard.
• Helps in performance evaluation and control.

20. Budgetary Control

Comparing actual with budgeted performance. Budgets act as tools for planning and control.

21. Responsibility Accounting

• Cost Center – controls costs.
• Profit Center – controls profit.
• Investment Center – controls ROI.

22. Costing Innovations

• Target Costing: Cost = Target Price – Desired Profit.
• Life Cycle Costing: All costs from design to disposal.
• Kaizen Costing: Continuous improvement and cost reduction.
• JIT (Just-in-Time): Minimizes inventory and carrying costs.

23. Auditing Definition

Systematic and independent examination of financial statements to express an opinion.

26. Standards on Auditing (SAs)

• SA 200: Overall objectives of independent auditor.
• SA 500: Audit Evidence.
• SA 570: Going Concern.

27–29. Key Terms

• CARO: Additional reporting requirements for certain companies.
• CAG: Audits accounts of the Central & State Governments.
• Peer Review: Quality review of audit work by another independent auditor (ICAI initiative).

31. Ratio Analysis

• Tool of Financial Statement Analysis to assess performance.
• Liquidity Ratios: Short-term solvency (Current Ratio, Quick Ratio).
• Leverage Ratios: Debt usage (Debt-Equity, Interest Coverage).
• Profitability Ratios: Profit margin, ROE, ROA, etc.
• Activity Ratios: Efficiency (Inventory, Receivables turnover).

32. Cash Flow Statement

• Classifies cash flows as:
• • Operating Activities
• • Investing Activities
• • Financing Activities

33. Contingent Liabilities & Prior Period Items

• Contingent Liabilities: Possible obligations disclosed in Notes to Accounts.
• Prior Period Items: Errors or omissions from previous year shown separately.

34. Gross Profit Ratio

= (Gross Profit ÷ Net Sales) × 100

Measures efficiency of production and pricing.