Basic terms of finance

1. FUNDAMENTAL OF FINANCE
BASIC TERMS
NOVEMBER 21, 2023
BIBHUDUTTA TRIPATHY
CHANDAN BISWALA, RAHUL MOHARANA

2. 1) What is finance?
Finance is defined as the management of money and includes activities such as
investing, borrowing, lending, budgeting, saving, and forecasting.
2) What is financial statement?
A financial statement is a document that summarizes an individual or business's
financial position, including assets, liabilities, and net worth. It is used to assess
the financial health of an individual or business.
3) What is balance sheet?
A balance sheet is a financial statement that contains details of a company's assets
or liabilities at a specific point in time.
4) What is income statement?
An income statement shows a company's revenues, expenses and profitability
over a period of time.
5) What is trading account?
Trading account is a statement which is prepared by a business firm. It shows the
gross profit of business activities during a specific period.
6) What is profit and loss account?
Profit and loss account shows the net profit and net loss of the business for the
accounting period.
7) What is asset, types?
Assets are things you own that you can sell for money. In accounting, an asset
is any resource that a business owns or controls.
There are 3 type of asset (A) Current asset: In accounting, a current asset
is any asset which can reasonably be expected to be sold, consumed, or exhausted
through the normal operations of a business within the current fiscal year or
operating cycle or financial year.

3. Example: cash, cash equivalents, accounts receivable, stock inventory,
marketable securities, pre-paid liabilities, and other liquid assets.
(B) Fixed asset: Fixed assets are physical or tangible items that a company
owns and uses in its business operations to provide services and goods to its
customers and help drive income.
Example: Land, Budling, Furniture.
(C) Fictitious asset: Fictitious assets are those assets which do not have a
physical existence and any realisable value, but are represented as actual
cash expenditure in the financial statements.
Example: Promotional Expenses, Preliminary Expenses, Discount on issue of
shares.
8) What is liability, Types?
A liability is something a person or company owes, usually a sum of money.
(A)Current Liabilities: These can also be commonly known as short-term
liabilities. Example: Bank loan, creditor.
(B)Non-current Liabilities: Non-current liabilities can also be referred to as
long-term liabilities. Example: Debenture, long term loan.
(C)Contingent Liabilities: A contingent liability is a potential liability that may
occur in the future, such as pending lawsuits or honouring product warranties.
Example: product warranties, and pending investigation.
9) What is expenditure, Types?
An expenditure is money spent on something.
(A)Capital Expenditure: Capital expenditures (Capex) are funds used by a
company to acquire, upgrade, and maintain physical assets such as property,
plants, buildings, technology, or equipment.

4. (B)Revenue Expenditure: Revenue expenditures are short-term business
expenses usually used immediately or within one year.
• Example: Costs of maintaining or repairing plant and machinery.
• The cost of utilities and telecoms.
(C)Differed Revenue Expenditure: Deferred revenue expenditure refers
to those expenses which will be incurred in the current accounting period but the
benefits of the expenses will be applicable over several accounting periods.
Example: Expenditure on marketing for launching a new product.
# What is Expenses?
An expense in accounting is the money spent, or costs incurred, by a business in
their effort to generate revenues.
Example: rent, utilities, wages, salaries, maintenance, depreciation, insurance,
and the cost of goods sold.
10) What is Goods?
Goods are products that are tangible, can be touched and seen, and are produced
to satisfy consumers' wants. Goods can be either durable goods or consumer
goods. Buildings, land, and phones are examples of goods.
11) What is Goodwill?
Goodwill is an intangible asset that results in enhancing the valuation of the
business.
The value of a company's brand name, solid customer base, good customer
relations, good employee relations, and any patents or proprietary
technology represent some examples of goodwill.

5. 12) What is Debtor?
A debtor is a person or business that owes money to another person or business.
For example, if you take out a car loan from your credit union, you are the debtor
and the credit union is the creditor in this transaction.
13) What is Creditor?
A creditor is an individual or institution that extends credit to another party to
borrow money usually by a loan agreement or contract. Example: a bank lending
money to a person to purchase a house is a creditor.
14) What is Trades Payable?
Trade payables (also called trade accounts payable) are the money a business
owes for goods and services when buying them on credit.
15) What is Trades Receivable?
Trade receivables is the amount that customers owe to a business when buying a
product or service on credit.
16) What is Capital?
The capital means the assets and cash in a business. Capital may either be cash,
machinery, receivable accounts, property, or houses.
17) What is Drawing?
Adrawing in accounting terms includes any money that is taken from the business
account for personal use.
18) What is Equity?
The equity meaning in accounting refers to a company's book value, which is the
difference between liabilities and assets on the balance sheet.

6. 19) What is Stock?
A stock represents a share in the ownership of a company, including a claim on
the company's earnings and assets.
20) What is Shares, Types?
Shares are units of stocks issued by a corporation that represent ownership.
Types : 1.equity shares
2. preference shares.
20) what is equity share ?
an equity share, normally known as ordinary share is a part ownership where each
member is a fractional owner and initiates the maximum entrepreneurial liability
related to a trading concern.
21) What is preference share ?
Preference shares, also known as preferred stock, is an exclusive share option
which enables shareholders to receive dividends announced by the company
before the equity shareholders.
22)what is authorised share capital ?
Authorized shares are defined as the maximum number of shares that a company
is legally allowed to issue to investors as per its own determinations. The
maximum number is established in a company's legal formation documents,
known as the articles of incorporation.
23) what is issued share capital?
Issued Share Capital is the total value of shares that a company has issued to its
shareholders.
24)what is Paid-up capital?
Paid-up capital is the amount of money a company has received from
shareholders in exchange for shares of stock.

7. 25) what is depreciation?
Depreciation is a decrease in the book value of fixed assets. Depreciation involves
loss of value of assets due to the passage of time and obsolescence.
26)what is baddebt?
Bad debt refers to loans or outstanding balances owed that are no longer deemed
recoverable and must be written off.
27)what is dividend?
Dividend refers to a reward, cash or otherwise, that a company gives to its
shareholders. Dividends can be issued in various forms, such as cash payment,
stocks or any other form.
28) what is gross profit?
Gross profit is the profit a business makes after subtracting all the costs that are
related to manufacturing and selling its products or services. You can calculate
gross profit by deducting the cost of goods sold (COGS) from your total sales.
29) what is net profit ?
Net profit is the amount of money your business earns after deducting all
operating, interest, and tax expenses over a given period of time.
30)what is prepaid expense ?
A prepaid expense is an expense that has been paid for in advance but not yet
incurred.
31) what is outstanding expense ?
An Outstanding Expense is a type of expense that is due but has not been paid.
32)what is discount?
Discount is the deduction in the price of the goods sold. There are two types of
discounts: 1. Trade Discount: Offering deduction of an agreed percentage of list
price at the time selling goods is one way of giving a discount. Such a discount is
called a trade discount.

8. 33)what is WIP?
In supply-chain management, work-in-progress (WIP) refers to goods that are
partially completed.
34) what is provison for bad debt?
The provision for doubtful debts, which is also referred to as the provision for
bad debts or the provision for losses on accounts receivable, is an estimation of
the amount of doubtful debt that will need to be written off during a given period.
35)what is reserve?
Reserves are part of profits or gain that has been allotted for a specific purpose.
Reserves are usually set up to buy fixed assets, pay bonuses, pay an expected
legal settlement, pay for repairs & maintenance and pay off debt.