Monday, 4 July 2011

accounting glossaory-4

Greetings to fellow blog readers......

Fixed Cost: These are the costs which remains constant at all levels of production. They do not tend to increase or decrease with the changes in volume of production.
Variable Cost: These costs tend to vary with the volume of output. Any increase in the volume of production results in an increase in the variable cost and vice-versa.
Semi-Variable Cost: These costs are partly fixed and partly variable in relation to output.
Absorption Costing: It is the practice of charging all costs, both variable and fixed to operations, processess or products. This differs from marginal costing where fixed costs are excluded.
Operating Costing: It is used in the case of concerns rendering services like transport. Ex: Supply of water, retail trade, etc...

Costing: Cost accounting is the recording classifying the expenditure for the determination of the costs of products.For thepurpuses of control of the costs.
Rectification of Errors: Errors that occur while preparing accounting statements are rectified by replacing it by the correct one.
  Errors like: Errors of posting, Errors of accounting etc…
Absorbtion: When a company purchases the business of another existing company that is called absorbtion.
Mergers: A merger refers to a combination of two or more companies into one company.
Variance Analasys: The deviations between standard costs, profits or sales and actual costs. Profits or sales are known as variances.
 Types of variances
                                    1: Material Variances
                                    2: Labour Variances
                                    3: Cost Variances
                                    4: Sales or ProfitVariances
General Reserves: These reserves which are not created for any specific purpose and are available for any future contingency or expansion of the business.

SpecificReserves: These reserves which are created for a specific purpose and can be utilized only for that purpose.
                                   Ex: Dividend Equilisation Reserve
                                        Debenture Redemption Reserve
Provisions: There are many risks and uncertainities in business. In order to protect from risks and uncertainities, it is necessary to provisions and reserves in every business.

Reserve: Reserves are amounts appropriated out of profits which are not intended to meet any liability, contingency, commitment in the value of assets known to exist at the date of the B/S.
Creation of the reserve is to increase the workingcapital in the business and strengthen its financial position. Some times it is invested to purchase out side securities then it is called reserve fund.
            1: Capital Reserve: It is created out of capital profits like premium on the issue of shares, profits and sale of assets, etc…This reserve is not available to distribute as dividend among shareholders.
            2: Revenue Reserve:  Any Reserve which is available for distribution as dividend to the shareholders is called Revenue Reserve.
Provisions V/S Reserves:
1.     Provisions are created for some specific object and it must be utilised for that object for which it is created.
   Reserve is created for any future liability or loss.
2.     Provision is made because of legal necessity but creating a Reserve is a matter of financial strength.
3.     Provision must be charged to profit and loss a/c before calculating the net profit or loss but Reserve can be made only when there is profit.
4.     Provisions reduce the net profit and are not invested in outside securities Reserve amount can invested in outside securities.      
Goodwill: It is the value of repetition of a firm in respect of the profits expected in future over and above the normal profits earned by other similar firms belonging to the same industry.
            Methods: Average profits method
                            Super profits method
                            Capitalisatioin method

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