INDIRECT REVENUE:-

The income or revenue arises from those sources which are not related with normal business activities e.g. interest received, rent received, commission received, dividend received etc. When we analyze the performance of the business we don't consider these types of income or revenue.

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INTANGIBLE ASSETS:

The assets having no physical existence, cannot be seen, touched or felt are called intangible assets, e.g. patent right, copy right, goodwill, trade mark, brand, franchise etc. but financial assets are not included in intangible assets like investments in Stocks, Debentures etc. of other organizations. These assets cannot be damaged or broke by fire, flood, or accident etc. These assets are considered long term assets and are amortized mostly by using straight line method over their life like tangible assets.  If these assets are acquired from other organization then these are recorded at fair value while if these assets are internally generated then these are recorded on cost basis.

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IMPREST SYSTEM:-

A system in which a fixed amount is given to petty cashier to cover the petty expenses for the month is called imprest system. In this system the amount remain constant with the petty cashier; petty cashier used this amount against petty expenses. This system is mostly used by big organizations to reduce the work load of main cashier. Let's suppose US$ 1000 is paid to cashier of X organization by the main cashier. Petty cashier made payments against petty expenses of amounting US$ 800, now amount of US$ 800 will be paid to petty cashier; again the petty cash balance with the petty cashier will be US$ 1000.

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INSOLVENCY OF A PERSON:-

If a person is not able to pay his dues in ordinary course of business then he will be called insolvent. The person is not able to meet his liabilities in ordinary course of business, he is facing liquidity problem. So if the assets of a person are not sufficient to pay his liabilities is called insolvency of that person.  E.g Mr. X has total assets value US$ 100000 while his liabilities are US$ 125000 Mr. X will be called insolvent person.

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INLAND BILLS:-

Inland bills which is drawn in a country upon persons living in same country. The drawer and acceptor live in same country. Inland bill is also called domestic bill. E.g. Mr. A & Mr. Z both lives in USA. Mr. A sold goods to Mr. Z and Mr. A draws a bill on Mr. Z and Mr. Z accept this. the bill which is prepared between Mr. A & Mr. Z is called inland bill.




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INTERNAL TRANSACTION:-

A business conducts thousands transactions with many stack holders e.g. employees, customers, suppliers etc; these transactions can be internal or external. An internal transaction is, in which no outside person or organization is involved. We can say that internal transaction is a transaction which is not related with two parties and it may be called inter company transactions, e.g. furniture lost by fire, depreciation charged, merchandise used, goods sold etc. While the external transactions are the transactions which take place between company and external parties e.g. customers, suppliers.

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GENERAL RESERVE:

GENERAL RESERVE:

Reserve which is not created for any specific purpose is called General Reserve. The purpose of this reserve may be the strengthening the financial position of the business entity, generating more working capital, to off set future losses or for unknown contingencies. Corporations do not distribute all the operating earnings to their stockholders but keeps some portion of its earnings for future unknown events; the balance of earnings which is not distributed to the stockholders may be transferred to General Reserve or to Specific Reserve. General Reserve is not for specific purpose while Specific Reserve is created for some specific purposes e.g company wants to extend its building area or wants to buy new technologies etc. It is the part of Profit & Loss Appropriation A/C. and it can be used for any purpose after fulfilling the different conditions.

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Gaining Ratio:

The ratio which is calculated in the event of retirement or death of a partner is called gaining ratio. It is "new ratio - old ratio" the difference is called gaining ratio e.g there are three partners A, B, and C in a firm. suppose at that time the ratio of profit and loss was 1/3 for each and now further suppose that one partner C retires from the firm, the new ratio for remaining partners A & B will be 1/2 for each. The gaining ratio is 1/2 -1/3 = 1/6. So we can say that it is the share of profit which is given by C to A & B.


FEEDBACK ABOUT ANY MISTAKE WILL HIGHLY BE APPRECIATED.

Goodwill:

The benefit or advantage of good reputation of business, which a buyer is ready to pay the seller in response of good business reputation. It is calculated as Total Assets - Total Liabilities  (Total liabilities = External liabilities + Internal liabilities) e.g
              Total Assets        =   US$ 1000
              Total Liabilities    =   US$   600
              Net Assets value =   US$   400
 But the buyer is ready to pay the seller the amount of US$ 600 the difference between the buying price and net assets value US$ 200 is goodwill. It is written in the balance sheet as an intangible asset.

They buyer will make the following entry:-
     Total Assets          1000
     Good will                200
               Total Liabilities          600
               Capital (Net asset)    400
               Cash                         200

There are three methods of calculating the goodwill:-
1)  Average Profit Method.
2)  Super Profit Method.
3) Capitalization.

AVERAGE PROFIT METHOD. 
This is most simple method of calculating goodwill. First of all average of profit is calculated on the basis of few past years and then the result (average) is multiplied by number as 2, 3, 4, etc as agreed between both parties (seller & buyer). For example the profit of 5 years is as follow:- 20000+30000+15000+35000+20000= 120000/5 = 24000
Goodwill will be 24000 x 3 = 72000

SUPER PROFIT METHOD.
Super profit is the above of actual average profit over normal profit. Above profit means the amount which can be earned if the capital of the business was invested any other place with similar risk. Here we use super profit to calculate goodwill instead of average profit. For example you invested US$ 100000 and you can earn profit at the rate of 10% your normal profit will be US$ 10000 while your average profit is US$ 15000 then the super profit will be average profit less normal profit say 15000 - 10000 = 5000
Goodwill = 5000 x 3
We multiply super profit with 3 suppose it is agreed between seller & buyer, the 3 may be 2, 4 or 5 etc but as agreed.

CAPITALIZATION METHOD.
Here we calculate goodwill by using the following formula:-
Average profit multiply by 100 divides by %age of market rate of return.
SUPPOSE:-
Average profit                        =      25000
Market rate of return              =         16%
Capital of the firm                   =    150000
Capitalization using the formula  = 25000 x 100 / 16     =  156250
GOODWILL                           = Capitalization - Capital
                                                =      156250    -  150000   = 6250


FEEDBACK ABOUT ANY MISTAKE WILL HIGHLY BE APPRECIATED.


 

Goods or Merchandises:

Something that has been purchased or manufactured by the trader for resale purpose is called goods or merchandises e.g you deals in sugar and for this purpose you bought sugar, this sugar will be called goods or merchandises.

Going Concern Concept:

In this concept it is assumed that business will remain in continue for an indefinite time period, there is no plan to liquidate the business in the foreseeable future.

Fluctuating Capital:

The capital account of partners which do not remain constant. In this method entries relating to interest on capital, interest on drawings, or partners salaries are passed through capital accounts of partners.

Financial Statements:

The statements that show the financial position of the business entity is known  as financial statements e.g Cash flow statement, Trading & Profit & Loss A/C, Balance Sheet.

Factitious Assets:

The assets having no market value is called factitious assets e.g preliminary expenses, loss on issue of shares, bonds etc.

Fixed Liabilities:

The liabilities which are repayable after a long period of time is called fixed liabilities e.g bonds, loans etc.

Fixed Assets:

The assets which are having long life and are used in business for long period of time e.g Land, Building, Vehicle, Furniture & Fixture etc.