(For restricted circulation only)

FOUNDATION MATERIAL FOR MBA BATCH 2021-23

ON

ACCOUNTING FOR MANAGERS

Dr. Suresh Kumar Sahoo, M.Com, M.Phil & P.hD

Associate Professor (Finance & Accounting)
Sri Sri University, Cuttack, India
Email: suresh.s@srisriuniversity.edu.in

Foundation Material on Accounting for Managers

Page 1
 Chapter 1: Conceptual Framework for preparation and presentation of
Financial Statements

Question Solution
Why is an accounting system used in 1. To handle routine book-keeping
business tasks
2. To structure the information so
that it could be used to evaluate
the performance and status of the
business
Imagine a restaurant with no system in
place to document how many people
came and dined in any particular day
and what did they consume.
Imagine the manager of a retail shop
who does not maintain how much was
sold and how much stock was left out.
Imagine a hospital which does not
maintain records of patients admitted,
operated and treated
Imagine an educational institution that is
not able to figure out how many
students it has and which student has
paid his dues.

Why Right now is an exciting time to be studying Accounting?

Book Keeping has been done for over 500 years. In the past, German banks
loaned more only to German Companies , Chinese investors owned 100
percent of all Chinese companies, large American firms did the vast majority
of their business inside the United States.

Now, the increased efficiency of the financial markets allow the investment
funds, no matter where in the world they originate, to be matched with the
most attractive investment opportunities.

Foundation Material on Accounting for Managers

Page 2
 1. The integration of the global economy is forcing an integration of worldwide
accounting standards. Accordingly, investors are complaining that the
financial statements they use to evaluate investments across the world are
not prepared according to a common set of standards.

2. Another force significantly impacting the practice of accounting right now is

information technology.

3. Third reason is the increased scrutiny associated with large accounting

scandals such as Enron and WorldCom and our very own Satyam

Three Shattered Myths about Accountancy

Myth 1: If you are good at Maths then you can be good at Accountancy too,
otherwise you are doomed.

Reality: If you understand addition, subtraction, multiplication and division

(which is taught in primary school in standard III – IV), then you can easily do
accounting . No mathematics, beyond that point.

Myth 2: Accounting is a very dull and boring subject and not really important
to be in the business world.

Reality: Book keeping has been done for over 500 years. In the past, German
banks loaned more only to German Companies , Chinese investors owned 100
percent of all Chinese companies, large American firms did the vast majority of
their business inside the United States.

Now, the increased efficiency of the financial markets allow the investment funds,
no matter where in the world they originate, to be matched with the most attractive
investment opportunities.

Myth 3: Accounting does not have any global market

Reality: The integration of the global economy is forcing an integration of

worldwide accounting standards. Accordingly, investors are complaining that the
financial statements they use to evaluate investments across the world are not
prepared according to a common set of standards.
Foundation Material on Accounting for Managers

Page 3
 The Accounting Cycle

1. Economic 2.
Activities Accounting
process

4. 3. Accounting
Stakeholders Information
use to make
decisions

Foundation Material on Accounting for Managers

Page 4
 Indian GAAP

Generally Accepted Accounting Principles (GAAP) is a common set of

accounting principles, standards and procedures that companies use to
compile their financial statements. GAAP are a combination of authoritative
standards (set by the accounting standards board) and include commonly
accepted ways of recording and reporting accounting information.

The Accounting Trial

RECORDING:

Transaction/Event

Preparation of Vouchers

Recording in the Primary Books

(Journal)

Postings in the Secondary Books

(Ledger)

Preparation of Trial Balance

REPORTING:

Preparation and Presentation of Financial Statements

Statement of Profit and Loss : Profit or Loss earned during a period

Balance Sheet : Financial position as on a date
Cash Flow Statement : Inflow and outflow of cash during a
period

Foundation Material on Accounting for Managers

Page 5
 Chapter 2 : Rules of Debit and Credit

The word „debit‟ is derived from the latin word „debeo‟ meaning ‘owed to me, the
proprietor’
The word „credit‟ is derived from the latin word „credo‟ meaning ‘trust or believe’

Rules:

Rules Type of Account Examples

Debit the receiver , credit the Personal Account Mr. Ram, Sundry
giver Creditors, Sundry
Debtors
Debit what comes in , credit Real Account All Assets
what goes out.

Debit all assets and expenses Nominal Account All Expenses and
and credit all income and Income
liabilities

Books of accounts

Primary Books and Secondary Books

Recording of transaction in journal

A primary book is book of accounts where transactions and events are recorded
in the first instance. Primary books are called journals.

Ground rules to be followed in recording transactions in a journal :

Increase in assets and decrease in liabilities = Debit

Increase in expenses and losses = Debit
Increase in liabilities and decrease in assets = Credit
Increase in income and gains = Credit
A Cash book is a journal as well as a ledger.

The journal proper is a book of residual entries.

Foundation Material on Accounting for Managers

Page 6
 Posting of transactions in the ledger

Posting refers to the recording of transactions from journals to the ledger. A ledger
is a book of secondary entries. There are 2 types of ledger, the general ledger and
subsidiary ledger. The subsidiary ledger contains individual customers and
suppliers accounts.

Balancing refers to the closing of the ledger accounts by putting the balance ( i.e
the difference ) on the appropriate side of the account.

Types of Assets

ASSETS

Fixed Assets Investments Current Assets, loans

(Tangible and (Trade and Non trade) & advances and Misc.
Intangible) Expenditure (Fictitious
Assets)

Foundation Material on Accounting for Managers

Page 7
Chapter 3 : Importance of Accounting Standards

Accounting standards are regulatory framework within which financial statements

are prepared. The basic accounting rules in preparing financial statements have
evolved over the years as a product of practice in accountancy, resulting in the
emergence of a plethora of rules and concepts, thereby endangering the
comparability of financial statements . It was thus felt that there should be certain
standardized rules to minimize or eliminate confusing variations in the methods
used to prepare financial statements .

Capital Expenditure and Revenue Expenditure

The table below shows stages of Computer Software Development and cost
accumulation phase

Preliminary Project Application Post-Implementation

Stage
Conceptual Formulation
of alternatives
Evaluation of
alternatives
Determination of
existence of needed
technology
Final selection of
alternatives
How should the above
expenses be recognised?
Charge to Profit &
Loss Account
Development Stage Operation Stage
Design of chosen path Training
including software
configuration and
interface
Coding Application maintenance
phase
Installation to hardware
Testing, including
parallel processing phase
Cost to be Charge to Profit &
capitalized/Intangible Loss Account
Expenses

Capital Revenue
It results in a benefit that will accrue to
the business for a long time
Foundation Material on Accounting for Managers

Page 8
Capable of being re-converted in cash
Amount spent on acquiring a permanent Incurred for day to day conduct of
asset business and maintain the capital asset
Adds to the revenue earning capacity of
the company
Taken to the Balance Sheet Profit & Loss Account

Chapter 4 : Ten Indicators of financial irregularities

1. Excessively complex organizational structure

2. Unusually structured partnership & joint venture
3. Replacement of accounting firms
4. Unexpected resignation of top executives
5. Unusually rapid expansion of existing product lines
6. Rapid expansion into new product lines
7. Dominance of the Company by one or more strong individuals
8. Significant related parties transactions
9. Unusually high corporate debts and interest burden
10.Significant off balance sheet items or contingent liabilities

Examples

Company Industry Indicator Indicator relevant

identified by to the respective
Friedman Company
1. Parmalat, Italy Dairy Products Unusually high Balance Sheet
corporate debts and reflecting plenty of
interest burden Cash yet Company
failing to service
and repay debts.

2. Enron , US Electricity, Gas Significant off It used shell

and other balance sheet items companies run by
commodities or contingent Enron executives to
liabilities record fictitious
revenues. About
Foundation Material on Accounting for Managers

Page 9
 3000 partnership
deals were entered
for off balance sheet
transactions

3. Satyam Software Significant related Companies

Computers, Services parties transactions resorting to
India meaningless
acquisitions. The
attempt to acquire
Maytas Properties
and Maytas
Infrastructures.

4. WorldCom, Tele- Unusually rapid 65 acquisitions in

US Communications expansion of six years
existing product
lines.

5. Adelphia, US Cable operations Dominance of the The Rigas family,

Company by one or that owned the
more strong Company ,
individuals borrowed $2.3
billion using
company‟s assets as
collateral

Foundation Material on Accounting for Managers

Page 10
 Chapter 5 : The 101 “A to Z” Glossary of Accounting/Finance Terms

Sl. Terms Meaning

No
1 Accrual Concept An important accounting concept where revenues
in Accounting and costs are recognised as they are earned or
incurred i.e accounted either when they are received
/ receivable or paid / payable basis ( when there is a
reasonable certainty of being receivable or payable)
2 Accounting They are the Policy documents issued by a
Standards recognised accounting body relating to various
aspects of measurement, presentation and
disclosure of accounting transactions.
3 ADR American Depository Receipts represents
ownership in the shares of a US Company that
trades in US financial markets. ADRs enable US
investors to buy shares in foreign companies
without the hazards of cross border or cross
currency transactions.
4 Accounting Accounting Concepts are the assumptions
Concepts underlying the preparation of financial statements
and the basic assumptions of going concern,
accruals and consistency and prudence.

5 Annual Report It is a set of documents primarily consisting of

6 Bonds
7 Bridge Loan
8 Bonus shares
Foundation Material on Accounting for Managers
Directors Report, Auditors Report and financial
statements namely Balance Sheet, Profit & Loss
Account and Cash Flow Statement alongwith notes
to accounts and significant accounting policies.
A written agreement between a borrower and a
lender in which the borrower agrees to repay a
stated sum on a future date and in most cases, to
make periodic interest payments at specified dates.
Loan advanced by a Bank for a short period to
make up for a temporary shortage of cash.
Shares issued by companies to their shareholders
free of cost by capitalisation of accumulated

Page 11
 reserves from the profits earned in the earlier years.
9 Collateral Security which is given in addition to the principal
Security security against the same liability or obligation
10 Capital The process of evaluating a long term project which
Budgeting determining which potential long-term projects are
worth undertaking, by comparing their expected
discounted cash flows with their internal rates of
return.
11 Corporate A narrow definition would be that CG is the
governance relationship of a company with its shareholders,
while broadly speaking; it is the relationship of
company with the society. Corporate governance is
the set of processes, customs, policies, laws and
institutions affecting the way a company is directed,
administered or controlled.
12 Corporate Social CSR is a concept whereby companies integrate
Responsibility social and environmental concerns in their business
operations and in their interaction with their
stakeholders on a voluntary basis.
13 Cost Plus A contract under which the contractor is reimbursed
Contract for allowable or otherwise defined costs as
increased by a percentage of such costs or an agreed
fee.
14 Common Size These are financial statements that contain all
financial amounts for a given year being shown as a
Statements percentage of sales for that year.
15 Consolidated They are the financial statements of a group
Financial presented as a single enterprise, the group
Statements consisting of the parent company, subsidiaries, joint
ventures and other associates.
16 Capital Market A capital market is a market for securities ( debt or
equity), where business enterprises can raise long-
term funds. Capital markets may be classified as
primary and secondary markets .In primary
markets, new stock or bond issues are sold to
investors and in the secondary markets, existing
securities are sold and bought among investors or
traders, usually on a securities exchange, over the
Foundation Material on Accounting for Managers

Page 12
 counter or elsewhere.
17 DuPont Analysis It is a method of performance measurement that
was started by the DuPont Corporation in the
1920s. DuPont analysis tells us that ROE (Return
on Equity) is affected by three things:
- Operating efficiency, which is measured by profit
margin
- Asset use efficiency, which is measured by total
asset turnover
- Financial leverage, which is measured by the
equity multiplier
18 Debt Equity This ratio measures the company‟s leverage and is
Ratio computed as total of liabilities (long term) divided
by total equity. Higher the ratio, more debt the
company has.
19 Depreciation, Depreciation is concerned with charging the cost of
Depletion , man-made fixed assets to operations. Depletion
Amortization and refers to cost allocations for natural resources such
Dilapidations as oil and mineral deposits. Amortization refers to
cost allocation for intangible assets such as patents
and leaseholds. The term dilapidation refers to the
damage done to a building or other property done
during tenancy
20 Derivatives An instrument that derives its value from the
movement of a price, an exchange rate, or an
interest rate associated with some other item.
Examples would be forwards, swaps and options.
21 Diluted EPS Diluted EPS reflects the existence of stock options
or other rights that can be converted into shares in
the future. Diluted EPS is computed to give
financial statement users an idea about the potential
impact on EPS of the exercise of existing stock
options or other rights to acquire shares.
22 ESOP Employees‟ Stock Option Plan. Under this scheme,
a company issues shares to employees at a value
which is less than the market value. This is done in
appreciation of the long term association of the
employee with the company

Foundation Material on Accounting for Managers

Page 13
23 EBITDA Earnings before Interest, Tax, Depreciation and
Amortization. It shows how well the business is
performing in the activities unique to that business
24 Earnings Per The earnings in monetary terms attributable to each
Share(EPS) equity share based on the net profit for the period.
Net profit is before taking into account prior period
items, extra ordinary items and adjustments
resulting in changes in accounting policies.
Net Profit is after deducting tax and preference
dividend.
25 ERP Enterprise Resource Planning integrates internal
and external management information across an
entire organization, embracing finance, accounting,
manufacturing, sales and service, etc. ERP systems
automate this activity with an integrated software
application. Its purpose is to facilitate the flow of
information between all business functions inside
the boundaries of the organization and manage the
connections to outside stakeholders.
26 EXIM Policy ( The Govt. of India, Ministry of Commerce and
Indian) Industry announces Export Import Policy every five
years. The current policy covers the period 2009-
2014 which is updated every year on the 31st of
March and the modifications, improvements and
new schemes are effective with effect from 1st April
of every year. The policy deals with the import and
export procedures.
27 EVA A measure of residual income implemented by the
consulting firm Stern Stewart.
28 Financial Financial Statement Analysis involves the
Statement examination of both the relationships among
Analysis financial statement numbers and the trends in those
numbers over time. One purpose of the analysis is
to use past performance of a company to predict
how well it will do in future. Another purpose is to
evaluate the performance of a company with an eye
towards identifying problem areas.
29 Futures A future contract is a contract that is traded on an

Foundation Material on Accounting for Managers

Page 14
 Contracts exchange and allows a company to buy a specified
quantity of a commodity, currency or financial
security at a specified price on a specified future
date.
30 FDI Foreign direct investment (FDI) or foreign
investment refers to the net inflows of investment to
acquire a lasting management interest in an
enterprise operating in an economy other than that
of the investor. It is the sum of equity capital,
reinvestment of earnings, other long-term capital,
and short-term capital as shown in the balance of
payments. It usually involves participation in
management, joint venture, transfer of technology
and expertise.
31 Fair Market The price that would be agreed to in an open and
Value unrestricted market between willing parties dealing
in arm‟s length transactions.
32 Fictitious Assets Items grouped under assets in a Balance Sheet
which have no real value e.g debit balance in the
Profit & Loss Account, Preliminary expenses.
33 Forward An agreement between two parties to exchange a
Contract specified amount of a commodity, security or
foreign currency at a specified date in the future
with the price or exchange rate being set now.
34 GAAP The set of accounting rules that are authoritative in
a given jurisdiction. Indian GAAP is Combination
of Accounting Concepts + Indian Accounting
Standards + Schedule VI requirements of
Companies Act, 1956. US GAAP is composed
primarily of the standards issued by the FASB.
While US GAAP is rule based, Indian GAAP (and
also IFRS) is principle based.
35 GST(Indian The indirect tax regime in India is proposed to be
Context) replaced by a comprehensive dual Goods and
Service Tax (GST)with Central GST and State GST
to be levied concurrently by the Centre and the
States. GST will have a far reaching impact on
virtually all aspects of businesses operating in the

Foundation Material on Accounting for Managers

Page 15
 country, for instance, pricing of products and
services; supply chain optimization; IT, accounting
and tax compliance systems.
36 GDR Global Depository Receipt is a certificate issued by
a depository bank which purchases shares of
foreign companies and deposits it on the account.
GDR facilitates trade of shares and are commonly
used to invest in companies from developing or
emerging markets.
37 GDP It is the money value of all final goods and services
produced within the geographical boundaries of the
country during a given period of time ( usually a
year)
38 Hedging Hedging is the structuring of transactions to reduce
risks. Derivatives are used in hedging activities
39 Hidden Reserves In good years i.e while goods profits are made,
companies often overstate their expenses by
creating provisions (e.g Provision for future
environmental cleanup costs), reserves or by
writing down the value of assets. This results in
hidden reserves which are reversed in bad years,
thus increasing income.
40 Insider Trading Insider trading is the trading of a company‟s shares
or other securities (e. g bonds and stock options) by
individuals (generally the insiders of the company)
with potential access to non-public information
about the company.
41 IPO Initial Public Offering is the first time a company
sells shares to the public. Subsequent issues of
additional shares are called seasoned equity
offerings.
42 IFRS International Financial Reporting Standards are
accounting standards, Interpretations and the
framework adopted by the International Accounting
Standards Board (IASB).Many of the standards
forming part of IFRS are known by the older name
of International Accounting Standards (IAS). IFRS
are considered a "principles based" set of standards

Foundation Material on Accounting for Managers

Page 16
 in that they establish broad rules as well as dictating
specific treatments. Indian Accounting Standards
are proposed to be converged with IFRS with effect
from 1st April, 2012.
43 Inflation Inflation Accounting is a financial reporting
Accounting procedure which records the consequences of
inflation on the financial statements. In many
countries, companies have been experiencing
inflation of high magnitude. The different ways
through which financial accounts can be adjusted
for changing prices is studied under the subject
“Inflation Accounting”. Given that price changes
can also be downward, it is more appropriately
called “Accounting for price level changes”.
44 Independent Independent Directors are directors who are not full
Directors( Indian time employees of the company but are appointed
context) on the board for the purpose of exercising powers &
duties of a director whose position is independent
.The purpose of identifying and appointing
independent directors is to ensure that the board
includes directors who can effectively exercise their
best judgment for the exclusive benefit of the
Company, judgment that is not clouded by real or
perceived conflicts of interest.
45 Internal Controls In accounting and auditing parlance, internal
control is defined as a process which is bought into
effect by an organization's structure, work and
authority flows, people and management
information systems, designed to help the
organization accomplish specific goals or
objectives. It is a means by which an organization's
resources are directed, monitored, and measured.
46 JIT Inventory An inventory management system in which
companies attempt to receive raw materials
inventory just when it is needed in the production
process and have finished goods produced just at
the moment that the customer wants to take
possession.

Foundation Material on Accounting for Managers

Page 17
47 Joint ventures Companies will, on occasion, join forces with other
companies to share the costs and benefits associated
with specifically defined. These JVs are often
developed to share the risks associated with high
risk projects. The beauty of a 50-50 JV is that both
companies can account for their investment using
the equity method.
48 Keiretsu(popular The Keiretsu in Japan are groups of large firms with
in Japan) ownership in one another and with interlocking
boards of directors. In some ways, an entire keiretsu
operates as one economic entity, but each company
within a Keiretsu prepares its own separate
financial statements.
49 Leverage The degree to which an investor or business is
utilizing borrowed money is called leverage.
Companies that are highly leveraged may be at a
high risk of bankruptcy if they are unable to make
payments on their debt. Leverage is not always bad,
it can increase the shareholders' return on
investment and often there are tax advantages
associated with borrowing and this aspect is called
financial leverage. In this connection, leveraged
buyout means an acquisition of a company where a
substantial amount of purchase price, often 90
percent or more is debt-financed.
50 Leases A Lease is a contractual agreement between the
lessor (owner of the property) and the Lessee ( user
of the property ), giving the lessee the right to use
the lessor‟s property for a specified period in
exchange for stipulated cash payments.
51 Materiality In the accounting context, materiality refers to the
question of whether an item is large enough to
make any difference to anyone. An item is material
if accounting for it could impact a decision.
52 Matching An accounting principle which requires that an
Principle expense should be recognised in the same period in
which the revenue in which it was used to generate
is recognised.

Foundation Material on Accounting for Managers

Page 18
53 Notes to financial These are additional information provided in a
statements firm‟s annual report basically in connection with
the financial statements viz Balance Sheet, Income
Statement and Cash Flow Statement.
54 NPV NPV is the difference between the present value of
cash inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the
profitability of an investment or
project. NPV analysis is sensitive to the reliability
of future cash inflows that an investment or project
will yield.
55 Operating cycle Operating cycle is the time from the acquisition of
an asset in the normal course of business till its
consumption in processing or sale and realisation in
cash or cash equivalents. If the operating cycle of
an entity is not clearly identifiable, it is taken as 12
months.
56 Operating Activities involved in producing and selling goods
Activities and services and thus comprise the day to day
business of a company.
57 Off – Balance Obligations of a company that are not recognised in
Sheet Financing the Balance Sheet. The most popular one is lease
financing.
58 Price Earning Ratio which measures the relationship between the
Ratio market value of a company and that with the
Company‟s earnings. PE Ratio = Market Value of
Share/EPS . PE Ratio is different from the other
ratios in that it is not the ratio of two financial
statements numbers. It is a comparison of a
financial statement number to a market value
number. Higher PE ratios indicate strong growth
potentials.
59 Preference Share The part of share capital of a company enjoys
Capital preferential rights in respect of payment of fixed
dividend and repayment of capital
60 Quarterly It is the financial results of a company reflecting the
Results performance in each of the four quarters of the year
which are popularly called Q1, Q2, Q3 and Q4 . In

Foundation Material on Accounting for Managers

Page 19
 Indian context, where financial year is from 1st
April to 31st March of next year , Q1 signifies 1st
April to 30th June, Q2 , Q3 and Q4 being 1st July to
30th September, 1st October to 31st December and 1st
January to 31st March respectively.
61 Qualitative Qualitative characteristics are the attributes that
characteristics make the information provided in the financial
statements useful to the users. Four principal
characteristics are understandability, Relevance,
Reliability and Comparability.
62 Rights Issue A rights issue is an option that a company opts for
to raise capital under a seasoned equity offering of
shares to raise money. Here, the first offer of shares
is made to the existing shareholders and if
renounced, the same is then offered to public at
large.
63 Revenue Revenue Recognition refers to the recording of a
Recognition sale in the formal accounting records. It is usually
recognised when cash or valid promise of future
payments has been received and the promised work
has been substantially completed.
64 Record Date The date established by an issuer of a security for
the purpose of determining the holders who are
entitled to receive a dividend or distribution.
65 Related Parties Related Parties mean subsidiaries, fellow
subsidiaries, associates and joint ventures of the
reporting entity. Apart from these, entities under
common control or through some intermediaries,
key management personnel would also be related
parties. ( As per Accounting Standard 18)
66 Restructuring A restructuring is a programme that is planned and
controlled by management and materially changes
either the scope of a business undertaken by the
entity or the manner in which the business is
conducted. Examples would be sale or termination
of a line of business, change in management
structure, closure of business location etc.
67 Retained It represents the undistributed profit presented in

Foundation Material on Accounting for Managers

Page 20
 Earnings the Profit & Loss Account of earlier years and
profits earned during the year other than those set
aside under any specific reserves.
68 Return on Equity It is the amount of net income returned as a
percentage of shareholders equity. Return on
equity measures a company‟s profitability by
revealing how much profit a company
generates with the money shareholders have
invested.
ROE is expressed as a percentage and calculated as
Net Income divided by Shareholder's Equity.
69 Return on This ratio is used to gauge the profitability of an
investment investment. It is calculated by dividing the profits
with the amount invested and expressed in terms of
percentage
70 Solvency Solvency in the context of long term solvency
means long term solvency and indicates whether an
entity will be able to pay off its liabilities in the
long run. Lenders who provide long term financing
are interested to know the entity‟s long term
solvency apart from the short term liquidity
parameter like finance charges coverage ratio or the
current ratio. Two important long term solvency
ratios are debt equity ratio and long term fund to
total assets ratio.
71 Significant Significant Accounting Policies refers to the
Accounting specific accounting principles and methods adopted
policies by enterprises in preparation and presentation of
financial statements. Example policy on method of
depreciation, valuation of inventories etc.
72 Segment Accounting Standard (AS) -17 requires that
Reporting financial information about different type of
products and services of an enterprise are classified
and shown differently as Geographical Segment
and Business Segment also thereby enabling the
user of financial statements to arrive at more
informed conclusion about the performance of the
enterprise.

Foundation Material on Accounting for Managers

Page 21
73 Swap A contract in which two parties agree to exchange
payments in the future based on the movement of
some agreed upon price or rate.
74 Substance over An accounting concept according to which the
form substance, and not merely the legal form of
transactions and events, governs their accounting
treatment and presentation in financial statements.
75 Sweat Equity Popularly called ESOPs, these are shares issued by
the companies exclusively to their employees as
reward for the loyalty and involvement with the
company.
76 SEZ A Special Economic Zone is a geographical region
that has economic and other laws that are more free-
market-oriented than a country's typical or national
laws. In India, SEZs are the special zones created
by the Government and run by Government-Private
or solely Private ownership, to provide special
provisions to develop industrial growth in that
particular area. Few incentives to SEZ include duty
free import/domestic procurement of goods for
development, 100% Income Tax
exemption on export income, exemption from
Central Sales Tax and Service Tax.
77 Sensex (BSE) The Bombay Stock Exchange SENSEX (acronym
of Sensitive Index) more commonly referred to as
SENSEX or BSE 30 is a free float market
capitalization weighted index of 30 well-
established and financially sound companies listed
on Bombay Stock Exchange. These companies are
some of the largest and most actively traded stocks
and are representative of various industrial sectors
of the Indian economy
78 SOX The Sarbanes–Oxley Act of 2002 enacted in the
USA in the year 2002, also known as the 'Public
Company Accounting Reform and Investor
Protection Act' (in the Senate) and 'Corporate and
Auditing Accountability and Responsibility Act' (in
the House) and commonly called SOX, is a United

Foundation Material on Accounting for Managers

Page 22
 States Federal Law which has set new or enhanced
standards for all U.S. public company boards,
management and public accounting firms.
79 True & Fair It is the view expressed by auditors about the
View( Indian financial statements confirming that the Balance
Context) Sheet, Income Statement and the Cash Flow
Statement prepared by an entity reflects a true and
fair view of the accounts prepared and maintained
for the whole accounting year and that the Financial
Statements are not misstated. This view is
expressed keeping the GAAP in Auditing Principles
in mind.
80 Timing Differences that arise between taxable income and
Differences accounting income that originates in one period and
are capable of reversal in one or more subsequent
periods. Taxable income is computed by taking into
consideration the disallowance of certain expenses
included in the Profit and Loss account.
81 Top Line Income i.e the first item in the Profit & Loss
Account is referred to as the top line, which every
user of the financial statement invariably looks at in
the first instance. The top line provides the first
indicator of the size of the operations of a company,
growth over the previous year and an idea about the
likely profits of the company. In this connection,
the net profit is regarded as the bottom line.
82 Time Value of Money to be received far in the future are not worth
money as much as money to be received now.
83 Triple Bottom This Phrase was coined by John Elkington in 1994
Line where the concept demand‟s that a company‟s
responsibility be to „stakeholders‟ rather than
„shareholders‟. The triple bottom line , also known
as the three Ps are : People ( employees &
communities) , Planet ( sustainable environmental
practices) and Profit (economic benefit enjoyed by
society as a whole)
84 Transfer Price The price charged ( or value assigned ) to a product
or service which is transferred within an enterprise

Foundation Material on Accounting for Managers

Page 23
 from one segment/division to another.
85 Tail Risk A higher than expected risk of an investment
moving more than three standard deviation away
from the mean.
86 Tail Risk A popular one is to create a basket of derivatives
Hedging that will perform poorly during normal market
conditions but soar when markets plunge
87 Transaction The process of determining how an economic event
Analysis impacts the financial statements.
88 Treasury Bills Short Term (upto 1 year) bearer discount security
issued by government as a means of financing their
cash requirements.
89 Useful Life A measure of the service potential that a current
user may expect from an asset. It can be in years,
percentage rates, or units produced , such as
expected miles
90 Underwriting An arrangement by which a company is guaranteed
that an issue of shares if short raised then to that
extent an agency/outside entity called the
underwriters will undertake to subscribe for any of
the issue not taken up by the public. They will
charge commission for this service.
91 VAT Value Added Tax has different meaning from the
perspective of the buyer, seller, manufacturer and
distributor. From the perspective of the buyer, it is a
tax on the purchase price; from that of the seller, it
is a tax only on the "value added" to a product,
material or service; from an accounting point of
view, by this stage of its manufacture or
distribution. The manufacturer remits to the
government the difference between these two
amounts, and retains the rest for themselves to
offset the taxes he had previously paid on the
inputs.
92 Venture Capital VC is the money provided by professionals called
Venture Capitalist who invest alongside
management in new rapidly growing companies
that have great potential and need start up fund.

Foundation Material on Accounting for Managers

Page 24
93 Weighted The cost of capital is the cost a company bears to
average cost of obtain external financing. The cost of debt
capital financing is the after tax interest cost associated
with the borrowing the money. The cost of equity
financing is the expected return (both as dividend
and as an increase in the market value of the
investment) necessary to induce investors to
provide equity capital. Weighted average cost of
capital is the average of debt and equity financing,
weighted by the proportion of each type of
financing.
94 Window Dressing Window dressing means striving to make a
presentation of a stellar financial record by adding
last minute changes so that facts look more
attractive. Financial Statements are said to be
window dressed when the management tries to
portray a rosier performance and position than it
actually is .Examples would be making a large loan
application just before the initial public offering.
Cash Flow Analysis offers important insights into
window dressing.
95 Whistle Blowing Whistle blowing is like letting out the cat or
bringing out the truth to the whole world which was
till now not known. When whistle blowing occurs,
it generally indicates an ethical failure at the
organisational level.
96 Working Capital The difference between Current Assets and Current
Liabilities
97 WPI Wholesale Price Index is an index that measures
and tracks the changes in price of goods in the
stages before the retail level. Wholesale price
indexes (WPIs) report monthly to show the average
price changes of goods sold in bulk, and they are a
group of the indicators that follow growth in the
economy.
Although some countries still use the WPIs as a
measure of inflation, many countries, including the
United States, use the producer price index (PPI)

Foundation Material on Accounting for Managers

Page 25
 instead.
98 XBRL XBRL (eXtensible Business Reporting Language)
is a language for electronic communication of
business and financial data which is revolutionising
business reporting around the world. It offers major
benefits to all those who have to create, transmit,
use or analyse such information. XBRL has been
developed by XBRL International, a not-for-profit
consortium of over 450 companies and
organisations which is promoting its worldwide use.
99 Yield Rate Yield rate or also known as the effective rate is the
rate at which a bond is issued
100 Zero Coupon These are bonds issued at a discount and repaid at a
Bond face value. No periodic interest is paid. The
difference between the issue price and the
redemption price represents the return to the holder.
The buyer of these bonds receives only one
payment, at the maturity of the bond.
101 Zero Base A method of budgeting in which all expenses must
Budgeting be justified for each new period. Zero-based
budgeting starts from a “zero base” and every
function within an organization are analyzed for its
needs and costs. Budgets are then built around what
is needed for the upcoming period, regardless of
whether the budget is higher or lower than the
previous one.

Foundation Material on Accounting for Managers

Page 26