Asset: In financial accounting, assets are economic resources.

Anything tangible or intangible that is

capable of being owned or controlled to produce value and that is held to have positive economic value is
considered an asset. Simply stated, assets represent value of ownership that can be converted
into cash (although cash itself is also considered an asset)

In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or
events, the settlement of which may result in the transfer or use of assets, provision of services or other
yielding of economic benefits in the future. Feature : Any type of borrowing from persons or banks for
improving a business or personal income that is payable during short or long time;. A duty or
responsibility to others that entails settlement by future transfer or use of assets, provision of services, or
other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a
specified event, or on demand;. A duty or responsibility that obligates the entity to another, leaving it little
or no discretion to avoid settlement; and,. A transaction or event obligating the entity that has already
occurred.

In accounting and finance, equity is the residual claimant or interest of the most junior class of investors
in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting
context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar
terms) represents the remaining interest in assets of a company, spread among
individual shareholders of common orpreferred stock.

In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable assets from
a person or company to another person or company. This outflow of cash is generally one side of a trade
for products or services that have equal or better current or future value to the buyer than to the seller.
Technically, an expense is an event in which an asset is used up or a liability is incurred. In terms of
the accounting equation, expenses reduce owners' equity.

In finance, gain is a profit or an increase in the value of an investment such as a stock or bond. Gain is
calculated by fair market value or the proceeds from the sale of the investment minus the sum of the
purchase price and all associated costs. If the investment is not converted into cash or another asset, the
gain is called an unrealized gain.

Revenue : The amount of money that a company actually receives during a specific period, including
discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from
which costs are subtracted to determine net income.

CAMEL Rating: Measure of the relative soundness of a bank. Camels ratings-the term stands for Capital,
Assets management, earnings, Liquidity and sensitivity to market risk-are calculated on a 1-5 scale, and
are used by bank supervisory agencies to evaluate bank condition. A rating of 1 is given to banks with the
strongest performance ratings; banks given a CAMELS rating of 4 or 5 are placed on the watch list of
banks in need of supervisory attention. Individual CAMELS ratings are disclosed to bank management,
though not to the general public.
International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the
International Accounting Standards Board (IASB) that is becoming the global standard for the preparation
of public company financial statements. International Financial Reporting Standards (IFRS) are designed
as a common global language for business affairs so that company accounts are understandable and
comparable across international boundaries. They are progressively replacing the many different national
accounting standards. The rules to be followed by accountants to maintain books of accounts which is
comparable, understandable, reliable and relevant as per the users internal or external.

IAS: An older set of standards stating how particular types of transactions and other events should be
reflected in financial statements. In the past, international accounting standards (IAS) were issued by the
Board of the International Accounting Standards Committee (IASC). Since 2001, the new set of standards
has been known as the international financial reporting standards (IFRS) and has been issued by the
International Accounting Standards Board (IASB). The IASB is an independent accounting standard-
setting body, based in London. It consists of 15 members from nine countries, including the United States.
The IASB began operations in 2001 when it succeeded the International Accounting Standards
Committee.
Basel Accord: A set of agreements set by the Basel Committee on Bank Supervision (BCBS), which
provides recommendations on banking regulations in regards to capital risk, market risk and operational
risk. The purpose of the accords is to ensure that financial institutions have enough capital on account to
meet obligations and absorb unexpected losses. First Basel accord is known as BASEL-I was issued in
1988 and second BASEL-II that is to be fully implemented by 2015.
Going Concern: A company is considered viable and a “going concern” for the foreseeable future. In
other words, a corporation is assumed to remain in existence for an indefinitely long time. Exxon Mobil,
for example, has existed since 1882, and General Electric has been around since 1892; both of these
companies are expected to continue to operate in the future. To assume that an entity will continue to
remain in business is fundamental to accounting for publicly held companies.
Relevant cost(also called avoidable cost or differential cost): A managerial accounting term that is used to
describe costs that are specific to management's decisions. The concept of relevant costs eliminates
unnecessary data that could complicate the decision-making process. Relevant costs are those costs that
will make a difference in a decision. Relevant costs are future costs that will differ among alternatives.
Relevant costs are expenses that need to be taken into consideration when purchasing or planning to
purchase certain items.

Window dressing refers to actions taken or not taken prior to issuing financial statements in order to
improve the appearance of the financial statements. Window dressing is particularly common when a
business has a large number of shareholders, so that management can give the appearance of a well-run
company to investors who probably do not have much day-to-day contact with the business
Assumption of CVP analysis: Cost–volume–profit (CVP), in managerial economics, is a form of cost
accounting. 1. All costs can be classified as fixed and variable. 2. Behavior or costs will be linear within
the relevant range. Difficulty of steps fixed costs. 4. Selling price remains constant for any volume. 5.
There is no significant change in the size of inventory. 6. Cost-volume-profit (CVP) analysis applies only
to a short-term time horizon

Limitation of CVP analysis: A number of limitations are commonly mentioned with respect to CVP
analysis: 1. The analysis assumes a linear revenue function and a linear cost function. 2. The analysis
assumes that what is produced is sold. 3. The analysis assumes that fixed and variable costs can be
accurately identified. 4. For multiple-product analysis, the sales mix is assumed to be known and constant.
5. The selling prices and costs are assumed o be known with certainty.

Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for
financial accounting used in any given jurisdiction; generally known as accounting standards. GAAP
includes the standards, conventions, and rules accountants follow in recording and summarizing, and in
the preparation of financial statements. Its contains – assumption, principle, Constraint.

Sunk Cost: A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from
other, future costs that a business may face, such as inventory costs or R&D expenses, because it has
already happened. Sunk costs are independent of any event that may occur in the future. Two specific
features characterizing the sunk cost heuristic worth mentioning are: 1. An overly optimistic probability
bias, whereby after an investment the evaluation of one's investment-reaping dividends is increased. 2.
The requisite of personal responsibility. Sunk cost appears to operate chiefly in those who feel personal
responsibility for the investments that are to be viewed as sunk cost.

Revenue Recognition. Accrual basis of accounting dictates that revenues must be recorded when earned
and measurable. The revenue recognition principle is a cornerstone of accrual accounting together with
matching. They both determine the accounting period, in which revenues and expenses are recognized.
According to the principle, revenues are recognized when they are realized or realizable, and are earned
no matter when cash is received. In cash accounting – in contrast – revenues are recognized when cash is
received no matter when goods or services are sold. Cash can be received in an earlier or later period than
obligations are met (when goods or services are delivered) and related revenues are recognized that results
in the following two types of accounts: Accrued: Revenue is recognized before cash is received. Deferred
revenue: Revenue is recognized after cash is received.
Adjustment entry: In accounting/accountancy, adjusting entries are journal entries usually made at the end
of an accounting period to allocate income and expenditure to the period in which they actually occurred.
The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and
accrued revenues under accrual-basis accounting. They are sometimes called Balance Day adjustments
because they are made on balance day.
Adjustment entry: In accounting/accountancy, adjusting entries are journal entries usually made at the end
of an accounting period to allocate income and expenditure to the period in which they actually occurred.
The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and
accrued revenues under accrual-basis accounting. They are sometimes called Balance Day adjustments
because they are made on balance day.
Whey adjustment entries: 1. Some events are not journalized daily because it is inexpedient to do so .
Examples are the consumption if supplies and the earning of wages by employees. 2. Some cost are not
journalizes during the accounting period because they expire with the passage of time rather than through
recurring daily transaction, example are equipment deterioration and rent and insurance. 3. Some items
may be unrecorded. An example is a utility service bill that will not be received until the nest accounting
period. It is also required for adjusting of accrued revenue and expenditure. Prepaid expanse and income,
unearned revenue, correcting the posting of error transaction.

Closing entries: A journal entry made at the end of the accounting period. The closing entry is used to
transfer data in the temporary accounts to the permanent balance sheet or income statement accounts. The
purpose of the closing entry is to bring the temporary journal account balances to zero for the next
accounting period, which aids in keeping the accounts reconciled. All revenue account , all expenditure
account, and owners drawing account

The sequence of the closing process and the associated closing entries is: 1. Close revenue accounts to
income summary, by debiting revenue and crediting income summary.
2. Close expense accounts to income summary, by debiting income summary and crediting expense.
3. Close income summary to retained earnings, by debiting income summary and crediting retained
earnings. 4. Close dividends to retained earnings, by debiting retained earnings and crediting dividends.
Insurance company: prepared Revenue account-profit of loss is not use in the revenue account. In the
revenue account start with the opening balance fund in right side. And at the end the closing balance
write. In reality there is no loss in the revenue account. It is always gain profit.

The economic entity assumption is a concept used in accounting. It says that activities of the entity at
hand are to be kept separate from the activities of its own and all other economic entities. Some examples
of this are hospitals, companies, municipalities, and federal agencies. Economic entity assumption is an
assumption under the Generally Accepted Accounting Principles that separates the stakeholders from the
business itself. The business is its own entity.
"The monetary unit assumption requires that companies include in the accounting records only
transactions data that can be expressed in terms of money. This assumption enables accounting to
quantify(measure) economic events. The monetary unit assumption is vital to applying the cost principle.
This assumption prevents the inclusion of some relevant information in the accounting records. For
example, the health of the owner, the quality of service, and the morale of employees are not included.
The reason: Companies cannot quantify this information in terms of money. Though this information is
important, only events that can be measured in money are recorded."
Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for
financial accounting used in any given jurisdiction; generally known as accounting standards. GAAP
includes the standards, conventions, and rules accountants follow in recording and summarizing, and in
the preparation of financial statements.
Assumption 1: Accounting Entity: A company is considered a separate “living” enterprise, apart from its
owners. In other words, a corporation is a “fictional” being: It has a name. It has a birth date and
birthplace (referred to as incorporation date and place, respectively). It is engaged in clearly defined
activities. It regularly reports its financial health (through financial reports) to the general public. It pays
taxes. It can file lawsuits.
Assumption 2: Going Concern A company is considered viable and a “going concern” for the foreseeable
future. In other words, a corporation is assumed to remain in existence for an indefinitely long time.
Exxon Mobil, for example, has existed since 1882, and General Electric has been around since 1892; both
of these companies are expected to continue to operate in the future. To assume that an entity will
continue to remain in business is fundamental to accounting for publicly held companies.
Assumption 3: Measurement and Units of Measure Financial statements have limitations; they show only
measurable activities of a corporation such as its quantifiable resources, its liabilities (money owed by it),
amount of taxes facing it, and so forth. For example, financial statements
Assumption 4: Periodicity A continuous life of an entity can be divided into measured periods of time, for
which financial statements are prepared. U.S. companies are required to file quarterly (10-Q) and annual
(10-K) financial reports. Typically one calendar year represents one accounting year (usually referred to
as a fiscal year) for a company. Be aware that while many corporations align their fiscal years with
calendar years, others do not.
Principle 1: Historical Cost Financial statements report companies’ resources at an initial historical or
acquisition cost. Let’s assume a company purchased a piece of land for $1 million 10 years ago. Under
GAAP, it will continue to record this original purchase price (typically called book value) even though the
market value (referred to as fair value) of this land has risen to $10 million
Principle 2: Revenue Recognition. Accrual basis of accounting dictates that revenues must be recorded
when earned and measurable. The revenue recognition principle is a cornerstone of accrual
accounting together with matching. They both determine the accounting period, in which revenues and
expenses are recognized. According to the principle, revenues are recognized when they are realized or
realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash
is received. In cash accounting – in contrast – revenues are recognized when cash is received no matter
when goods or services are sold. Cash can be received in an earlier or later period than obligations are met
(when goods or services are delivered) and related revenues are recognized that results in the following
two types of accounts: Accrued: Revenue is recognized before cash is received. Deferred revenue:
Revenue is recognized after cash is received.
Principle 3: Matching Principle. Under the matching principle, costs associated with making a product
must be recorded (“matched” to) the revenue generated from that product during the same period.
The matching principle is a culmination of accrual accounting and the revenue recognition principle. They
both determine the accounting period, in which revenues and expenses are recognized. According to the
principle, expenses are recognized when obligations are (1) incurred (usually when goods are transferred
or services rendered, e.g. sold), and (2) offset against recognized revenues, which were generated from
those expenses (related on the cause-and-effect basis), no matter when cash is paid out. In cash
accounting—in contrast—expenses are recognized when cash is paid out, no matter when obligations are
incurred through transfer of goods or rendition of services: e.g., sale. In simple words the matching
principle: prescribes expenses to be reported in the same period as the revenues that were earned as a
result of the expenses
Principle 4: Full Disclosure Under the full disclosure principle, companies must reveal all relevant
economic information that they determine to make a difference to their users. Such disclosure should be
accomplished in the following sections of companies’ reports: Financial statements, Notes to financial
statements, Supplementary information
Constraint 1: Estimates and Judgments Certain measurements cannot be performed completely accurately,
and must therefore utilize conservative estimates and judgments. For example, a company cannot fully
predict the amount of money it will not collect from its customers, who having purchased goods from it
on credit, ultimately decide not to pay. Instead, a company must make a conservative estimate based on its
past experience with bad customers.
Constraint 2: Materiality Inclusion and disclosure of financial transactions in financial statements hinge
on their size and effect on the company performing them. Note that materiality varies across different
entities; a material transaction (taking out a $1,000 loan) for a local lemonade stand is likely immaterial
for General Electric, whose financial information is reported in billions of dollars.
Constraint 3: Consistency For each company, the preparation of financial statements must utilize
measurement techniques and assumptions that are consistent from one period to another.
Constraint 4: Conservatism Financial statements should be prepared with a downward measurement bias.
Assets and revenues should not be overstated, while liabilities and expenses should not be understated.

Comprehensive income is defined by the Financial Accounting Standards Board, or FASB, as “the change
in equity of a business enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.” The change in a company's net assets from
nonowner sources over a specified period of time. Comprehensive income is a statement of all income
and expenses recognized during that period. The statement includes revenue, finance costs, tax expenses,
discontinued operations, profit share and profit/loss.
A company's operating income after operating expenses are deducted, but before income taxes and
interest are deducted. If this is a positive value, it is referred to as net operating income, while a negative
value is called a net operating loss (NOL).
Opportunity cost: The opportunity cost of a choice is the value of the best alternative forgone, in a
situation in which a choice needs to be made between several mutually exclusive alternatives given
limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit
that would be had by taking the second best choice available.
Periodic Vs perpetual inventory: 1.Inventory Account and Cost of Goods Sold Account are used in both
systems but they are updated continuously during the period in perpetual inventory system whereas in
periodic inventory system they are updated only at the end of the period. 2.Purchases Account and
Purchase Returns and Allowances Account are only used in periodic inventory system and are updated
continuously. In perpetual inventory system purchases are directly debited to inventory account and
purchase returns are directly credited to inventory account. 3. Sale Transaction is recorded via two journal
entries in perpetual system. One of them records the sale value of inventory whereas the other records cost
of goods sold. In periodic inventory system, only one entry is made. 4. Closing Entries are only required
in periodic inventory system to update inventory and cost of goods sold. Perpetual inventory system does
not require closing entries for inventory account.
Cash Vs Accrual-1.Definitions: The cash basis records financial information only when cash changes
hands during transactions. The accrual method records transactions as they occur, matching revenues
earned with money expensed for business operations. 2. Revenues are reported on the income statement in
the period in which the cash is received from customers. 3. Revenues are reported on the income
statement when they are earned---which often occurs before the cash is received from the customers. 4.
Expenses are reported on the income statement in the period when they occur or when they expire---
which is often in a period different from when the payment is made. 5.Time Frame: While the accrual
method requires that transactions be recorded for monthly and yearly periods, the cash method allows
transactions to overlap calendar dates until cash is received for goods or services. 4. Expenses are reported
on the income statement when the cash is paid out. 6.Warnings: Although the cash basis method is easy to
use, it does not generate accurate reports for forecasting future sales and expenses. The accrual method
accurately records revenues, but it does not track how much cash companies collect during their
accounting periods.
Off Balance sheet: An asset or debt that does not appear on a company's balance sheet. Items that are
considered off balance sheet are generally ones in which the company does not have legal claim or
responsibility for. For example, loans issued by a bank are typically kept on the bank's books. If those
loans are securitized and sold off as investments, however, the securitized debt is not kept on the bank's
books. One of the most common off-balance sheet items is an operating lease.

Indication "2/10, n/30" (or "2/10 net 30") on an invoice represents a cash (sales) discount provided by the
seller to the buyer for prompt payment. The term 2/10, n/30 is a typical credit term and means the
following:-"2" shows the discount percentage offered by the seller. "10" indicates the number of days
(from the invoice date) within which the buyer should pay the invoice in order to receive the discount.
"n/30" states that if the buyer does not pay the (full) invoice amount within the 10 days to qualify for the
discount, then the net amount is due within 30 days after the sales invoice date.
Adjusted trial balance: once the unadjusted trial balance accounts have been reviewed and the proper
adjusting entries prepared, the adjusting entries are posted to the general ledger. To verify that debits
equal credits in the general ledger after the entries are posted, another trial balance is prepared. This trial
balance is called an adjusted trial balance. The adjusted trial balance is an internal document and is not a
financial statement. The purpose of the adjusted trial balance is to be certain that the total amount of debit
balances in the general ledger equals the total amount of credit balances.
Matching Principle. Under the matching principle, costs associated with making a product must be
recorded (“matched” to) the revenue generated from that product during the same period. The matching
principle is a culmination of accrual accounting and the revenue recognition principle. They both
determine the accounting period, in which revenues and expenses are recognized. According to the
principle, expenses are recognized when obligations are (1) incurred (usually when goods are transferred
or services rendered, e.g. sold), and (2) offset against recognized revenues, which were generated from
those expenses (related on the cause-and-effect basis), no matter when cash is paid out. In cash
accounting—in contrast—expenses are recognized when cash is paid out, no matter when obligations are
incurred through transfer of goods or rendition of services: e.g., sale. In simple words the matching
principle: prescribes expenses to be reported in the same period as the revenues that were earned as a
result of the expenses.
A Deferred expense or prepayment, prepaid expense, plural often prepaid, is an asset representing cash
paid out to a counterpart for goods or services to be received in a later accounting period. For example if a
service contract is paid quarterly in advance, at the end of the first month of the period two months remain
as a deferred expense. In the deferred expense the early payment is accompanied by a related recognized
expense in the subsequent accounting period, and the same amount is deducted from the prepayment.
Deferred revenue (or deferred income) is a liability, such as cash received from a counterpart for goods or
services that are to be delivered in a later accounting period. When such income item is earned, the
related revenue item is recognized, and the deferred revenue is reduced. It shares characteristics
with accrued expense with the difference that a liability to be covered later is an obligation to pay for
goods or services received from a counterpart, while cash for them is to be paid out in a later period when
its amount is deducted from accrued expenses.

BEP: In economics & business, specifically cost accounting, the break-even point (BEP) is the point at
which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even." A
profit or a loss has not been made, although opportunity costs have been "paid," and capital has received
the risk-adjusted, expected return. In short, all costs that needs to be paid are paid by the firm but the
profit is equal to 0. The accounting method of calculating break-even point does not include cost
of working capital. The financial method of calculating break-even, called value added break-even
analysis, is used to assess the feasibility of a project. This method not only accounts for all costs, it also
includes the opportunity costs of the capital required to develop a project. Formula of BEP=Fixed
cost/contribution per unit. BEP Tk= BEP unit X sales price per unit. Contribution per unit=Selling price –
Variable price.

Contribution margin: An important term used with break-even point or break-even analysis
is contribution margin. In equation format it is defined as follows: Contribution per unit=Selling price P U
– Variable price P U.

Sensitivity Analysis: A technique used to determine how different values of an independent variable will
impact a particular dependent variable under a given set of assumptions. This technique is used within
specific boundaries that will depend on one or more input variables, such as the effect that changes in
interest rates will have on a bond's price. Sensitivity analysis is very useful when attempting to determine
the impact the actual outcome of a particular variable will have if it differs from what was previously
assumed. By creating a given set of scenarios, the analyst can determine how changes in one variable(s)
will impact the target variable. Another refinement of the break-even analysis is the “sensitivity
analysis.” This refers to using the break-even point to evaluate different scenarios. For example, what
happens if you increase prices by 25%? What happens if unit sales fall by 20%? Using a spreadsheet, it is
very simple to perform such calculations quickly, allowing you to look at different situations.
Accounting definition: Accountancy, or accounting, is the production of financial records about an
organization. Accountancy generally produces financial statements that show in money terms
the economic resources under the control of management; selecting information that is relevant and
representing it faithfully. The principles of accountancy are applied to accounting, bookkeeping,
and auditing.

Step of Accounting: Transactions Financial transactions start the process. Transactions can include the
sale or return of a product, the purchase of supplies for business activities, or any other financial activity
that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit
from or payout of money to the company’s owners. Journal entries The transaction is listed in the
appropriate journal, maintaining the journal’s chronological order of transactions. The journal is also
known as the “book of original entry” and is the first place a transaction is listed. Posting The transactions
are posted to the account that it impacts. These accounts are part of the General Ledger, where you can
find a summary of all the business’s accounts. Trial balance At the end of the accounting period (which
may be a month, quarter, or year depending on a business’s practices), you calculate a trial balance.
Worksheet Unfortunately, many times your first calculation of the trial balance shows that the books
aren’t in balance. If that’s the case, you look for errors and make corrections called adjustments, which
are tracked on a worksheet. Adjusting journal entries You post any corrections needed to the affected
accounts once your trial balance shows the accounts will be balanced once the adjustments needed are
made to the accounts. You don’t need to make adjusting entries until the trial balance process is
completed and all needed corrections and adjustments have been identified. Financial statements You
prepare the balance sheet and income statement using the corrected account balances. Closing the books
You close the books for the revenue and expense accounts and begin the entire cycle again with zero
balances in those accounts.

Basic step in recording process: 1. Analyze each transaction for its effects on the accounts.
2. Enter the transaction information in a journal: A journal details all the financial transactions of a
business and which accounts these transactions affect. 3. Transfer the journal information to the
appropriate accounts in the ledger: The transactions are posted to the account that it impacts. These
accounts are part of the General Ledger, where you can find a summary of all the business’s accounts.

Functional and operational definition of accounting:1. Reording of transaction, 2. classification and

posting of transaction, 3. Summarizing of transaction, 4. Determination of financial result, 5. exhibition of
the financial position, 6. communicate the financial information, 7. Analysis of financial position.
Operational: 1. Formulation of policy and preparation plan, preparation of budget, cost control, evaluation
of worker performance, prevention of errors of frauds, determining the source of fund.

Component of Financial statement for bank: Bank company act 1991 31(8) section- 1. LAS-30 balance
sheet, LAS-30- income statement, LAS-7-cash flow statement, Owners equity transfer statement, and
Necessary notes.
Accounting Information is a set of financial data indicating an organization's resources, revenues, debts or
expenses. Information about accounting information system is responsible for providing timely and
accurate financial and statistical reports for internal management decision making, and for external parties
such as investors.
User of accounting Information: Internal user: 1. Owner- for analyzing the viability and profitability of
their investment and determining any future course of action. Management-for analyzing the
organization's performance and position and taking appropriate measures to improve the company results.
Employees: for assessing company's profitability and its consequence on their future remuneration and
job security. Internal Audit, labor union, shareholders
External User: Future Investor- for analyzing the feasibility of investing in the company. Investors want
to make sure they can earn a reasonable return on their investment before they commit any financial
resources to the company. External Audit, Tax Authourities: for determining the credibility of the tax
returns filed on behalf of the company. - Creditors: for determining the credit worthiness of the
organization. Terms of credit are set by creditors according to the assessment of their customers' financial
health. Creditors include suppliers as well as lenders of finance such as banks. Customers: for
assessing the financial position of its suppliers which is necessary for them to maintain a stable source of
supply in the long term. Regulatory Authorities: for ensuring that the company's disclosure of accounting
information is in accordance with the rules and regulations set in order to protect the interests of the
stakeholders who rely on such information in forming their decisions. Payee , central bank
Quantities Feature: Understandability :This implies the expression, with clarity, of accounting
information in such a way that it will be understandable to users - who are generally assumed to have a
reasonable knowledge of business and economic activities. Relevance: This implies that, to be useful,
accounting information must assist a user to form, confirm or maybe revise a view - usually in the context
of making a decision (e.g. should I invest, should I lend money to this business? Should I work for this
business?) Consistency :This implies consistent treatment of similar items and application of accounting
policies. Comparability :This implies the ability for users to be able to compare similar companies in the
same industry group and to make comparisons of performance over time. Much of the work that goes into
setting accounting standards is based around the need for comparability. Reliability :This implies that the
accounting information that is presented is truthful, accurate, complete (nothing significant missed out)
and capable of being verified (e.g. by a potential investor). Objectivity :This implies that accounting
information is prepared and reported in a "neutral" way. In other words, it is not biased towards a
particular user group or vested interest
Financial instrument act 1993-Restriction on the payment of dividends.- No financial institution shall pay
any dividend on its shares, unless all its capitalized expenses including preliminary expenses, organization
expenses, commission for share selling and brokerage, losses and other items have been completely
written off.
BRPD Circuler: September 23, 2012, BRPD Circular No. 14
General Provision: Banks will be required to maintain General Provision in the
following way : (1) @ 0.25% against all unclassified loans of Small and Medium Enterprise (SME) as
defined by the SME & Special Programmers Department of Bangladesh Bank from time to time and @
1% against all unclassified loans (other than loans under Consumer Financing, Loans to Brokerage
House, Merchant Banks, Stock dealers etc., Special Mention Account as well as SME Financing.) (2) @
5% on the unclassified amount for Consumer Financing whereas it has to be maintained @ 2% on the
unclassified amount for (i) Housing Finance and (ii) Loans for Professionals to set up business under
Consumer Financing Scheme. (3) @ 2% on the unclassified amount for Loans to Brokerage House,
Merchant Banks, Stock dealers, etc. (4) @ 5% on the outstanding amount of loans kept in the 'Special
Mention Account'. (5) @1% on the off-balance sheet exposures. (Provision will be on the total exposure
and amount of cash margin or value of eligible collateral will not be deducted while computing Off
balance sheet exposure.)
b) Specific Provision: Banks will maintain provision at the following rates in respect of
classified Continuous, Demand and Fixed Term Loans: (1) Sub-standard : 20% (2) Doubtful : 50%
(3) Bad/Loss : 100%
c) Provision for Short-term Agricultural and Micro-Credits:
(1) All credits except 'Bad/Loss' (i.e. 'Doubtful', 'Sub-standard', irregular and regular credit accounts) : 5%
(2) 'Bad/Loss' : 100%

Bank Company act1991: profit and loss account:

Accounts and balance sheet.- (1) At the expiration of each financial year every banking company
incorporated inside or outside Bangladesh shall, in respect of all business transacted by it and through its
branches within that year, prepare a balance sheet and profit and loss account as well as a financial report
as on the last working day of the year in the forms set out in the first schedule or as near thereto as
possible. (2) The balance sheet, profit and loss account and financial report of any banking company- a)
shall be signed in the case of a banking company incorporated in Bangladesh, by its managing director or
its principal officer and where there are more than three directors of the banking company, by at least
three of those directors, and where there are not more than three directors, by all of them;
b) shall be signed in the case of a banking company incorporated outside Bangladesh, by the manager or
agent of the principal office of the company in Bangladesh and by another officer next in seniority to the
manager or agent.
(3) Notwithstanding that the forms relating to the submitting of a balance sheet, profit and loss account
and financial report of a banking company differ from the form E of the Third Schedule of the Companies
Act, the provisions of that Act shall, in the case of submitting such balance sheet, profit and loss account
and financial report, be applicable to the extent they are consistent with the provisions of this Act
 Following is the contribution margin income statement of a single product company:
Total Per unit
Sales $1,200,000 $80
Less variable expenses $840,000 $56
———– ——-
Contribution margin 360,000 $24
Less fixed expenses 300,000 ——-
———–
Net operating income $60,000
———–
Required:
1. Calculate break-even point in units and dollars.
2. What is the contribution margin at break-even point?
3. Compute the number of units to be sold to earn a profit of $36,000.
4. Compute the margin of safety using original data.
5. Compute CM ratio. Compute the expected increase in monthly net operating if sales increase by $160,000
and fixed expenses do not change.
Solution:
(1) Break-even point in units and dollars:
Fixed expenses / Unit contribution margin
$300,000 / $24
12500 units
or
(12,500 units × $80) = $1000000
(2) Contribution margin at break-even point:
Contribution margin must be $300,000 at break-even point because it will cover fixed costs and nothing
will remain to go towards profit.
(3) Computation of target profit (contribution margin method):
(Fixed expenses + Target profit) / Unit contribution margin
($300,000 + $36,000) /$24
Company must sold 14,000 units of product to earn a target profit of $36,000.
(4) Margin of safety in dollars and percentage:
Actual or budgeted sales – sales required to break-even
$1,200,000 – $1,000,000
$200,000
or
$200,000 / 1,200,000 = 16.67%
(5) CM ratio and expected change in net operating income:
Contribution margin / Total sales
360,000 / 1,200,000
30%
If the sales are increased by $160,000 without any change in fixed expenses, the net operating income will
be increased by:
$160,000 × CM ratio of 30%
$48,000