Financial Terminology for Drawing and Disbursing Officers and Financial Executives

Financial Terminology for Drawing and
Disbursing Officers

-Dr.Lalit Kumar Setia*

Capacity:

The highest output of a firm or industry at a given time with its available stock of production factors.  This capacity can be increased by introduced new machinery or equipment and adding on more of the needed factors of production e.g. labour, capital etc.

Capital:

The total resources employed in a business, such as, shareholders’s Capital or Partners Capital or Owners Capital.  In simple words it is the networth of a business firm, company or an individual.  Net worth is the difference between the total assets and liabilities.  In a company, it is the sum subscribed by the members of the company viz. the shareholders.  There are various categories of capital in a company such, as ‘Authorised Capital’, Issued Capital,Paid-up Capital etc.

Capital expenditure:

An expenditure that increases net fixed assets or on items that will be depreciated or amortized during the subsequent years.

Capital Gain:

The difference between the proceeds from the sale of a capital asset and the purchase cost less any depreciation previously allowed.

Capital Markets:

The market for medium term and long-term loans, in contrast to the money market which is the market for very short-term loans.  Money Markets serve the needs of discount markets, whereas, Capital Markets serve the needs of discount markets, whereas, Capital Markets serve the needs of Industry and Commerce, Governments, and Local authorities.  Limited Companies often borrow from capital markets through the means of debentures, while the Government or a local authority may issue new stock.

Capital Structure:

The proportions of different types of finance used in a business such as equity and different types of debts.

Cash:

Originating from a French word Casse meaning box, in everyday use, the term now refers to (1) ready money in bank notes or coins form or (2) the payment aspect of a transaction which may be cash in the ready money sense or payment by cheque or even credit card.

Cash Book:

A book containing the cash transactions on the basis of receipts and payments of a business.  The book is called the book of Prime Entry also.

Cash Budget:

A forecast of cash receipts and disbursements.

Cash Flow:

The total of the retained profits of business after tax.  If it includes the amount set apart from depreciation it is called the Net Cash Flow.

Cash Flow Statement:

A financial statement that accounts for the increase or decrease in a company’s cash during a period showing where from the company got cash and the uses it made of cash.

Clearing House:

An institution or an organization where mutual indebtness can be settled.  At a clearing house debts between members may be largely cancelled out and differences paid.

Commission:

A sum or an amount paid to a person or an organization who is acting as an agent or carrying out a business on behalf of somebody, for which he is paid.  This sum is called as commission.  This is very common in the Insurance, business, stock markets, high value products like computer sales etc.

Compensation:

An amount or sum payable or paid to someone who has suffered injury.

Consolidated Accounts:

Accounts of a holding company and its subsidiaries, treating them as one firm.

Consolidated Statements:

Financial statements in which the assets and liabilities of all affiliated companies are combined on a single balance sheet and their revenues and expenses are combined on a single Income statement as though the business were a single company.

Contingent Liability:

A potential liability that may become an actual liability if a certain event occurs.

Controllable Costs:

Costs that are within or subject to the influence of a given manager or authorized person to whom responsibility has been given for a specific responsibility centre for a given time span.

Copy right:

An exclusive right granted by the Government to publish and sell a musical, literary, or art work for a period of years.  They continue even after a person’s death.

Corporation:

A body or society or a group of persons associated together, authorized by law to act as a single individual and to perpetuate its existence by the admission of new members.

Cost:

The value in terms of money of the efforts, utilities, risks and abstinences which form the real cost measured in resources.  The cost of producing a certain output of a commodity is the sum of all the payments to the factors of production engaged on the production of the commodity.  The term ‘cost of production’ has meaning only when it is related to output.  Costs can be fixed or variable.

Cost Accountant:

A person qualified in Cost accountancy, usually as a result of passing the qualifying examinations of the Institute of Cost and Works Accountants (ICWA) and becoming a member thereof.

Cost Accounting:

The phase of accounting that deals with collecting and controlling the costs of production a given product or service.  The establishment of budgets and standard costs and actual costs of operations, processes, departments or products and the analysis of variances and profitability.

Cost Benefit Analysis:

A form of analysis used for evaluating a project’s required investment of funds vis-à-vis the benefits to be received for the expenditure incurred.  A method of appraising projects, especially public works, by using monetary values for costs and benefits arising from them and then comparing the results.

Cost Centre

A unit of business that incurs costs or expenses but does not directly generate revenues. It is usually a particular department or process with a manager who takes the responsibility of the operations.  All costs are either allocated or apportioned to a cost centre on some reasonable basis.

Cost of Capital

The amount or sum to be paid by the business to retain capital funds. The yield of all investments must be atleast equal to the cost of capital.  It is used as a hurdle rate to compute or evaluate the cost of capital. Different types of capitals have different costs.

Cost-Volume-Profit Analysis

A method of predicting the effects of changes in costs and sales level on the income of a business.  It is based on a distinct, distinction to be made between fixed and variable costs.  It forms the ground for constructing break-even charts.

Credit

The right hand side of a T-account.  The lending of a sum or capital by one person to another. A deposit of money into a bank account. A commercial arrangement under which goods or services are sold to a buyer who undertakes to pay partly or fully at a later date.

Credit Card

A card issued by a financial organization or bank, enabling the holder to obtain credit from a large number of suppliers, including travel, meals, hotels accommodation etc.  These cards are issued, after the applicant’s credit worthiness has been considered.  The banks issuing credit caards expect to cover their administrative cost from the interest they charge on the credit facilities they offer.

Creditor

A person or enterprise to whom a debit is owed i.e. a person who has to be paid for goods received, at some later date.

Currency

A qualified medium of exchange or means of payment within a country.  It includes coins, bank rates, cheques and bills of exchange.  A distinction is sometimes drawn between ‘hard’ and ‘soft’ currencies.  The former is one which is strong, and in great demand i.e. widely accepted in international transactions whereas, the latter i.e. ‘soft’ is one which is not so universally accepted due to the economic system weakness of the country of ‘soft’ currency e.g. U.S. Dollar is a ‘hard’ currency whereas, the India Rupee is a ‘soft’ currency.

Current Assets

Cash plus those assets which are reasonably expected to be converted in to cash or sold or consumed during the normal operating cycle of the business.  Very liquid or short-term assets.

Current Liabilities

A debt or other obligation that must be paid or liquidated within one year or within the normal operating cycle, if longer than one year.  The payment or liquidation of which will require the use of presently classified current assets.

Current Ratio

The relation of a company’s current assets to the current liabilities i.e. current assets divided by current liabilities.

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*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.