Weekly One Liners Digest - Finance and Accounting by Abhishek Bansal

Weekly One Liners Digest 

One Liners

  • X % preference shares means that preference shareholders will be rewarded with X % dividend on preference share capital. For example, a company Z limited issues 12% preference share of INR 1.00 Cr, which means that company Z limited will give 12% of dividend, to wit, INR 12 lakh will be distributed as dividend on preference share capital of INR 1.00 Cr.
  • Preference stockholders are like bond holders. As the bond holders receive the interest as fixed coupon rate, preference stockholders receive the dividend at fixed rate at the time of issue of preference stocks.

  • Equity shareholders are considered real owner of the business than preference stockholders.
  • Journal is the first book of account.
  • Ledger is the second book of account.
  • Income Statement also known as Profit & Loss Statement, P&L Statement and Income-Expenditure Statement.
  • Cash flow from operating activities also known as the operating cash flow.
  • There are two types of assets – 1. Tangible Assets and 2. Intangible Assets.
  • Assets may be short-term and/or long-term.
  • Business and Business Owner are separate entities, to wit, business is a separate entity from its owner/s.
  • There may be two kinds of reserves on a balance sheet of a company – 1. Specific Reserves, and 2. General Reserves.
  • An amount is kept aside as a Specific Reserves by the company for a certain purpose. This amount is used only for that purpose, not for any other use.
  • Companies may keep aside some amount as a General Reserves for any unforeseen event. General Reserves is reported as Reserves and Surplus on the balance sheet.
  • A company may reward their managers, executives or employees with commission. Company can calculate the commission by the two methods – 1. Commission on the profit before charging the commission, and 2. Commission on the profit after charging the commission.
  • First Method: Commission on the profit before charging the commission – Let’s say a company earns a net profit of INR 1.00 Cr during a financial year and company decide to give 5% commission separately to their two managers by using this method, therefore – 5% of net profit = 5% of 1.00 Cr = INR 5,00,000.00;  Hence, each of two managers of the company will be rewarded by INR 5.00 lakh as a commission amount by the company.
  • Second Method: Commission on the profit after charging the commission – Let’s say a company earns a net profit of INR 1.00 Cr during a financial year and company decide to give 5% commission separately to their two managers by using this method, therefore – Formula is – [Rate of commission ÷ (100 + Rate of commission)] X Residual Profit;  So, [5% ÷ (100 + 5)%] X 1,00,00,000.00 = (5 ÷ 105) X 1,00,00,000.00 = 1,00,00,000.00 ÷ 21 = INR 4,76,190.00; Hence, each of two managers of the company will be rewarded by INR 4,76,190.00 as a commission amount by the company, if company uses the “Commission on the profit after charging the commission method”.
  • Sales Return also known as the Return Inward.
  • Purchase Return also known as the Return Outward.
  • IPO stands for Initial Public Offer.
  • FPO stands for Follow on Public Offer.
  • Deferred Revenue is a liability for the business. For example, a customer pays to a newspaper company for one year’s subscription in advance, in this case this amount is a liability on company’s balance sheet and this revenue is known as “Unearned Revenue” or “Deferred Revenue” for the company. Company will reduce the liability each month for a certain amount with delivery of successful service to customer and same amount will report as revenue on their income-statement.
  • Prepaid expenses are the assets on the balance sheet.
  • Long term assets are also known as the “Non-Current Assets”, “Fixed Assets” or “Productive Assets”.
  • Depreciation is not charged on land.
  • Working Capital is also known as the “Net Current Assets”.
  • Net Current Assets = Current Assets – Current Liabilities.
  • Capital invested in a business by the business owner/s is a liability for that business, as business and business owner/s are different entities.
  • COGS = Cost of Goods Sold.
  • COSS = Cost of Services Sold.
  • COGS and COSS are Direct Cost. Direct cost is “Cost of Sales”.
  • Common shareholders have the right to vote in company’s decisions.
  • Preference stockholders don’t have the right to vote in company’s decisions.

How to find a good company; Fundamental analysis; Financial ratios to find a stock for investment

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