EXPLAINATION OF BALANCE SHEET TERMS

LIABILITIES - These are claims of outsiders against the business. These are amounts owed by the business to persons other than owners.

CURRENT LIABILITIES - These are obligations to be met with current assets or creation of other current liabilities. Obligations entered in the course of the operating cycle. These also compromise of other liabilities whose ordinary retirement is a short period of time, usually 12 months. Amounts owing to creditors are purposes of goods for instance.

PROVISIONS - These are amounts set aside out of profits or other surpluses to meet :

• Specific requirements.
• Specific commitments, known contingencies and dimunition in value of assets.
• Bad debts provisionds for instance.

CREDITORS / ACCOUNTS PAYABLE - Claims of vendors and others; for sale of goods for instance.

ACCRUED EXPENSES - Valid claims against the company remaining unpaid. Interest accrued or accuring on loans for instance.

DEFERRED INCOME - Advance payment received for service or goods to be rendered / delivered in future.

OTHER LIABILITIES - Compromising of other than current liability. Are claims of outsiders that do not fall within one year; medium term loans for instance.

CONTINGENT LIABILITY - Liabilities indefinite has to either their amount or occurance, for instance, law suits against the business.

DEBENTURE / BOND - Is a certificate of debt which usually : represents a part of loan; bears interest; matuares on a stated future date. It may be with or without a charge on the assets of the company. Debentures do not have voting rights.

NET WORTH / OWNER'S EQUITY - These are the claims of the owners represented by the capital and surplus.

SHARE CAPITAL - Is money subscribed by shareholders.

NOMINAL / AUTHORISED / REGISTERED CAPITAL - Is amount stated in the Memorandum of Association as authorsed to be issued and upon which stamp duty is paid.

ISSUED / SUBSCRIBED CAPITAL - Capital represented by number of shares issued to the public.

CALLED - UP CAPITAL - Amount of money called -up on the shares actually subscribed.

PAID UP CAPITAL - Amount of the called up capital that has actually been paid by the shareholders by way of application money, allotment money and call money on the share taken by them.

UNCALLED CAPITAL - Amount of capital remaining uncalled on the shares actually issued.

RESERVE CAPITAL - It is that part of the issued capital which is set aside for being called up at the time of winding up of the Company.

CALL - It is a demand made by the company to pay the balance amount outstanding on the shares taken up by the shareholers. There may be several calls. eg. 1st call, 2nd call, 3rd call etc.

SHARE PREMIUM - This is the excess of issue price of share over its face or par value.

SHARE DISCOUNT - Where shares are issued at a price lower than the book (face) value, a discount results.

PREPAID CALLS - Are calls paid in advance.

CALLS IN ARREARS - Calls outstanding to be paid by the shareholders.

SHARE FORFEITURE - These are the shares which are forfeited by the Company for non-payment of allotment money or call money.

EQUITY SHARES - To these shares no special rights are attached. These shares carry ordinary rights to participate in the profits of the company and have voting rights.

BONUS SHARES - This is in the nature of capitalisation of profits or reserves of a company.

PREFERENCE SHARES - These have a prior claim on profits available for dividend at a fixed rate, or amount; Are also preferential as regards repayment of capital in the event of winding up; Ordinarily have no voting rights.

CUMULATIVE PREFERENCE SHARES - The stipulated dividend accumulates until it is all paid; Arrears of any one year are carried forward as a charge upon the subsequent year's profit.

NON-CUMULATIVE PREFERENCE SHARES - Preference dividend is payable only out of profits of each year; If not paid, shareholders cannot claim to receive it out of profits of subsequent years.

REDEEMABLE PREFERENCE SHARES - The company may redeem or pay off these at a later date; Re-payment may be by creating a 'Reserve Fund' built out of profits or alternatively by an issue of new shares for this purpose.

CAPITAL - In a narrow sense, it is the value assigned in the balance sheet to the various stock issues.
In broader sense, it represents stock issues and surplus. In a still broader sense it includes long term debts.

TOTAL CAPITAL EMPLOYED - Total assets less fictitious assets and deferred expenses.

TRADING CAPITAL - Consists of fixed and floating assets.

FIXED CAPITAL - Compromises of fixed assets.

CIRCULATING CAPITAL - Consists of floating and circulating assets.

RETAINED EARNINGS - Is the differnce between total net earnings to date and total amount of dividends. If differnce is negative it becomes deficit.

SURPLUS / RESERVES - Is the excess of net worth over par value of capital stock;
It comprises : Earned Surplus and Capital Surplus
The sum is not designed to meet any liability, contingency, commitment or dimunition in value of assets known to exist.

CONTINGENCY RESERVES - These reserves set up out of earnings or surplus to indicate a possible future loss or claim against the company. A likelihood of loss is open to considerable question.

INVESTMENT ALLOWANCE RESERVE - It is the rebate given to the assessees in respect of new machinery and plant under certain conditions viz.,
1. Ownership
2. Wholly used in the business.
The reserve created for this purpose is called investment allowance reserve.

DOUBTFUL DEBTS RESERVE - This is a Reserve for debts which are doubtful of recovery.

DEBENTURE REDEMPTION RESERVE - This is a fund created by setting aside periodically a sum from the profits of the company with a view to accumulate a sum for repayment of debentures. After repayment of debentures the fund may be transferred to general reserve.

CAPITAL REDEMPTION RESERVE - This is a fund created when redemption is to be done out of the profits of the company by setting aside from the profits of the Company a sum equal to the nominal amount of preference shares reddemable.