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ACCOUNTANCY
Fixed interest rate- Not going to change during entire period,not effected by market increase or decrease.
Floating interest rate- Rate of interest changed here depending upon the market conditions related to benchmark rate.
Annuties- To pay a certain amount,periodically, for a period of time.
YTM- Yield time maturity.It refers to the total expected return once the bond is held till maturity in which investment is made in a disciplined manner.
It is long term investment. Rate is annual here.
IRR- Internal rate of return is the just the other name for the YTM.
Depreciation- Fall in value of asset over a period of time.
Accounting is language of business to communicate with the outside world,it is done by business entity to keep a record of day to day transaction to know expenses,asset,liability and profit at any particular time.
Types of Accounting-
1.Financial Accounting
2.Cost Accounting
3.Management Accounting
4.Social Responsibility Accounting
5.Human Resource Accounting
6.Inflation Accounting
Financial Transaction- Transaction between two person in terms of money.
Difference between accountancy and bookkeeping- Accountancy is a language whereas bookkeeping is a part of this.
Accountancy is recording, measuring, grouping, summarizing, evaluating and reporting of transactions whereas bookkeeping is keeping proper records of financial transaction.
Accountancy is maintained by the accountant whereas bookkeeping is maintained by the bookkeeper.
Difference between Journal and Ledger-
Journal is record of all the transactions that are done at a particular time whereas ledger is the record of all transactions of particular account.
Journal is a subsidiary book whereas ledger is the principal book.
It is first entry book whereas ledger is second time entry book.
Journal entry is made with help of vouchers,receipts,cheques etc whereas ledger entry is made with the help of journal.
Possibility of error in the journal is less whereas in ledger is more.
Process of entry is called journalizing whereas in ledger it is termed as posting.
Journal recording of transaction is sequentially whereas in ledger it done account wise.Journal may or may not be balanced whereas ledger has to be balanced.
Difference between single entry & double entry bookkeeping- SE only one aspect of transaction is recorded whereas in DE both the aspect of transaction is recorded.
It is simple whereas DE is complex.
SE is scienific,de is unscientific.
Frauds and error not easy to detect in SE,very easy to detect in DE.
SE is sutaible for small enterprises DE is suitable for big enterprises.
Drawings- Stock used by the owner for its personal use.
SEC- Securities exchange commission
GAAP- General accounted accounting principles, accounting used by usa.
IFRS -International financial reporting framework,accounting used by more than 100 countries.
ICAI- Institute of chartered accoutants of india.
EITF– Emerging Issues Task Force
Balance sheet equation- asset=capital+liabilities
Off balance-sheet- The thing that are not-mentioned in balance sheet
Cash Book- It keeps records of all cash transactions i.e cash receipts and cash payments.It is book of original entry.
Types of account-
Real account- All asset of a firm lies under this account.
This account further can be divided into tangible and intangible account.
Tangible account consists of thing that can be touched. Such as land,
machinery, cash, stock.
Intangible account consists of thing that cannot be touched. Such as
goodwill, trademarks, patent.
Personal account- It includes of account that can be opened.
It is of three types- Real account, Artificial account, Representative account.
Real personal account- It includes all account related to a person.
Artificial personal account- All accounts related to company,firm i.e corporate bodies and institutions.
Artificial person- Company is the artificial person in terms of accountancy.
Nominal account- It includes account related to income,expenses,gain and losses.Ex. sales account,salary account.
Accounting Standards-
AS-1 It deals with the promotion of better understanding of financial statements
AS-2 It deals with the cost of values of the inventries.
AS-3 It deals with preparation & presentation of cash flow and financial statements.
AS-4 It deals with the treatment in financial statement of contigencies-penalty,court procedings etc & events that occurs after the balance sheet date.
AS-5 It deals with the treatment in the financial statements of a prior period,changes in accout policies.
AS-6 It deals with various types of depreciation method related to the asset.
AS-7 It deals with accounting of construction contracts as delay in period creates problem in accounting related to work in progress,revenue etc.
AS-9 It deals with the revenue,various activities that are related to this.
AS-10 It deals with the fixed asset.
AS-11 It deals with the transaction in foreign transaction,rules for the foreign currency conversion and the difference.
AS-12It deals with goverment grants.
AS-13 It deals with investment by an entity,long term investment,shares,debentures.
AS-14 It deals with amalgamation(merging) of the companies.
AS-15 It deals with retirement benefits of the employees.
AS-16 It deals with borrowing costs.
AS-17 It deals with segment reporting.
AS-18 It deals with related party disclosures.
AS-19 It deals with leases.
AS-20 It deals with earning per share.
AS-21 It deals with consolidated(make more strenghten) financial statements.
AS-22 It deals with accounting for taxes on income.
AS-23 It deals with investment in associates in consolidated financial statements.
AS-24 It deals with discontuning operations.
AS-25 It deals with interim financial reporting.
AS-26 It deals with intangiable assets.
AS-27 It deals with financial reporting of interests in joint ventures.
AS-28 It deals with impairment of assets.
AS-29 It deals with provisions,contingent liabilities and contingent assets.
Accounting principles
Accounting procedures- It is defined as the process of standardized nature that performs a specific accounting function that are designed to incorporate better risk management policies so that these functions are completed in a more productive and efficient manner.
The accounting department performs several functions such as perform billings for their customers, provide invoices to suppliers, perform bank reconciliation, and hence such tasks normally require comprehensive and streamlined procedures
Accrual basis- It deals with concept to take receipt for the payment made and obligation to pay.
Law of conservatism- Take all the possible losses in consideration irrespective of all possible gains.
Various accounting concepts:-
Money Measurement Concept- According to this concept the transactions and events which cannot be measured in terms of money, will not be recorded in books of account,no matter how crucial it is for the business entity.
Bussiness Entity concept- This concepts helps in keeping private affairs of the proprietor away from the business affairs.
It states that a owner and business entity are separate entity as far as their financial transactions are concerned.
Dual Aspect Concept- Every business transaction has a dual affect.
For every credit,a corresponding debit is made.
Going Concern Concept- Business shall continue for foreseeable period and carry-out its commitments and obligations.
Consistency concept- Similar accounting policies to be followed year after year.Helps in better understanding of the business.
Accural concept- It states record the transaction when it has been entered into and not when settlement takes place.
It is a method whereby revenue and expenses are identified with specific periods of time like a month, half year or a year
Cost Concept- Asset is ordinarily recorded at the price paid to acquire it i.e. at its cost.
This cost is the basis for all subsequent accounting for the asset.
Realization Concept-This concept is related to cost concept.According to this concept profit, should be accounted for only when it is actually realized.
Transfer pricing- It is used for the evaluation of banks,implemented on branch to generate profit ultimately leads to profit of bank.
Equity shares- Real owner of the company but not the part of management
Preference shares- Secondary owner, dividend is fixed here to be paid, gets paid first(i.e on preference-payment of dividend on fixed rate) on profit or when company is winding up.
Types of preference shares-
Cumulative preference shares- right too claim the dividend even if the company is in loss or not in condition to pay,this carries to the next year.
Redeemable preference shares- can be redeemed under some condition of companies act.
Participating preference shares
Shares at par-
Shares at premium-shares are issued at higher price than the face value
Shares at discount
Sweat equity shares
ESOS- Employee stock option scheme
Bonus shares
Underwriting commission- If shares is left unsold,purchased by a person,for this he takes some charges.
Trial balance- It is prepared to find out the mathematical error,at the end of the year.
jaiib
Ratio analysis- It includes liquidity ratios-It is for the short term debt.
Solvancy ratio- It is for the long term debt.
Trading account-A trading account shows the results of the buying and selling of goods.
This sheet is prepared to demonstrate the difference between the selling price and the cost price.
The trading account is prepared to show the trading results of the business, e.g. gross profit earned or gross loss sustained by the business.
It records the direct expenses of a business firm.
Opening stock- 3 types- 1-raw material,2-work in progress,3-finished goods direct expenses
purchase
purchase return-
Freight and carriage
Wages
Power and fuel
Factory rent
Repair/maintainance to factory land and building
Gross profit transfer to profit and loss account
Sales -revenue from operation
Sales return- the good that is sold but returned back due to some reason.
Closing stock – the stock that is available at the starting of the year.
PREPERATION OF TRADING ACCOUNT
Particulars Amount Particulars Amount
To opening stock By sales
To purchase Less: Returns
Less: returns By Closing stock
To direct expenses: By Gross loss(if any) transferred to profit & loss A/C
Freight & carriage
Or carriage inwards
Custom & insurance
Wages
Gas, power & fuel
Factory expenses
Royalty on production
To Gross profit A/C
PROFIT AND LOSS ACCOUNT Format:
Particulars Amount Particulars Amount
To Gross loss b/d To Gross profit b/d
Management expenses:
Income:
To salaries By Discount received
To office rent, rates, and taxes
By Commission received
To printing and stationery Non-trading income:
To Telephone charges By Bank interest
To Insurance
By Rent received
To Audit fees By Dividend received
To Legal charges By Bad debts recovered
To Electricity charges Abnormal gains:
To Maintenance expenses By Profit on sale of machinery
To Repairs and renewals By Profit on sale of investments
To Depreciation By Net Loss
(transferred to Capital A/c)
Selling distribution expenses:
To Salaries
To Advertisement
To Godown
To Carriage outward
To Bad debts
To Provision for bad debts
To Selling commission
Financial expenses:
Bank charges
Interest on loan
Discount allowed
Abnormal losses:
To Loss on sale of machinery
To Loss on sale of investments
To Loss by fire
To Net Profit
(transferred to capital a/c)
TOTAL TOTAL
BALANCE SHEET format:
Liabilities Amount Assets Amount
Current Liabilities:- Current ASSETS:-
Bank overdraft Cash in Hand
Bills Payable Cash at Bank
Sundry creditors Bills Receivable
Outstanding expense Short Term Investments
Sundry Debtors
Amotization- depreciation charges
operation-
Finance charges- bank takes charges to approve the loan.
Operating sales
Net sales
Total sales= cash sales+(credit sales-sales return) total sales=cash sales+(credit sales-sales return)
Cost of goods sold= opening stock+purchases+direct expenses-closing stock cost of goods sold=opening stock+purchases+direct expenses-closing stock
Total sales= cost of goods sold + gross profit total sales=cost of goods sold + gross profit
(note – if information of direct expenses are not given in question,then they are nil.)
Operating expenses-expenses that are done in the process of running the business operating expenses.
Non-operating expenses-dividends,interest paid on loans non-operating expenses-dividends,interest paid on loans
Operating cost=operating cost + cost of goods sold operating cost=operating cost + cost of goods sold
Net profit =profit after tax
Operating profit=gross profit -operating expenses
Final accounts of companies- section 129
Balance sheet equation- Asset=liabilities+capital
With the help of trial balance final account is prepared which includes trading,profit and loss account and balance sheet.profit= sales-(purchases+opening stock-closing stock+expenses)
Classification of asset and liabilities,payment of dividend,tax treatment accounting,managerial numeration-final account of company
Current asset- expected to release cash within operating cycle or 12 months whichever is higher.
goods that are to be traded. ex- raw material,finished goods.
Non-current asset- which are not current asset.
ex- whether given asset is current asset or non-current asset.
operating cycle is =12,period expected to converted in cash in 10 months.
Operating cycle- Operation cycle,the cycle starting from spending on raw material till the finished goods is sold to get cash(note – if operating cycle is not given,assume it as twelve months)
Current liability- That are to be expected to be sold in operating cycle those of the company or 12 months(taken the higher value of the two)
Stock- Tangible asset held by the enterprise for the purpose of production or sale of goods at a particular point of time known as inventory also.opening stock,closing stock.
Note- when the company is going to die then liability is paid first then the dividend is paid to the preference share holder and finally the equity share holder.
Sales account
Purchase account
Payment of dividend
Out of adequate profit
PRINCIPLE AND PRACTICES OF BANKING
Repo rate(RR)- Loan given by RBI for short term.
Reverse reserve ratio(RRR)
CRR- Cash reserve ratio,the amount of cash a scheduled commercial bank need to maintain with RBI.
Mandatory deposit in the central bank.
It is used to control the flow of money in the market.
It is a fixed % of a bank of their time and deposit liabilities declared by RBI.
SLR- Statutory Liquidity Ratio,some % of the time and demand liabilities of bank to be deposited to the central bank.
As liquid asset(that can be easily converted to cash) of cash, gold, government securities.
Percentage(maximum is 40%) to be declared by RBI.
Marginal Cost Lending Rate(MCLR)- It is introduced by RBI on 01-04-2016.
All lending rates are to be decided with respect to Mclr.
Retail banking- It refers to dealing of commercial banks with individual customers.
It includes products, delivery channels and customer groups.
Personal loan, educational loan, personal loan,crop loan on the asset side.
Fixed ,saving acc and current acc on liability side
Wholesale banking- To do business with industrial and business entity.
Cash credit facility- In this short term loan is given in quick succession.
ADR- American depository rate
GDR- Global depository rate
Participatory notes
Treasury bills
Certificate of deposit
capital market
Libor- London inter bank offered rate
Mibor- Mumbai inter bank offered rate
FEMA- foreign exchange management act
Capital market- primary market-initial public issue, secondary market- traded after initially offered to public
Alliance- It is a mutual agreement to commercial collaboration between two to more organizations where they agree to co-operate in the operation of a business activity.
Joined together for mutual benefit or to achieve some common purpose.
They remain independent entities however.
Merger- A merger is the combination of two companies into one by either closing the old entities into one new entity or by one company absorbing the other.
In other words, two or more companies are consolidated into one company.
Credit Information Companies
SEBI- Security exchange board of india
Mutual fund- It is formed when capital collected by various investors is invested in purchasing company shares, stocks, or bonds.
Insurance- life insurance, non-life insurance
term inasurance plan
Bill of exchange- It involves three parties(drawer- one who draws the bill, drawee- on whom the bill is drawn ,payee- who receives the money),made by the creditor(individual or bank).
Must be accepted by the debtor.
On dishonor must be notified.
Stamp is required on this,only used for the transaction of money, just like cheque transferable by endorsement. Ex-bank draft made by the bank.
Promissory note- It is the unconditional promise made by the debtor to pay the amount on fixed date or within a period of time.
Cheque- It is a bill of exchange.
Stale cheque- A cheque whose validity is already over(Cheque is valid only for three month).
Post-dated cheque-It is effective from the date mentioned on the cheque.
Ante dated cheque- A cheque bearing date prior of opening account or signing the cheque.
Cancelled cheque- Cannot be used.
Crossed cheque-Can be paid in any bank account only.Types of crossing 1.General crossing 2.Special crossing 3.Restrictive crossing 4.Non-negotiable
Incohate instrument- An incomplete cheque by any means.
Credit card-
Cibil- It tells you about repayment capacity of a person.
Types of risk in bank-
Operational risk- Arises due to failed system,process or people.
Credit risk- Related to loans.
Market risk- Related to value of investment during the holding period.
Liquidity risk- Related to asset and liabilities.
Interest rate risk- Arises due to fluctuation in rate of asset during the held period.
Mandate- It is an authority given by the account holder in favour of a third person to do certain acts on his behalf.
An official order or commission or letter of authority to do something.
Issued by the account holder to his bank to operate the account.
It is unstamped agreement signed by the customer, witness is required in case of illiterate person.
The signature of the person so authorized should be appended in the letter of mandate.
Mandate in case of joint account holders? All the partner must sign it.
In partnership all partners must sign the mandate
Minor can be appointed, lunatic cannot be.
It is over in case of death of account holder.
It is for short and temporary period.
Power of Attorney- It is a stamped document and is executed in the presence of a notary public/magistrate of a court/authorized government official.
Donor(principal) means the person who issues Power of Attorney and Donee means the person to whom Power of Attorney is given.
There are two types of Power of Attorney:
Special/Limited PoA – It is for a single or limited action, issued for only one transaction.
General/Universal PoA – Empowers an agent to do many acts, issued for acting in more than one transaction.
Garnishee order is an order of the court obtained by a judgement creditor attaching the funds belonging to a judgement debtor(customer) in the hands of his debtors, including a bank, which is called a garnishee, advising not to release the money until directed by the court to do so.
Garnishee order nisi.
Garnishee absolute.
Lien- Right to keep possession of goods on movable property.
It is of two types..
1.General lien- Person has right to retain the possession of any goods for which any amount is due to him.
It is a right to retain any property belonging to the other and in the possession of the person tries to exercise the lien in respect of any payment lawfully due to him.
Everybody cannot exercise general lien according to section 171 following person can exercise right of lien.Ex bankers, policy brokers, wharfinger, attorney of high courts.
2.Particular lien- Person has right to retain the possession of goods for which the charges is due.
It is one, which is available only against that property on which the skill and labour is exercised.
Section 170
Set-off
Money market- It is short term market, include short-term debt securities.
Debt Period is equal to one year or less.
Regulatory body is RBI.
Capital market- It is long term market,deals with long term securities.
Debt period is more than one year.
Regulatory body is SEBI.
Bancassurance- Selling of insurance products through bank branches.
Insurance products can be of both types life or non-life.
Money laundering- Indulging in crime of money related issues,knowingly or by mistake.
Financial inclusion-
Non Bank Finance Companies- Engaged in business of loan and advances.
Factoring-
Forfeiting- A form of financing of receivables arising from international trade is known as forfeiting.
Within this arrangement, a bank/financial institutions undertakes the purchase of trade bills/ promissory notes without recourse to the seller.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e.invoices) to a third party (called a factor) at a discount.
A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
Swap-It refers to an exchange of one financial instrument for another between the parties concerned.
This exchange takes place at a predetermined time, as specified in the contract.
Insurance Business: RN Malhotra committee
Narrow Banking: Tarapore committee
Factoring service in india: Kalyanasundrama committee
Customer service in banks: MN golporia committee
Fraud and Malpractice in banks: Ghosh committee
Non Govt Oraganisation and Self Help Group: S K kalia committee
Mechanisation and Computerisation in banks: Dr C Rangaajan committee
Electronic Fund Transfer: K S Shere committee
Infrastructure Finance: Rakesh Mohan committee
CGTMSE,credit delivery system for SSI sector: S L kapoor committee
Corporate Governance: K Mangalam Birla committee
SSI and SME financing: Dr A S Ganguly committee
Technology issues in banking: W S Saraf committee
Foreign exchange in india: O P Sodhani committee
MICR Technology: Y B damle committee
LEGAL AND REGULATORY ASPECT OF BANKING
Central banking functions-
1.Obligation to transact government business (Section 20)
2.Right to transact government business in India (Section 21)
3.Bank to transact government business of States on agreement (Section 21A)
4.Right to issue bank notes (Section 22)
5.Denominations of notes (Section 24)
6.Legal tender character of notes (Section 26)
7.Recovery of notes lost, stolen, Mutilated or imperfect (Section 28)
8.Issue of demand bills and notes (Section 31)
9.Cheque or drafts, including hundis
10.Assets of the issue department (Section 33)
11.Transactions in foreign exchange (Section 40)
FUNCTIONS OF RESERVE BANK OF INDIA-
RBI established on April 1, 1935 under RBI Act 1934 (on the recommendations of John Hilton Young Commission 1926 — called Royal Commission on Indian Currency and Finance), is the central bank of the country and was nationalised wef Jan 01,1949.
RBI is managed by a Central Board of Directors. It has four local board at Mumbai, Delhi, Calcutta and Chennai. It has one(1) Governor, provision for four(4) Dy. Governors and fifteen(15) other directors.
Issuance of currency
Banker to the Govt
Bankers’ bank
Memorandum Of Association: It is the charter of the company. It enables the shareholders, creditors to know permitted range of business. MOA contains, name of the company, registered office of the company, objects of the company, liability of its members and share capital and its division.
Article Of Association: Rules and regulations governing the internal management of the company, define powers of the officers, number of directors, borrowing powers of the company, Board of Directors, officers of the company and other details.
Private Company: A private company is one which has following provisions in its AOA
a) Restrictions on the right to transfer its shares b) Limitation on number of members to 200. c) Prohibition as to participation by general public in its capital requirements.
Public Company: is one which is not a private company, a) Shares are freely transferable b) No restriction on number of members c) Public can participate in its share capital.
Limited Company: Liability of the members is limited to their contribution of capital.
Unlimited Company: Liability of members is not limited.
Govt. Company: Central Government or State Government or both have more than 51% of the share capital.
Fund based credit facilities: Involve the outflow of funds, ie. direct money is going out, lending out to the customers like:- a)Cash Credit/Overdraft b)Term Loans/Working Capital c)Bill Finance
Non fund based credit facilities: In this, the bank’s funds are not directly lent to the customers-
a) Bank Guarantee, b) Letter of Credit, c) Acceptance Facility
Bank of guarantee- It is a promise made by the bank that if a particular borrower defaults on a loan, the bank will cover the loss.
It involves three parties,buyer-seller-bank.
Regulated by Indian contract act 1872.
Issued for meeting financial obligation and performance obligation.
Stamp duty is fixed by state government, different in different states.
It is issued either for short or long period.
Letter of credit- A letter issued by a bank to another bank to serve as a guarantee for a payment made to a specified person under specified conditions.
It also involves three parties but this is termed when the case of importer and exporter of goods.Irrevocable, revocable.
It is regulated by uniform customs and practices 600,rules of ICC (UCP 600).
It is issued for purchasing goods in trade.
Stamp duty is fixed by central government, so uniform all over India.
It is issued for a short period.
Mortgage
1.Simple Mortgage: Section 58(b)
2.Mortgage by conditional sale : 58 (c)
3.Usufructuary Mortgage: 58(d)
4.English Mortgage : 58(e)
5.Mortgage by deposit of title deeds / Equitable Mortgage 58(f)
6.Anomalous Mortgage – 58(g)
Pledge means bailment of goods for the purpose of securing a payment of debt or an obligation.
Pawnor – The person whose goods are bailed
Pawnee – The person who takes the goods for security
Classification of Bills
1.Inland Bills
2.Foreign Bills
3.Demand Bills Section 19
4.Usance Bills
5.Clean Bills
6.Documentary Bills
JAIIB exam Details
Subjects-
Principle and practices of banking.
accountancy.
Legal and regulatory aspect of banking.
Process to fill for the exam-
1.Register on the portal of IIBF.
2.Make the payment.
3.Requirements- A valid e-mail id.
4.Photo and signature of appropriate size.
Exam pattern-
Twice in a year-In a month of may and November on consecutive sundays.
Mode of exam will be online.
Duration of exam will be 2 hrs.
Fee structure for the exam-
1st attempt- rs 2400,
2nd attempt- rs 1000,
3rd attempt- rs 1000,
4th attempt- rs 1000 for 4 attempts.