Other terms and principles

Question 1

4C’s of credit:

Answer 1

The four key elements a borrower should have to obtain credit:
capacity(ability to repay)
character (refers to quality of management, strategy..etc)
capital (net worth or owned funds),
collateral (assets to secure the debt).

Question 2

acceleration clause

Answer 2

A provision in a loan agreement which enables a lender to recall the entire amount of loan in case there is a default in even a single installment payment by the borrower.

Question 3

acceptance

Answer 3

The banker’s acceptance is a form of payment that is guaranteed by a bank rather than an individual account holder.

The contractual agreement which comes into force when the drawee of an instrument writes “accepted” on the document and specifies a payment date. The drawee, thereby known as the acceptor, is responsible for making the payment at maturity.

Question 4

account

Answer 4

A record of financial transactions in the books of accounts for an asset or individual, such as at a bank.

For example, a savings account would show all deposits and withdrawals of money by the
account holder over a period.

Question 5

accounts receivable

Answer 5

Money which is owed to a company by a customer for products and services provided on credit. This is treated as a current asset in the company’s balance sheet.

Question 6

accrued expense

Answer 6

Is an expense that is incurred, but not yet paid for, during a given accounting period.

An example of this is wages due to workers, but not paid fully or partly due to various reasons such as liquidity crunch or so.

Question 7

accrued interest

Answer 7

Interest that is due on a bond or other fixed income security since the last interest payment was made. This is an example of accrued income.

Question 8

accumulated depreciation

Answer 8

Is the depreciation of a particular asset up to the present time. That is, the sum total of yearly depreciation on an asset, which is carried to the balance sheet as liability against the asset in question.

Question 9

administrator

Answer 9

An individual appointed by a probate court to handle the estate of a person who died intestate. They have the same duties as an executor.

Question 10

afidavit

Answer 10

A statement written and sworn to in the presence of someone authorized to administer an oath, such as a notary public. The document may be required for legal purposes

Question 11

amortization

Answer 11

The gradual elimination of a liability, such as loan, by regular payments over a specified period of time. Such payments must be suincient to cover both principal and interest.

EMIs are an example of this.

Question 12

appraisal

Answer 12

A professional opinion, usually written, of the market value of a property, such as a home business or other asset whose market price is not easily derermined. Usually required when a property is sold, taxed, insured or financed.

Question 13

appropriation:

Answer 13

Funds set aside for a specithc purpose. For example, a debenture redemption reserve created for which funds are periodicaly set aside to facilitare repayment of the debenture at a predetermined date.

Question 14

APR

Answer 14

Annual Percentage Rate.
The yearly cost of a loan, including interest, insurance, etc., expressed as a percentage.

Question 15

articles of association:

Answer 15

For a limited company, it is a document which defines relationship between shareholders and directors and between shareholders and so on. Along with the memorandum of association., it forms preamble for a body corporate.

Question 16

asset

Answer 16

Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, equipment, real estate, a car and other property. On a balance sheet, assets are equal to the sum of liabilities; viz., equity preferential cquity and retained earnings and loans if any.

From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate. plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest) and intangible assets (trademarks, patents, copyrights, goodwill).

Question 17

asset management account

Answer 17

Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value.

Asset management professionals perform this service for others. They may also be called portfolio managers or financial advisors. Many work independently while others work for an investment bank or other financial institution.

A single account at a mutual fund or bank which provides both banking and brokerage service. Modern banking has progressed beyond mere traditional services and provides
management of assets such as securities, property.

Question 18

at par

Answer 18

A bond or preferential equity which is selling at a price equal its face (or par) value. Typical values of par are 7 100/- or 7 10/-. Par value is opposed to market value. Par value is decided by the issuer of the instrument, while market value is arrived at by market forces.

Question 19

ATM

Answer 19

Automated teller machine, a machine at a bank branch or other location which enables a customer to perform basic banking activities (checking one’s balance, withdrawing or transferring funds).

Question 20

attachment

Answer 20

The act of seizing a debtor’s property and placing it under a court’s control. This is in case of default in repayment of debt.

Question 21

authentication

Answer 21

Verification that a legal document is genuine or valid, such as through a seal from an authorized public official.

Question 22

back-end load

Answer 22

A sales charge or commission paid when an individual sells an investment, such as a mutual fund. It is intended to discourage selling.

Question 23

bad debt

Answer 23

Accounts receivable that will likely remain uncollectable and will be written off. Bad debts appear as an expense on the company’s income statement, thus reducing net income.

Question 24

bad debt reserve

Answer 24

Is an amount that a company sets aside to offset the estimated total of amount that will not be repaid by creditors.

Question 25

bailment

Answer 25

The delivery of an asset by its owner (bailer) to another person (bailee) or persons for temporary care and safe custody. An example of this is securities kept with bank for safe custody by customers.

Question 26

balloon payment

Answer 26

A large, Jump-sum payment scheduled at the end of a series of considerably smaller periodic payments. A balloon payment may be included in the payment schedule for a loan, lease or other stream of payments.

Question 27

balance sheet

Answer 27

A quantitative summary of a company’sfinancial condition at a specific point in time including assets, liabilities and net worth.

The first part of a balance sheet shows all the productive assets a company owns and the second part shows all the financing methods (such as liabilities and shareholders equity).