21/06/2006                                                                                    Page: 4

ACCOUNTS BASICS

CAPITAL EXPENDITURE:  Records purchase of Fixed Assets, Expenses to increase value of existing Asset, Purchase cost of Fixed Asset includes Cost of Delivery, Installation, Commissioning, Legal fees, Architect fees etc.

REVENUE EXPENDITURE:  Expenses incurred to maintain the fixed assets, servicing a loan, administrative services, utilities, transport etc.

OUTSTANDING EXPENSES:  Expenses incurred during the year and whose benefit has been derived during the current year but payment has not yet been made. It is a liability and shown in the liability side of the balance sheet.

PREPAID EXPENSES:  Amount paid in advance for next year's expense or service. It is an asset and shown in the assets side of the balance sheet.

ACCRUED INCOME:  Some income may have been earned for the year but the actual cash has not yet been received. This is shown as an asset in the balance sheet.

INCOME RECEIVED IN ADVANCE:  Amount received in advance for a future service and is shown in the liability side of the balance sheet.

WORKING CAPITAL:  It is the difference between the Current Assets and Current Liabilities.  Management of long term assets, long term capital, short term assets, short term liabilities is Working Capital management. The sources of working capital are trade credits, bank loans, short term borrowings, equity share capital, long term borrowings. Involves fundamental decisions regarding a firm's liquidity and trade off between risk and profitability. A high working capital level reduces the risk of running out of cash but there will be lesser profitability. A low working capital increases more profitability while there is a risk of running out of cash for routine payments and any other payment.

CASH FLOW:  Deals with inflow and outflow of cash on a periodic basis. Any item which affects the cash of a business by either increasing or decreasing it is included in the cash flow statement.  Cash flow is helpful in short term planning of business unit by indicating in advance as to how much funds are needed in future, in capital budgeting decisions.

FUNDS FLOW:  Statement showing sources and application of funds for a period of time. It incorporates those transactions which change either the amount of current assets or current liabilities or fixed assets, long term loan and equity capital.  Fund flow is helpful in estimating a budget, in planning of dividend payment.

BREAK-EVEN POINT:  That level in the volume of sales or production where there is no profit or loss. At this point the expenses equals the earnings and the contribution equals the fixed cost.