CA Foundation Dictionary

When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Acceptance must be absolute and unqualified (Section 7, ICA 1872). A conditional acceptance is a counter-offer.

A method of recording accounting transactions for revenue when earned and expenses when incurred, regardless of when cash is exchanged.

A person employed to do any act for another person (Principal) or to represent the Principal in dealing with third persons, under the authority given by the Principal (Section 182, ICA 1872). An agent creates contractual relations between the Principal and third parties.

The systematic write-off of the cost of an intangible asset (like patents, trademarks, or goodwill) over its useful economic life, analogous to depreciation for tangible assets.

A sequence of equal periodic payments made at equal intervals of time.

A sequence of numbers in which each term after the first is obtained by adding a fixed constant (called the Common Difference, d) to the preceding term. The general term is Tn = a + (n−1)d, and the sum is Sn = n/2 × [2a + (n−1)d].

The delivery of goods by one person (Bailor) to another (Bailee) for some purpose, upon a contract that the goods shall be returned when the purpose is accomplished, or otherwise disposed of according to the directions of the bailor (Section 148, ICA 1872).

A statement showing the financial position of a business at a particular date, listing all assets on one side and all liabilities and capital on the other side. It is not an account but a statement.

A statement prepared to reconcile the difference between the bank balance shown in the Cash Book and the Bank Pass Book.

A negotiable instrument accepted by the debtor (buyer) acknowledging an obligation to pay a specified sum to the creditor on a future date. It is a liability in the Balance Sheet of the acceptor.

A negotiable instrument (Bill of Exchange or Promissory Note) received by the creditor from the debtor as an acknowledgement of debt, promising payment on a specified future date. It is an asset in the Balance Sheet.

The failure by a party to fulfill its contractual obligation without a lawful excuse. It can be actual (failure to perform when due) or anticipatory (declaring inability to perform before the due date). It entitles the innocent party to claim damages.

A graphical representation of all possible combinations of two goods that a consumer can purchase with a given income at given market prices. Also called the 'Price Line'. Its slope = − (Price of X / Price of Y). A change in income shifts the line; a change in price rotates it.

Fluctuations in economic activity (Expansion, Peak, Contraction, Trough).

Expenditure incurred to acquire, improve, or extend the life of a fixed asset that provides benefit over more than one accounting period. It is shown as an asset in the Balance Sheet.

Expenditure incurred to acquire a fixed asset or increase its earning capacity.

The minimum percentage of a commercial bank's total deposits that must be maintained as cash reserves with the RBI. An increase in CRR reduces the funds available with banks for lending, contracting money supply.

Latin for 'Let the Buyer Beware'. The buyer is responsible for checking the quality and suitability of goods before purchase.

The committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain any property, to the prejudice of any person, to cause any person to enter into an agreement (Section 15, ICA 1872). A contract caused by coercion is Voidable.

A selection of objects where order does not matter.

Interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods.

A stipulation essential to the main purpose of the contract under the Sale of Goods Act, 1930. Breach of a Condition gives the aggrieved party the right to repudiate (terminate) the contract and claim damages.

Something of value exchanged for a promise. 'Quid Pro Quo' (Something for something).

A specialized business arrangement where one person (Consignor) sends goods to another person (Consignee) to be sold on their behalf.

The point at which a consumer maximizes satisfaction from spending a given income on goods and services. Under Cardinal approach: MU of each good / Price = MU of money. Under Ordinal approach: the consumer reaches equilibrium at the point of tangency between the Budget Line and the highest attainable Indifference Curve.

Difference between what a consumer is willing to pay and what they actually pay.

A contract to do or not to do something, if some event, collateral to such contract, does or does not happen (Section 31, ICA 1872). The performance depends on a future uncertain event.

A potential liability that may occur depending on the outcome of an uncertain future event.

A statistical measure that expresses the extent to which two variables are linearly related.

Measures the responsiveness of the quantity demanded of one good (X) to a change in the price of another good (Y). Formula: XED = % Change in QD of X / % Change in Price of Y. Positive XED → substitutes; Negative XED → complements.

A liquidity ratio that measures a company's ability to pay its short-term liabilities using its short-term assets. Formula: Current Assets ÷ Current Liabilities. The ideal ratio is 2:1.

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

A revenue expenditure that is large in amount and whose benefit is expected to extend over more than one accounting period, so it is written off over a few years rather than entirely in the year of incurrence.

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

The instantaneous rate of change of a function with respect to its variable. Geometrically, it represents the slope of the tangent to the curve at a given point. Formula: f'(x) = lim(h→0) [f(x+h) − f(x)] / h.

A scalar value computed from a square matrix that encodes certain properties of the matrix. For a 2×2 matrix [[a,b],[c,d]], determinant = ad − bc. A determinant of zero means the matrix is singular (non-invertible).

A measure of responsiveness of quantity demanded to a change in price.

Price where quantity supplied equals quantity demanded.

An inventory valuation method that assumes the goods purchased or manufactured first are sold or used first. As a result, closing stock is valued at the most recent (latest) purchase prices.

Government use of spending and taxation to influence economy.

A false representation of a material fact made by a party to a contract knowingly, without belief in its truth, or recklessly, with intent to deceive the other party or induce them to enter a contract (Section 17, ICA 1872). Contract is Voidable + right to claim damages.

A relation from a set A (Domain) to a set B (Codomain) such that every element in A is associated with exactly one element in B. Written as f: A→B. Types include Linear, Quadratic, Polynomial, and Exponential functions.

A sequence of numbers where each term after the first is obtained by multiplying the preceding term by a fixed non-zero constant called the Common Ratio (r). General term: Tn = ar^(n−1). Sum: Sn = a(rⁿ−1)/(r−1) for r ≠ 1.

The assumption that an enterprise will continue in operation for the foreseeable future and has no intention to liquidate or curtail materially the scale of its operations.

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

Total value of goods and services produced within a country.

The total market value of all final goods and services produced by a country's residents in a given period, regardless of where production takes place. Formula: GNP = GDP + Income earned by residents abroad − Income earned by foreigners in the country.

The profit earned from the core trading activities of a business, calculated as Net Sales minus Cost of Goods Sold (COGS). It reflects how efficiently a company uses its direct resources.

A contract to perform the promise, or discharge the liability, of a third person in case of his default (Section 126, ICA 1872). It involves three parties: Principal Debtor, Creditor, and Surety. A guarantee is secondary liability.

Measures the responsiveness of quantity demanded to a change in consumer income. Formula: YED = % Change in Quantity Demanded / % Change in Income. Positive YED indicates a normal good; negative YED indicates an inferior good.

A contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person (Section 124, ICA 1872). It involves two parties: Indemnifier and Indemnity-holder.

Two events A and B are independent if the occurrence of one does not affect the probability of occurrence of the other. For independent events: P(A∩B) = P(A) × P(B).

A statistical device for measuring changes in the magnitude of a group of related variables (like prices or production) over time.

General increase in prices and fall in purchasing value of money.

The reverse process of differentiation, used to find the area under a curve, accumulation of quantities, or to solve differential equations. Definite integration gives a numerical value; indefinite integration gives a function + constant C.

A curve representing all combinations of two factor inputs (Labour and Capital) that produce the same level of output. Also called 'Equal Product Curve' or 'Production Indifference Curve'. Higher isoquants represent higher output.

The first formal record of a financial transaction under the double-entry bookkeeping system, showing the accounts to be debited and credited along with narration. It is recorded in the Journal, the 'Book of Original Entry'.

States that, other things remaining equal (ceteris paribus), the quantity demanded of a good rises as its price falls and vice versa — establishing an inverse relationship between price and quantity demanded. Exceptions include Giffen goods, Veblen goods, and speculative demand.

States that, ceteris paribus, the quantity supplied of a good increases as its price rises and decreases as its price falls — establishing a direct/positive relationship between price and quantity supplied. Exceptions include supply of labour at high wages.

The principal book of accounts in which all business transactions are classified and posted under separate account heads. It is also called the 'Book of Final Entry' or the 'King of All Books'.

An inventory valuation method that assumes the goods purchased or manufactured most recently are sold or used first. Closing stock is therefore valued at the oldest (earliest) purchase prices.

The value that a function f(x) approaches as the input x approaches a particular value. Written as lim(x→a) f(x) = L. It is the foundational concept of Calculus and is essential for defining derivatives and integrals.

A corporate business vehicle that provides the benefits of limited liability while allowing its members the flexibility of organizing their internal structure as a partnership.

A rectangular arrangement of numbers (elements) in rows and columns, enclosed in brackets. An m × n matrix has m rows and n columns. Matrices support addition, subtraction, and multiplication (subject to compatibility conditions).

The sum of all observations divided by the total number of observations. It is the most commonly used measure of central tendency. Formula: x̄ = Σx / n. It is affected by extreme values (outliers).

The middle value of a data set when arranged in ascending or descending order. It divides the distribution into two equal halves. For even n: Median = average of (n/2)th and (n/2 + 1)th values. It is NOT affected by extreme values.

A person who has not completed the age of 18 years. An agreement with a minor is 'Void Ab Initio' (void from the beginning).

A false statement of fact made innocently (without knowledge of its falsity) by one party to induce the other to enter a contract (Section 18, ICA 1872). Unlike Fraud, there is no intention to deceive. Contract is Voidable but no right to damages.

An erroneous belief about something material to the contract. A bilateral mistake of fact (both parties mistaken) renders a contract Void. A unilateral mistake (only one party) generally does not affect the validity of the contract.

The value that appears most frequently in a data set. A data set can be unimodal (one mode), bimodal (two modes), or multimodal (more than two modes). It is the only measure of central tendency applicable to qualitative (categorical) data.

Central bank policy controlling money supply and interest rates.

Market with many sellers selling differentiated products.

Market structure with a single seller and no close substitutes.

Two events that cannot occur simultaneously — the occurrence of one precludes the occurrence of the other. For mutually exclusive events: P(A∩B) = 0, and P(A∪B) = P(A) + P(B).

The total monetary value of all goods and services produced by the residents of a country in a given period (usually one year), including income earned abroad but excluding income earned by foreigners within the country. It equals GNP minus depreciation.

The net output of an economy after accounting for depreciation (consumption of fixed capital). Formula: NNP = GNP − Depreciation. NNP at Factor Cost (National Income) = NNP at Market Price − Net Indirect Taxes.

The final profit of a business after deducting all indirect operating expenses, non-operating expenses, and taxes from Gross Profit. It represents the actual earnings available to the owners.

When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a Proposal (Offer) under Section 2(a) of the Indian Contract Act, 1872.

Market structure dominated by a few large firms.

The cost of the next best alternative foregone when making a decision.

A written agreement between partners detailing the terms and conditions of the partnership (profit sharing ratio, interest on capital, etc.).

Market with many buyers and sellers of identical products.

An arrangement of objects in a specific order.

A special type of Bailment where goods are delivered as security for the payment of a debt or performance of a promise. The bailor is called the Pawnor (Pledgor) and the bailee is called the Pawnee (Section 172, ICA 1872).

A measure of the responsiveness of quantity demanded to a change in the price of the good. Formula: PED = % Change in Quantity Demanded / % Change in Price. If |PED| > 1, demand is elastic; if |PED| < 1, it is inelastic.

A numerical measure of the likelihood of an event occurring, expressed as a number between 0 (impossible) and 1 (certain). Formula: P(A) = Number of favorable outcomes / Total number of equally likely outcomes.

The second part of the final accounts that records all indirect incomes and indirect expenses to determine the Net Profit or Net Loss for the accounting period. It starts with Gross Profit from the Trading Account.

An instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money.

A legal obligation imposed by law on a party to prevent unjust enrichment, even though no true contract exists between the parties. Also called 'Constructive Contract'. It is based on the principle of equity.

A stringent liquidity ratio (also called Acid-Test Ratio) that measures the ability to meet short-term obligations using only the most liquid assets, excluding inventories and prepaid expenses. Formula: (Current Assets − Stock − Prepaid Expenses) ÷ Current Liabilities. Ideal is 1:1.

A statistical method used for estimating the relationships between a dependent variable and one or more independent variables.

The rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against government securities. An increase in Repo Rate makes borrowing costlier for banks, reducing money supply and inflation; a decrease stimulates borrowing and growth.

Accumulated profits and specific provisions retained in the business rather than distributed to shareholders. Reserves are appropriations of profit (General Reserve, Capital Reserve), while Surplus is the undistributed balance in the P&L Account.

A long-run concept describing what happens to output when all factor inputs are increased proportionally. Three types: (1) Increasing Returns to Scale (output increases more than proportionally), (2) Constant Returns to Scale, (3) Decreasing Returns to Scale.

Expenditure incurred in the normal course of business operations whose benefit is consumed within the same accounting period. It is charged to the Profit & Loss Account.

A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price (Section 4, Sale of Goods Act, 1930). In a 'Sale', property in goods passes immediately; in an 'Agreement to Sell', it passes in future.

A well-defined collection of distinct objects (called elements or members). Sets are denoted by capital letters and elements are listed within curly braces. Key operations include Union (∪), Intersection (∩), and Complement.

A fund created by setting aside a fixed amount of money periodically and investing it, specifically to repay a long-term debt (like debentures) or replace a fixed asset at the end of its life.

A measure of the dispersion or spread of values in a data set around the mean. It is the square root of Variance. A lower standard deviation indicates data points are clustered close to the mean; a higher value indicates greater spread.

A person employed by and acting under the control of the original Agent in conducting the business of the Agency (Section 191, ICA 1872). A sub-agent is not directly appointed by the Principal. Generally, an Agent cannot delegate authority (Delegatus Non Potest Delegare).

Total amount of a good available to consumers.

The person who gives the guarantee in a contract of guarantee (Section 126, ICA 1872). The surety's liability is secondary and co-extensive with that of the principal debtor, unless the contract provides otherwise.

A temporary ledger account used to record transactions when there is uncertainty about the correct classification, or to make the Trial Balance agree when errors are suspected. It is closed once the errors are located and rectified.

The first part of the final accounts prepared to ascertain the Gross Profit or Gross Loss from trading (buying and selling) activities during an accounting period. It includes opening stock, purchases, direct expenses, sales, and closing stock.

A statement listing all ledger account balances at a specific date to verify the arithmetic accuracy of the double-entry bookkeeping system. It serves as the first step in preparing final accounts.

Beyond the powers. Acts done by a company beyond the scope of its Memorandum of Association.

Where one party to a contract is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other (Section 16, ICA 1872). The contract is Voidable at the option of the weaker party.

Total satisfaction received from consuming a good.

A measure of dispersion equal to the average of the squared deviations of each data point from the mean. Formula: σ² = Σ(xᵢ − x̄)² / n. Standard Deviation = √Variance.

A pictorial or graphical representation of sets using overlapping circles within a rectangle (Universal Set) to show the relationships (union, intersection, difference) between sets. Named after John Venn.

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

A stipulation collateral to the main purpose of the contract under the Sale of Goods Act, 1930. It is less important than a Condition. Breach of a Warranty only entitles the buyer to claim damages; they cannot reject the goods or repudiate the contract.

An inventory costing method that calculates the cost of ending inventory and COGS by dividing the total cost of goods available for sale by the total number of units available, resulting in a single average cost applied to all units.

The excess of current assets over current liabilities, representing the short-term liquidity available to a business for its day-to-day operations. Positive working capital indicates good short-term financial health.