Guideline( Study Material ) for Screening / Professional Test for the post

of 

Senior Auditor (BPS-16) 

Posts Advertised Vide Consolidated Advertisement No. 06/2014

of Federal Public Public Service Commission

(Curriculum & Research Wing)

Compiled By:-Mr. Asif Altaf ( A.O )

Ex. Faculty Member M.A.T.I.Karachi.

O/O the C.N.A. Karachi.Syllabus for Screening / Professional Test for the

post of Senior Auditor (BPS-16) 

Posts Advertised Vide Consolidated Advertisement No. 06/2014

of Federal Public Public Service Commission (Curriculum & Research Wing)

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FPSC Advertisement No. 06/2014 (Consolidated)

in Pakistan Military Accounts Department

Vocabulary, Grammar Usage,

• Accounting Principles & Procedures,• Scrutiny of Record for Audit Purpose,• Journal, ledger & Cash Book,• Annual Budget,• Adjustment & Depreciation,• Financial Planning & Cost Accounting,• Head of Accounts, Re-appropriation of Accounts and Supplementary Grant,• Settlement of Audit Objections• Preparation of Pension Documents.• Public Procurement Rules, 2004

Bachelor’s Degree in Business Administration (Finance/ Accounting)/ Commerce/ Economics/Statistics/ Mathematics or equivalent qualifications from a University recognized

ii. Two (2) years post qualification experience in the field of Accountancy/Auditing ORi. Second Class or Grade ‘C’ Bachelor’s Degree from a University recognized by HEC.

iii. One (1) year post qualification experience in the field of Accountancy/Auditing 

Part-IEnglish = 20 marks:-

Vocabulary, Grammar Usage, { Objective Type Test (MCQ) }

A).VocabularyB).Grammar Usage:-

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Correct use of Verb Change into Passive Voice Synonyms / Antonyms Correct use of Parts of Speech Misc

Suggested reading books:-01- Exploring the World of English by:- S Sadat Ali Shah02- High School English Grammar & Composition

a)-by:-R Martin &b)-by:-S Chand

English { MCQ’s } Synonyms Test Antonyms Test Analogies Test Grammar Test Word Choice (Vocabulary) Test Word Choice (Grammar) Test Summary Completion Test Reading Comprehension Test

01-Synonyms TestSynonyms Test for English Learners.

1. ANOMALYA. NormalB. StraightC. IrregularityD. IntegrityE. None of these

2. ABSTRUSEA. ShowyB. EvidentC. To prove somethingD. SkillfulE. Concealed

3. VACOUSA. StupidB. TruthfulnessC. RavenousD. DreamerE. Confused

4. PRAGMATICA. PracticalB. MagneticC. LiarD. ArrogantE. Uncertain

5. PROBITYA. Probability

B. HonestyC. PeacefulD. CarelessnessE. Extraordinary

6. MINATORYA. ManagingB. MovingC. ThreateningD. CheatingE. None of these

7. TOUCHSTONEA. Very hard stoneB. CriteriaC. StaticD. ComfortableE. Path

8. ACRIMONIOUSA. BitterB. CheapC. ExpensiveD. MomentaryE. Affection

9. BROOKA. FriendB. TolerateC. EnemyD. PolishE. Fraud

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10.SUCCINCTA. ConciseB. Tranquil

C. RatifyD. SlowlyE. Superficial

02-Antonyms TestAntonyms Test for English Learners.

1. FOEA. FriendB. EnemyC. FoulD. FailE. Fraud

2. CONSENSUSA. AgreementB. DisagreementC. QualityD. Special caseE. Bold

3. FECKLESSA. WeakB. CarefulC. CarelessD. UnluckyE. None of these

4. MELANCHOLYA. SorrowfulB. HappyC. ConfusedD. ConvictedE. None of these

5. EMINENTA. FamousB. SadC. Imminent

D. HappyE. Unknown

6. PARTISANA. NeutralB. Popular C. BiasedD. ApartE. Stubborn

7. NEPOTISMA. QueryB. FavoritismC. ImpartialD. NeophyteE. Nearness

8. ENIGMAA. MysteryB. PostmortemC. DemiseD. UnderstoodE. Frightened

9. CAPRICIOUSA. IntrinsicB. CertainC. RestD. ShakyE. Copy

10.AFFRONTA. PraiseB. To insultC. To faceD. ConfrontE. To remove

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03-Analogies TestAnalogies Test for English Learners.

1. ABERRATION : ANOMALYA. auspicious : favourableB. cacophony : euphonyC. eclectic : giftedD. fallow : badly feltE. erudite : stuffed

2. DETERIORATE : IMPROVEA. feckless : carelessB. evanescent : exigentC. hope : honeD. accumulation : narrateE. obstinate : tractable

3. AGGRAVATE : ALLEVIATEA. later : precedeB. urbane : naiveC. evasive : wordyD. feeble : workerE. disavow : confront

4. VINDICTIVE : MERCYA. transient : fleetingB. elated : happyC. crestfallen : cognizantD. cajole : coaxE. skeptical : trustfulness

5. CALCULUS : MATHEMATICSA. physics : chemistryB. mathematics : scienceC. book : pencilD. college : university

E. objective : subjective

6. ISLAND : ARCHIPELAGOA. classroom : schoolB. student : teacherC. brook : buildingD. chary : cautiousE. transport : transfer

7. FOND : DOTINGA. chide : pilloryB. doctrine : patientC. strut : walkD. levy : bevyE. time : search

8. TIGER : CARNIVOROUSA. lion : hungryB. cow : herbivorousC. pen : writeD. building : impressiveE. tree : forest

9. TREPIDATION : FEARA. baleful : tolerateB. ameliorate : amenableC. join : conjoinD. compliant : argumentativeE. candid : beget

10.STUBBORN : OBSTINATEA. mulish : tractableB. trepidation : confidentC. impecunious : pennyD. gloomy : moroseE. education : school

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04-Grammar TestGrammar Test for English Learners.

1.2. Don't think there are no

crocodiles because the water is calm.A. Simple SentenceB. Compound sentenceC. Complex sentenceD. Mixed sentence

3. If you fear God, you won't fear humans.A. ComplementB. Indirect objectC. Direct objectD. Subject

4. If you want to know what a man is like, take a good look at how he treats his inferiors, not his equals.A. Noun clauseB. adjective clauseC. Adverb clauseD. Noun phrase

5. Attack is the best form of defence.A. PrepositionB. AdjectiveC. ConjunctionD. Verb

6. An apple a day keeps the doctor away.A. Adverb

B. ArticleC. InterjectionD. Preposition

7. Do not look where you fell, but where you slipped.A. Intransitive verbB. Transitive verbC. Auxiliary verbD. Adjective

8. Those who do not learn from history are doomed to repeat it.A. InfinitiveB. ParticipleC. GerundD. Conjunction

9. Don't look a gift horse in the mouth.A. Assertive sentenceB. Interrogative sentenceC. Imperative sentenceD. Optative sentence

10.Oh! Hell hath no fury like a woman scorned.A. Mixed sentenceB. Exclamatory sentenceC. Optative sentenceD. Assertive sentence

11.Life is what you make it.A. Noun clauseB. Adjective clauseC. Adverb clauseD. Noun phrase

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05-Word Choice TestWord Choice Test for English Learners.

1. I cannot concentrate, here is too much __________.A. detractionB. distractionC. peopleD. soundE. contraction

2. It is expected that the assembly will _________ these treaties.A. forceB. ratifyC. notifyD. signifyE. check

3. Oil is mostly _________ by trucks in Pakistan.A. transferB. transmitC. transportD. travelE. deliver

4. Bus _________ are going to increase.A. feesB. ratesC. billsD. creditsE. fares

5. Pakistani __________ met his counterpart in London.A. consoleB. counselC. councelD. consulE. council

6. Children like to watch science __________ movies.A. fictionB. factionC. fractionD. fallacyE. friction

7. This account is exempted from __________ charges.A. taxB. bevyC. levyD. interestE. taxation

8. His believe that he could do this, is his __________.A. allusionB. illusionC. delusionD. depictE. addict

9. You are wearing an army's uniform, but the __________ is missing.A. epicB. epochC. epithetD. epicureE. epaulet

10.University professors visit the website www.sheir.org and ___________ the data.A. informB. appraiseC. apprise

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D. amendedE. commended

06-Word Choice Grammar TestWord Choice (Grammar) Test for English Learners.

1.2.3. I am afraid __________ cats.

A. toB. fromC. ofD. withE. by

4. We did not have __________ questions for the lecturer.A. noneB. anyC. someD. noE. more

5. Octopuses have not only large brains __________ also a well-developed nervous system.A. butB. andC. areD. and haveE. or

6. The manager __________ everyone go home an hour early on Friday afternoon.A. allowedB. letC. permittedD. gotE. asked

7. He came in Karachi __________ August 14, 2010.A. inB. onC. forD. fromE. with

8. Bilal is not receiving the call. He is __________ at work.A. alreadyB. stillC. yetD. lookingE. no longer

9. Bilal is getting __________ the car.A. out ofB. outC. out fromD. out throughE. outside

10.Saad is travelling __________ the school.A. toB. towardsC. offD. throughE. None of these

11.They went __________ the rain.A. despiteB. in spiteC. underD. avoidingE. and enjoy

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12.I was surprised by the large __________ people who came.A. number ofB. amount ofC. sum ofD. total ofE. some of

07-Summary Completion TestSummary Completion Test for English Learners.

Complete the following passage with correct option

During the later years of the American Revolution, the Articles of Confederation government was formed. This government (1)__________ severely from a lack of power. Each state distrusted (2)__________ and gave little authority to the central or federal

government. The Articles of Confederation (3)__________ a government which could not raise money (4)__________ taxes, prevent Indian raids, or force the British out (5)__________ the United States.

1.A. damagedB. sufferedC. failD. diminishedE. none of these

2.A. otherB. the otherC. othersD. the othersE. none of these

3.A. producedB. madeC. obtainedD. electedE. none of these

4.A. withB. fromC. forD. toE. with the

5.A. withB. fromC. forD. toE. of

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08-Reading Comprehension TestReading Comprehension Test for English Learners.

Read the following passage carefully and answer the given questions

Unemployment is an important index of

economic slack and lost output, but it is much more than that. For the unemployed person, it is often a damaging affront to human dignity and sometimes a catastrophic blow to family life. Nor is this cost distributed in proportion to ability to bear it. It falls most heavily on the young, the semiskilled and unskilled, the black person, the older worker, and underemployed person in a low income rural area who is denied the option of securing more rewarding urban employment…. The concentrated incidence of unemployment among specific groups in the population means far greater costs to society that can be measured simply in hours of involuntary idleness or dollars of income lost. The extra costs include disruption of the careers of young people, increased juvenile delinquency, and perpetuation of conditions which breed racial discrimination in employment and otherwise deny equality of opportunity. There is another and more subtle cost. The social and economic strains of prolonged underutilization create strong pressures for cost-increasing solutions…. On the side of labor, prolonged high unemployment leads to “share-the-work” pressures for shorter hours, intensifies resistance to technological change and to rationalization of work rules. On the side of business, the weakness of markets leads to attempts to raise prices to cover high average overhead casts and to pressures for protection against foreign and domestic competition.

1. According to the passage, unemployment is an index ofA. over utilization of capacityB. economic slack and lost outputC. diminished resourcesD. the employment rateE. under capacity

2. While unemployment is damaging to many, it falls most heavily upon all except theA. blackB. semiskilledC. unskilled

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D. underemployedE. white middle class

3. The cost to society of unemployment can be measured by all exceptA. lost incomesB. idlenessC. juvenile delinquencyD. disruption of careersE. the death rate

4. Serious unemployment leads labor groups to demandA. more jobs by having everyone

work shorter hoursB. higher wages to those

employedC. “no fire” policiesD. cost-cutting solutionsE. higher social security payments

5. According to the passage, a typical business reaction to a recession is to press forA. higher unemployment

insuranceB. protection against importsC. government actionD. restrictive business practicesE. restraint against union activity

ANSWERS:-01-ANSWERS: SYNONYMS TEST

1. C 2. E 3. A 4. A 5. B 6. C 7. B 8. A 9. B 10. A

02-ANSWERS: ANTONYMS TEST

1. A 2. B 3. B 4. B 5. E 6. A 7. C 8. D 9. B 10. A

03-ANSWERS: ANALOGIES TEST

1. A 2. E 3. A 4. E 5. B 6. A 7. A 8. B 9. C 10. D

04-ANSWERS: GRAMMAR TEST

1. B 2. C

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3. A 4. A 5. A 6. A 7. A 8. C 9. B 10. A

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05-ANSWERS: WORD CHOICE TEST

1. A 2. B 3. B 4. B 5. E 6. A 7. C 8. D 9. B 10. A

06-ANSWERS: WORD CHOICE

(GRAMMAR) TEST

1. C 2. B 3. A 4. B 5. B 6. B 7. A 8. B 9. A 10. A

07-ANSWERS: SUMMARY

COMPLETION TEST

1. B 2. D 3. A 4. B

5. E

08-ANSWERS: READING

COMPREHENSION TEST

1. B 2. E 3. E 4. A 5. B

Part-IIProfessional Test=80 Marks. Accounting Principles & Procedures,• Scrutiny of Record for Audit Purpose,• Journal, ledger & Cash Book,• Annual Budget,• Adjustment & Depreciation,• Financial Planning & Cost Accounting,• Head of Accounts, Re-appropriation of Accounts and Supplementary Grant,• Settlement of Audit Objections• Preparation of Pension Documents.• Public Procurement Rules, 2004

01-Accounting Principles & Procedures,

a)-12 Basic Accounting Principles – GAAPUnderstanding the basic accounting principles that is very important as it affects the preparation of financial statements.  The following accounting rules and assumptions dictate what, when and how to measure financial items.These rules were created by the Financial Accounting Standards Board (FASB) and are called General Accepted Accounting Principles (GAAP).  GAAP refers to the standard guidelines for financial accounting used in any given jurisdiction. GAAP includes the standards, conventions, and rules accountants follow in preparing and reporting financial statements.The following are 12 basic but important accounting principles:

1. Accounting Entity – is the business unit for which the financial statements are being prepared.  The accounting entity recognizes that there is a business entity that is separate from its owner(s).  In addition, the economic unit engages in identifiable economic activities and controls economic resources.

2. Going Concern – Accounts assume that the life of the business entity is infinitely long and will never dissipate.  In some cases, if there is a clear sign that a business may go bankrupt, the accountant must issue a qualified opinion stating the potential of a demise.

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3. Measurement – Accounting only deals with things that can be measured, quantifiable.  Therefore, aspects that are crucial to profits may be overlooked such as customer loyalty.

4. Units of Measure – The US Dollar (USD) is the standard value used in financial statements for companies in the United States.  Any foreign transactions must be translated to USD based on the current exchange rate.

5. Historical Cost – The transactions that results in what a business owns and owes are recorded at their original cost.  This may cause the company’s books to be understated.  For example, a company can own a manufacturing facility that is valued at $25,000,000 but carry it on the books for their purchase price of $7,000,000.

6. Materiality – The concept of materiality allows you to violate another accounting principle if the value is so tiny that the financial reports will not have an impact.  Materiality is a judgment call by the accountant.

7. Estimates and Judgments – Often times, it is OK to guess due to the nature that businesses are complex.  It is legal, if the accounting is the best you can do, the expected error would not affect the financial reports and the “guesses” are consistent for each period.

8. Consistency - Each individual enterprise must choose a single method of accounting and reporting consistently over time.

9. Conservatism –   Accountants must agree more with an understatement than an overvaluation.  This accounting guideline states that if doubt exists between two alternatives, the accountant should choose the result with a lesser asset amount and/or a lesser profit.

10. Periodicity – Is the activity within the scope of an accounting period that must be recorded within the time period on a financial statement.  Normally the life of a business can be divided into periods of time (month, quarter or year).

11. Substance Over Form – This is a concept where the entity is accounting for items according to their substance and economic reality and not just its form.

12. Accrual Basis of Presentation – In accrual accounting, if a business transaction makes money in a period then all of its associated costs and business expenses should also be reported in that particular period.  All businesses with inventory must use the accrual basis.  The alternative for business that don’t carry inventory is “cash basis” accounting in which transactions are recorded as they are physically received or paid out.

b)-Accounting Procedures:-Definition Similar to accounting method, but applied more to internal controls  and  routine  issues  Like computing amortization, depreciation, and petty cash expenses.OR General Accounting Procedures are tools to assist you in your day to day tasks.  ( e.g:-

Account & Cash Handling Procedures Consultants (Engaging & Paying)

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Payroll Procedures Plant & Equipment Procedures Sponsored Projects & Research Procedures Tax Related Procedures Travel & Reimbursement Procedures Other Accounting Procedures

02-Scrutiny of Record for Audit Purpose,The purpose of an audit is to provide an objective independent examination of the ...inspection; Year-end scrutiny; Re-computation; Tracing in subsequent period ... financial records and financial statements. The auditor must examine a variety of records and documents to verify that payroll was correctly reported for unemployment compensation purposes. Payments for personal services are made differently, and through different accounts, from employer to employer. The auditor is required to scrutinize all records that may show payments to individuals for personal services, and determine if these payments have been properly classified.

03-Journal, ledger & Cash Book,a)- Meaning of Journal The word „Journal‟ has been derived from the French word „JOUR‟ means daily records. Journal is a book of original entry in which transactions are recorded as and when they occur in chronological order (in order of date) from source documents. Recording in journal is made showing the accounts to be debited and credited in a systematic manner. Thus, the journal provides a date-wise record of all the transactions with details of the accounts and amounts debited and credited for each transaction with a short explanation, which is known as narration.

b)- Ledger is a book of account which contains a condensed and classified record of all transactions of the business posted from the journal. It is also called the book of final entry. In other words, the book, which contains accounts, is known as the ledger, also called the Principal Book. Ledger provides necessary information regarding various accounts. Personal accounts in ledger show how much money firm owes to the creditors and the amount it can recover from its debtors. The real accounts show the value of properties and also the value of stock. Nominal accounts reflect the sources of income and also the amount spent on various items. In accounting all transactions are ultimately recorded in the ledger. In this book, separate accounts are opened for each „account head‟ and all transactions relating to a particular „account head‟ will be posted in the concerned account.

c)- Cash Book:-Journal in which all cash receipts and payments (including bank deposits and withdrawals) are recorded first, in chronological order, for posting to general ledger. Cash book is regularly reconciled with the bank statements as an

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internal auditing measure. In larger firms, it is commonly divided into two parts: (1) Cash disbursement journal in which all cash payments (such as accounts payable, operating expenses, petty cash purchases) are recorded, and (2) Cash receipts journal in which all cash receipts (such as accounts receivable, cash sales, sale of assets) are recorded.

04-Annual Budget,Definition of 'Annual Budget' Any budget that is prepared for a 12-month period. An annual budget outlines both the income and expenditures that are expected to be received and paid over the coming year. Annual budgets are used by individuals, corporations, governments and various other types of organizations. Annual budgets can apply to either a fiscal or calendar year. These budgets help their creators to plan for the upcoming year and make the necessary adjustments in cash flow to cover expenses. Annual budgets help both individuals and organizations to accurately project their future cash flows and effectively manage their money. 

05-Adjustment & Depreciation,The age replacement policy which minimizes the average expected cost per unit time over an infinite time span is obtained in the case where the cost structure involves a term which takes into account adjustment costs, depreciation costs or interest charges which are suffered at fixed intervals of time of equal length. The optimal policy is shown to be nonrandom and sufficient conditions are given for it to be finite. Stopping rules in the search of this finite solution are also given.

06-Financial Planning & Cost Accounting,Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set.Whereas , Cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.

07-Head of Accounts, Re-appropriation of

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Accounts and Supplementary Grant:-a)-Head of Accounts:-

1)- Govt Side { Fed & Prov } 04-Main Head of A/C’s a-Revenue b-capital c-Debt & d- Remittance

2)-Pvt Side 05-Main Head of A/C’sa-Assets b- Liabilities c-Capital / O.Equityd-Revenue & e- Expenses

( * these are also called / termed as basic element of Financial Statement Order ).Financial Statement Order:-01)- Income Statement & 02)- Balance Sheet

*Income Statement { consist of Revenue & Expenses }*Balance Sheet { consist of Assets, Liabilities, Capital / O.Equity }

b)-Re-appropriation of Accounts:-Appropriation or re-appropriation represents the allotment of a particular sum of money to meet expenditure on a specified job as enunciated in the Detailed Demands for Grants. It is operative only for the financial year for which it is made.

c)-Supplementary Grant:-Supplementary and excess grants Supplementary and excess grants.-If in respect of any financial year it is found-(a) that the amount authorized to be expended for a particular service for the current financial year is insufficient, or that a need has arisen for expenditure upon some new service not included in the Annual Budget Statement for that year; or(b) that any money has been spent on any service during a financial year in excess of the amount granted for that service for that year;The Federal Government shall have power to authorize expenditure from the Federal Consolidated Fund, whether the expenditure is charged by the Constitution upon that Fund or not, and shall cause to be laid before the National Assembly a Supplementary Budget Statement or, as the case may be, an Excess Budget Statement, setting out the amount of that expenditure, and the provisions of Articles 80 to 83 shall apply to those statements as they apply to the Annual Budget Statement.

08-Settlement of Audit ObjectionsSettlement of Audit Objections:- All the Audit reports will be first placed before Audit Committee headed by the Head of Department.

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This Audit Committee will take decisions regarding Settlement and the further Action plan for the Audit Paras observed /Objected.High Risk Paras, involving Financial Implication and System Failure will be necessarily placed before Departmental Audit Committee and State Level Audit Committee, It is suggested that Director (Audit), should be a member of all the Audit Committees The office audited is expected to furnish Para-wise replies to the audit report through his controlling officer/ Head of the Department where necessary within 6 weeks from the date of issue of final report. Unusual delays should be brought to the notice of the senior officials of Audit Cell. The progress of settlements of objection should be watched through control register of outstanding audit reports. First reminder for Para wise replies to IA report should ordinarily be issued after six weeks from the date of its issue and a second reminder where necessary may be issued a month later. Subsequent reminders should be given on official letters at the appropriate levels. Normally a report should be settled within six weeks from the date of issue. An Objection book should be maintained in every office for entering therein objections having monetary value. The progress of recovery or sanction to the write off the loss should be watched through objection book. It shall be personal responsibility of the senior official to ensure that no objection required to be noted in the objection book is omitted and that prompt and vigorous action is taken to settle finally the outstanding objection at the appropriate level. Objections of routine nature relating to initial records i.e. cash book, stock register, log books and service books etc. where department/office has accepted the Audit‗s point of view and has intimated that necessary compliance can be verified at the time of next audit, may be treated as settled. Specific objections pointing out overpayments, short and non-realization of Government dues, irregular payment of grants, non-utilization of costly stores, equipments and machinery, irregular purchases and other serious irregularities where the department/office concerned has furnished satisfactory reply may be treated as settled subject to verification at the time of next audit. All such objection should be abstracted by the dealing assistant of the head office on a separate sheet of paper with the last column —Remarks of Inspecting Officer―. This abstract shall be given to the inspecting party along with the other records at the time of next audit for on the spot verification. Such objection shall also be treated as settled for the purpose of control register of outstanding inspection reports / para’s and objection book.

09-Preparation of Pension Documents.

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 Every Head of Office shall undertake the work of preparation of pension papers before or as per prescribed procedure the date on which a Government servant is due to retire on  superannuation, or on the date on which he proceeds on leave preparatory to retirement, whichever is earlier.

10-Public Procurement Rules, 2004.PPRA definition of Contractor as contained in ... PPR 2004 has eliminated all discretions in procurement process, ... contractor or supplier nor put others at a disadvantage, and elimination of culture of Gallop/Short Tender etc

Basic Accounting Terms, Acronyms and Abbreviations Students Should Know:-

No matter what career you are pursuing, you will need to learn the lingo used in your field or industry. All industries have their own unique blend of terms, acronyms and abbreviations.If you want to fully understand the industry and your organization in order to do your job effectively, it’s imperative you understand this language from the start."Accounting is the language of business. Knowing the language is critical for success in any corporate function because the information is communicated using these terms,”. This is especially true for anyone looking to work in the accounting field.Because of the strange accounting job titles, different accounting myths and these industry terms, it’s not uncommon for people to think working in accounting is complicated or confusing when really it’s just got its own unique language.As someone new to the accounting industry, you will be introduced to a variety of new terms. Beware: they may seem intimidating at first.  But familiarizing yourself with these basic accounting terms, acronyms and abbreviations early on will help you better prepare for a successful accounting career. Knowing how to talk the talk will allow you to quickly shift your focus in the classroom beyond these terms and toward learning the accounting techniques you will use in your job.Read through these basic accounting terms, study them and commit them to memory. By the time you finish your accounting degree, they will be second nature to you and you will be on your way to apromising career.Basic Accounting Terms List1. Accounts Receivable – ARDefinition: The amount of money owed by your customers after goods or services have been delivered and/or used. See how it works here.2. Accounting – ACCGDefinition: A systematic way of recording and reporting financial transactions.3. Accounts Payable – APDefinition: The amount of money you owe creditors (suppliers, etc.) in return for good and/or services they have delivered.  See how it works here.4. Assets (Fixed and Current) – FA and CADefinition: Current assets are those that will be used within one year. Typically this could be cash, inventory or accounts receivable. Fixed assets (non current) are more long-term

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and will likely provide benefits to a company for more than one year, such as a building, land or machinery. 5. Balance Sheet – BSDefinition: A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner’s equity at a given time.6. Capital – CAPDefinition: A financial asset and its value, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities.7. Cash Flow – CFDefinition: The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time. Having a positive cash flow is essential in order for businesses to survive in the long run.8. Certified Public Accountant – CPADefinition: A designation given to someone who has passed a standardized CPA exam and met government-mandated work experience and educational requirements to become a CPA.9. Cost of Goods Sold – COGSDefinition: The direct expense related to producing the goods sold by a company. This may include the cost of the raw materials (parts) and amount of employee labor used in production.10. Credit – CRDefinition: An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: a credit and a debit.11. Debit – DRDefinition: An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.12. Expenses (Fixed, Variable, Accrued, Operation) – FE, VE, AE, OEDefinition: The fixed, variable, accrued or day-to-day costs that a business may incur through its operations. Examples of expenses include payments to banks, suppliers, employees or equipment.13. Generally Accepted Accounting Principles – GAAPDefinition: A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.14. General Ledger – GLDefinition: A complete record of the financial transactions over the life of a company.15. Liabilities (Current and Long-Term) – CL and LTLDefinition: A company's debts or financial obligations it incurred during business operations. Current liabilities are those debts that are payable within a year, such as a debt to suppliers. Long-term liabilities are typically payable over a period of time greater than one year. An example of a long-term liability would be a bank loan.16. Net Income – NIDefinition: A company's total earnings, also called net profit or the “bottom line.” Net incomeis calculated by subtracting totally expenses from total revenues.17. Owner's Equity – OEDefinition: An owner’s equity is typically explained in terms of the percentage amount of stock a person has ownership interest in the company. The owners of the stock are commonly referred to as the shareholders.18. Present Value – PVDefinition: The value of how much a future sum of money is worth today. Present value helps us understand how receiving $100 now is worth more than receiving $100 a year from now. See an example of the time value of money here.19. Profit and Loss Statement – P&L

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Definition: A  financial  statement that is used to summarize a company’s performance and financial position by reviewing revenues, costs and expenses during a specific period of time; such a quarterly or annually.20. Return on Investment – ROIDefinition: A measure used to evaluate the financial performance relative to the amount of money that was invested. The ROI is calculated by dividing the net profit by the cost of the investment. The result is often expressed as a percentage. See an example her

Abbreviations:- GAO : General Accounting Office SEC : Securities and Exchange Commission R&D : Research and Development DFAS : Defense Finance and Accounting Service CPA : Certified Public Accountant CFO : Chief Financial Officer NPV : Net Present Value NYSE : New York Stock Exchange FASB : Financial Accounting Standards Board EPS : Earnings Per Share CIA : Certified Internal Auditor AICPA :American Institute of Certified Public Accountants CAPM : Capital Asset Pricing Model GAAP : Generally Accepted Accounting Principles IASC : International Accounting Standards Committee GL : General Ledger IFRS : International Financial Reporting Standards IAS: International Accounting Standards IAG: International Auditing Guidelines PMADPakistan Military Accounts Department MATI Military Accounts Training Institute CGA Controller General of Accounts PAD Pakistan Audit Department AGP Auditor General of Pakistan FPSC Federal Public Service Commission AGPR Accountant General of Pakistan Revenue MAG Military Accountant General

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CHAPTER 3BASIC STRUCTURE OF THE FORM OF ACCOUNTS

20.     Period of Accounts

The annual accounts of the Central, State and Union Territory Governments shall record transactions which take place during a financial year running from 1st April to 31st March.

NOTE:-    The Government accounts of a year may be kept open for a certain period in the following year for completion of the various accounting processes inter alia in respect of the transactions of March, for carrying out certain inter-departmental adjustments, and for closing the accounts of several Provident Funds and Suspense heads. Adjustments may also be made after the close of the year for the rectification of mispostings and misclassifications coming to notice after the 31st March. An actual cash transaction taking place after 31st March, should not, however, be treated as pertaining to the previous financial year even though the accounts for that year may be open for the purposes mentioned above.

21.     Cash basis of Accounts

With the exception of such book adjustments as may be authorised by these rules or by any general or special orders issued by the Central Government on the advice of the Comptroller and Auditor General of India, the transactions in Government accounts shall represent the actual cash receipts and disbursements during a financial year as distinguished from amounts due to or by Government during the same period.

22.     Currency in which Accounts are kept

The accounts of Government shall be maintained in Indian currency i.e. rupees. All transactions of the Central and State Governments taking place in other countries shall be passed on monthly by the Indian Embassies/Missions to India and brought to account finally in the Indian books after they have been converted into rupees.

23.     Form of Accounts - Main Divisions of Accounts

Government accounts shall be kept in the following three parts:-

Part I Consolidated Fundof India (including Union Territory Administration or of the State or Union Territory Government concerned.

Part II Contingency Fund

Part III Public Accountof India (including Union Territory Administration/Government) or of the State concerned.

NOTE:-    There being no separate Public Account in the case of Union Territory Governments, the transactions pertaining to this account shall be booked in the Public Account of the Central Government.

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 In part I, namely Consolidated Fund, of the accounts, there shall be two main divisions, namely:—

(i)     Revenue Consisting of sections for 'Receipt heads (Revenue Account)' and 'Expenditure heads (Revenue Account)'.

(ii)     Capital, Public Debt, Loans consisting of sections for 'Receipt heads (Capital Account)', 'Expenditure heads (Capital Account)', and 'Public Debt', 'Loans', and 'Advances'.

The first division shall comprise the section Receipt heads (Revenue Account) dealing with the proceeds of taxation and other receipt classed as revenue, and the Section 'Expenditure heads (Revenue Account)' dealing with expenditure met therefrom.

The second division shall comprise the following sections:—

(a)     The Section 'Receipt heads (Capital Account)' which deals with receipts of a Capital nature which cannot be applied as a set off to Capital Expenditure. 

(b)     The Section 'Expenditure heads (Capital Account)' which deals with expenditure met usually from borrowed funds with the object of increasing concrete assets of a material and permanent character. It also includes receipts of a Capital nature intended to be applied as set off to Capital expenditure.

(c)     The Section 'Public Debt' Loans and Advances, which comprise, of loans raised and their repayments by Government such as, Internal Debt, External Debt of the Central Government, and loans and Advances made by Governments and their recoveries; transactions relating to 'Appropriation to Contingency Fund' and 'Inter-State Settlement';

In Part II, namely Contingency Fund, of the accounts shall be recorded the transactions connected with the Contingency Fund set up by the Government of India or of a State or Union Territory Government under Article 267 of the Constitution/ Section 48 of the Union Territories Act, 1963.

In Part III, namely Public Account, of the accounts, the transactions relating to Debt (Other than those included in Part I), 'Deposits', 'Advances', 'Remittances' and 'Suspense' shall be recorded. The transactions under Debt, Deposit and Advances in this part are such in respect of which Government incurs a liability to repay the moneys received or has a claim to recover the amounts paid, together with the repayments of the former (Debt and Deposits) and the recoveries of the latter (Advances). The transactions relating to 'Remittances' and 'Suspense' in this Part shall embrace all merely adjusting heads under which shall appear such transactions as remittances of cash between treasuries and currency chests and transfer between different accounting circles. The initial debits or credits to these heads will be cleared eventually by corresponding receipts or payments either within the same circle of account or in another account circle.

24.     Sectors and Sub-sectors of Accounts

(a)     Within each of the Divisions and sections of the Consolidated Fund referred to in rule 23, the transactions shall be grouped into Sectors such as, "General Services", "Social Services", "Economic Services", under which specific functions or services shall be grouped. The Sectors shall be sub-divided into Major Heads of Account, in some cases the Sectors are, in addition, sub-divided into sub-sectors before their division into Major Heads of Account. Each Sector in a section shall be distinguished by a letter of the Alphabet.

(b)     In Part II—Contingency Fund, there shall be a single Major Head and all the transactions met out of the Contingency Fund shall be recorded under it.

(c)     In the case of Part III—Public Account, the transactions shall be grouped into sectors and sub-sectors, which shall be further sub-divided into Major Heads of Account. The Sectors/Sub-Sectors shall be distinguished by letters of the alphabet.

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25.     Allotment of Code to each Major Head and range of Code Numbers

A four digit Code has been allotted to the Major Head, the first digit indicating whether the Major Head is a Receipts Head or Revenue Expenditure Head, or Capital Expenditure Head or Loans and Advances. Head or it pertains to Public Account, if the first digit is '0' or '1', the Head of Account will represent Revenue Receipt; '2' or '3' will represent Revenue Expenditure; '4' or '5' Capital Expenditure; '6' or '7' Loans and Advances Head; (4000 for Capital Receipt) and '8' will represent Contingency Fund and Public Account—(8000 for Contingency Fund).

Adding 2 to the first digit of the Revenue Receipt will give the Code Number allotted to corresponding Revenue Expenditure Head; adding another 2—the Capital Expenditure Head and another 2—the Loans and Advances Head of Accounts; e.g.

0401 represents the Receipt Head for Crop Husbandry

2401 represents the Revenue Expenditure Head for Crop Husbandry

4401 represents the Capital Outlay on Crop Husbandry 

6401 represents Loans for Crop Husbandry.

Such a pattern is however, not relevant for those departments which are not operating Capital/Loan Head of accounts e.g. Department of Supply. In a few cases, however, where receipt/expenditure is not heavy, certain Major Heads have been combined under and single number, the Major Heads themselves forming sub-major heads under that number.

The range of code numbers allotted under the scheme of codification is shown below:-

Part I - Consolidated Fund Major Head Code Nos.

Section I Receipt Heads (Revenue Account)                  0020-1999

Expenditure Heads (Revenue Account)                          2011-3999

Section II - Receipt Head (Capital Account)                  4000

Expenditure Heads (Capital Account)                              4046-5999

Section III Public Debt, Loans & Advances                     

6001-7999

Part II - Contingency Fund                                               8000

Part III - Public Account                                                  8001-8995

26.     Major, Minor and Detailed Heads

(a)     The main unit of classification in accounts shall be the major head which shall be divided into minor heads, each of which shall have a number of subordinate heads, generally shown as sub-heads. The sub-heads are further divided into detailed heads. Sometimes major heads may be divided into 'sub-major heads' before their further division into minor heads.

 The Sectors, Major heads, Minor heads, Sub-heads and Detailed heads together constitute a five tier arrangement of the classification structure of Government Accounts.

(b)     Major heads of account falling within the Consolidated Fund shall generally correspond to 'Functions' of Government,  such as different services like "Crop Husbandry", 'Defence' provided by Government, while minor heads subordinate to them shall identify the 'Programme' undertaken to achieve the objectives of the function

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represented by the major head. A programme may consist of a number of schemes or activities and these shall, generally, correspond to 'sub-heads' below the minor head represented by the programme. In certain cases, especially in regard to non-developmental expenditure or expenditure of an administrative nature, the sub-heads may denote the components of a programme, such as 'Organisations' or the different 'Wings of Administration'.

(c)     A "detailed head'', is termed as an object classification. On the expenditure side of the accounts particularly in respect of heads of accounts within the Consolidated Fund, detailed heads are primarily meant for itemised control over expenditure and indicate the object or nature of expenditure on a scheme or activity or organisation in terms of inputs such as 'Salaries', 'Office Expenses', 'Grants-in-aid', 'Loans'. 'Investments'.

(d)     The detailed classification of account heads in Government Accounts and the order in which the Major and Minor heads shall appear in all account records shall be such as are  prescribed by the Central Government from time to time on the advice of the Comptroller and Auditor General of India. The 'List of Major and Minor Heads of Account of Union and States contains the classification prescribed in this regard. The classification prescribed (including the code No. assigned upto the major heads and minor heads thereunder) should be strictly followed.

NOTE 1:-    With effect from 1st January, 1982 and in the case of Jammu and Kashmir, Maharashtra, Manipur and Sikkim from 15th January, 1982, State Governments have been entrusted with their consent, in terms of clause (1) of article 258 of the Constitution, the functions of the Central Government under Article 150 of the Constitution in so far as such functions relate to the opening of sub-heads and detailed heads of accounts under the various Major and Minor heads of Accounts in the State concerned, subject to the following conditions:

(i)     Orders issued by a State Government for opening subheads and detailed heads are consistent with the directions issued by the Central Government from time to time.

(ii)     No sums shall be paid by the Central Government to the State Government concerned in respect of any extra costs of administration incurred by the State in connection with the exercise of the functions so entrusted.

NOTE 2:-    With effect from 1st April, 1982 the President in terms of clause (1) of Article 239 of the Constitution, has directed the Administrators of the Union Territories of Arunachal Pradesh, Goa, Daman & Diu, Mizoram and Pondicherry, subject to his control, also to discharge the functions of the Central Government under Article 150 of the Constitution in so far as such functions relate to the opening of sub-heads and detailed heads of account under the various Major and Minor heads of account within their respective territories subject to the following conditions:—

(i) the said discharge of functions shall be subject to the forms prescribed by the President under Article 150; and

(ii) No sums shall be paid by the Central Government to the Union Territory concerned in respect of any extra cost of administration incurred in connection with the said discharge of functions.

NOTE 3:—Directions issued by the Ministry of Finance (Department of Expenditure—Controller General of Accounts) on the advice of the Comptroller and Auditor General in connection with the exhibition of expenditure incurred by State/Union Territory Governments against grants-in-aid and loans given to them by various Ministries/ Departments of the Government of India under Central Plan Schemes and Centrally sponsored Plan Schemes, are reproduced in Appendix 4.

27.     Classification of expenditure as "Charged" or as "Voted"

Expenditure which under the provisions of the Constitution is subject to the vote of the Legislature shall be shown in the accounts separately from expenditure which is "Charged" (on the Consolidated Fund of India or of a State or Union Territory Government. The expression "Charged" or "Voted" shall be appended to the heads concerned to distinguish the two categories of expenditure.

28.     Classification of transactions in accounts

(1)     Under Article 150 of the Constitution, the accounts of the Union and of the States shall be kept in such form as the President may on the advice of the Comptroller and Auditor General, prescribe. The word "Form" used in Article 150 has a comprehensive meaning so as to include the prescription not only of the broad form in which the accounts are to be kept but also the basis for selecting appropriate heads under which the transactions are to be classified.

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(2)     The estimates of receipts and expenditure framed by Government or in any order of Appropriation shall indicate provisions, ordinarily against heads opened in conformity with these rules. Where there is divergence, the corresponding receipt or expenditure shall be brought to account under the appropriate major head or minor head or other unit of classification as determined by the President on the advice of the Comptroller and Auditor General of India.

"Principles and Rules regulating adjustments between Governments of certain category of charges and receipts, which have been accepted by all Governments are given in Appendix 5."

29.     Basis of classification

As a general rule, the classification of transactions in Government accounts, shall have closer reference to the function, programme and activity of the Government and the object of the revenue or expenditure, rather than the department in which the revenue or expenditure occurs. This principle is, however, subject to such exceptions as may be authorised specially in any individual case or class of cases e.g. receipts representing 'Interest' are shown under "0049—Interest Receipts" and expenditure on the maintenance and repairs of the non-Residential buildings under the administrative control of the Public Works Department are shown under the major head "2059—Public Works" irrespective of the functions to which they relate. Important general orders governing classification of pay and allowances (including travelling allowances) of Government servants, expenditure on civil works, contributions made by or to Government, refunds of revenue, shall be issued by Government from time to time.

30.     Criteria for determining whether expenditure should be classified under heads of Capital Section or Revenue Section of the Consolidated Fund.

(1)     Expenditure of a capital nature to be classified in the Capital Section shall broadly be defined as expenditure incurred with the object of  either increasing concrete assets of a material and permanent character.

NOTE:-    Expenditure on a temporary asset or expenditure on Grants-in-aid to local bodies or institutions (for the purpose of creating assets which will belong to these local bodies or institutions) cannot ordinarily be classifiable as capital expenditure, and shall not, except in cases specifically authorised by the President on the advice of Comptroller and Auditor General be debited to a capital head of account.

(2)     Expenditure of a Capital nature shall be distinguished from Revenue expenditure both in the Budget Estimates and in Government Accounts.

NOTE:-    Capital expenditure is generally met from receipts of a capital, debt, deposit or banking character as distinguished from ordinary revenue derived from taxes, duties, fees, fines and similar items of current income including extra-ordinary receipts. It is open to the Government to meet Capital expenditure from ordinary revenues provided there are sufficient revenue resources to cover this liability.

(3)     Expenditure of a Capital nature as defined above shall not be classed as Capital expenditure in the Government accounts unless the classification has been expressly authorised by general or special orders of Government.

31.     Allocation between capital and revenue expenditure on a capital scheme

(1)     The allocation between capital and revenue expenditure on a Capital Scheme for which separate capital and revenue accounts are to be kept shall be determined in accordance with such general or special orders as may be prescribed by the President on the advice of the Comptroller and Auditor General.

(2)     The following are the main principles governing the allocation of expenditure on a Capital Scheme, between Capital and Revenue accounts:

(a)     Capital account should bear all charges for the first construction and equipment of a project as well as charges for intermediate maintenance of the work while not yet opened for service. It would also bear charges for such further additions and improvements as may be sanctioned under rules made by competent authority.

(b)     Subject to (c) below, revenue account should bear all subsequent charges for maintenance and all working expenses. These embrace all expenditure on the working and upkeep of the project and also on

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such renewals and replacements and such additions, improvements or extensions as prescribed by Government.

(c)     In the case of works of renewal and replacement which partake both of a capital and revenue nature, the allocation of expenditure should be regulated by the broad principle that revenue should pay or provide a fund for the adequate replacement of all wastage or depreciation of property originally provided out of capital grants and that only the cost of genuine improvements, whether determined by prescribed rules or formulae or under special orders of Government, should be debited to Capital account. Where under special orders of Government, a Depreciation or Renewals Reserve Fund is established for renewing assets of any commercial department or undertaking, the distribution of expenditure on renewals, and replacements between Capital account and the Fund should be so regulated as to guard against over-capitalisation on the one hand and excessive withdrawals from the Fund on the other.

(d)     Expenditure on account of reparation of damage caused by extraordinary calamities such as flood, fire, earthquake, enemy action, should be charged to Capital account or to Revenue account or divided between them in such a way as may be determined by Government according to the circumstance of each case.

(e)     Capital receipts in so far as they relate to expenditure previously debited to Capital heads, accruing during the process of construction of a project, should be utilised in reduction of capital expenditure. Thereafter, their treatment in the accounts will depend on circumstances, but except under a special rule or order of Government, they should not be credited to the revenue account of the department or undertaking.

32.     Net Gain or Loss by Exchange in respect of Government transaction in foreign currencies

Net gain or loss by exchange in respect of Government transactions in foreign currencies shall be uniformly adjusted under the head "0075/2075—Miscellaneous General Services— Gain/Loss by Exchange".

33.     Classification and accounting of transactions pertaining to more than one Major Head of Account

For the sake of convenience or for other special reasons, receipts on charges pertaining to more than one head of account may be booked in the first instance under one of the heads concerned, but the portion creditable or debitable to the other head or heads involved should be transferred from the former head to the latter before the accounts of the year are closed. A few instances are cited below:-

(1)     Where the charges for the supply of water from Irrigation canals are consolidated with the land revenue demand, the recoveries at the consolidated rates are, in the first instance, credited to the head "0029—Land Revenue" and an approximate amount calculated as the share due to Irrigation is transferred to the relevant Irrigation Revenue Head.

(2)     Charges for collection of Corporation Tax are accounted for under the minor head "Collection Charges—Income Tax" below the major head "2020 —Collection of Taxes on Income and Expenditure" in the first instance, the amount debitable to the minor head "Collection charges—Corporation Tax" being transferred later from the former minor head to the latter.

(3)     The Establishment and Tools and Plant charges of Public Works Divisions are, in the first place, booked under a single Major Head subject to final apportionment among the several major heads concerned.

34.     Classification and accounting of transactions relating to Scheduled Areas

Receipts and expenditure pertaining to Scheduled Areas in a State vide clause I of Article 244 of the Constitution shall be accounted for under the same major and minor heads under which corresponding receipts and expenditure

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pertaining to other areas of the State are accounted for, but the receipts and expenditure of the former kind may be shown in the accounts separately from the later if Government so desires.

35.     Classification and accounting of recoveries of overpayments

Recoveries of overpayments whether made in cash or by deduction from payment vouchers shall always be taken as reduction of expenditure under the appropriate expenditure head concerned irrespective of the year to which such recoveries relate.

36.     Accounts of Government Commercial Departments or Undertakings

Where any departments or departmental Undertakings of Government function on commercial lines, the essential formalities of commercial accounts to the extent prescribed by Government should be strictly observed. In such cases, separate commercial accounts of the departments or Undertakings shall be kept outside the regular Government accounts. Gross receipts and expenditure of commercial departments or undertakings shall be accounted for under the appropriate major and minor heads in the same way as ordinary receipts and expenditure of Government. The heads of accounts should, as far as possible, be common to the Government account, and the General Ledger maintained at the department or undertaking, and should be selected with due regard to the principles of governmental and commercial accounting so; that the monthly classified account of income and expenditure of the department or undertakings may be prepared readily from the General Ledger.

37.     Rectification of Misclassifications

The procedure to be followed in rectifying misclassifications in accounts shall be such as may be prescribed by Govt.

38.     Criteria for writes-off of balances from Debt. Deposit, Suspense and Remittances Heads closed to balance and classification thereof in accounts

Ordinarily, all amounts due to Government which are found to be irrecoverable shall be written-off from the Debt head of account concerned to an expenditure head as a loss to Government. Similarly, any balance due by Government remaining unclaimed for such time as may be prescribed by Government shall be credited as revenue of the Government concerned by debit to the Debt or Deposit head concerned. Amounts outstanding due to book-keeping errors under heads which close to balance shall be written-off to "8680-Miscellaneous Government Account-Write off from heads of account closing to balance". With the specific approval of the Comptroller and Auditor General in all cases where the compilation of account is his responsibility and in cases where the accounts have been departmentalised or separated from Audit, with the specific approval of the Controller General of Accounts; provided that the Comptroller and Auditor General and the Controller General of Accounts may delegate the power to appropriate Accounts authorities to such extent and subject to such conditions as may be decided by them.

Where it is not possible to establish that unreconciled balances/differences under heads of account which close to balance are either due to book-keeping errors or involve loss/ receipts, the balances/differences may be written-off to "8680 Miscellaneous Government Account - Writes-off from heads of account closing to balance", with the approval of the Comptroller and Auditor General of India after obtaining concurrence of the Government concerned in all cases where the compilation of account is his responsibility and in cases, where the accounts have been departmentalised or separated from Audit, of the Controller General of Accounts after concurrence of the Chief Accounting Authority concerned is obtained.

Such unreconciled balances or differences between the ledger balances and those of as per the relevant subsidiary registers or Broad-sheets, under any detailed/sub-detailed heads of account relating to any Debt, Deposit, Suspense and Remittance heads in the State Accounts, as per the list of Major & Minor Heads of Account, not exceeding Rs. 1000/- in each case in any financial year, may be written-off by an Accountant General to the head "8680 Miscellaneous Government Account — Write-off from heads of account closing to balance" subject to the following conditions:—

(i)     The amounts of unreconciled balances or differences are continuing for a period of over five years, in the year in which it is proposed to be written-off. 

(ii)     The Accountant General has satisfied himself that a dead end has been reached in resolving the differences and

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(iii)     The concurrence of the State Government has been obtained for the write-off.

FPSC Senior Auditors Test Preparation Basic Accounting Terms and Questions for Test

Definition of accounting: “the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of a financial character and interpreting the results there of”.2. Book keeping: It is mainly concerned with recording of financial data relating to the business operations in a significant and orderly manner.3. Concepts of accounting:A. Separate entity conceptB. Going concern conceptC. Money measurement conceptD. Cost conceptE. Dual aspect conceptF. Accounting period conceptG. Periodic matching of costs and revenue conceptH. Realization concept.4 Conventions of accounting:A. ConservatismB. Full disclosureC. ConsistencyD. Materiality5. Systems of book keeping:A. single entry systemB. double entry system6. Systems of accounting:A. Cash system accountingB. Mercantile system of accounting.7. Principles of accounting:A. Personal a/c: Debit the receiverCredit the giverB. Real a/c: Debit what comes inCredit what goes outC. Nominal a/c: Debit all expenses and lossesCredit all gains and incomes8. Meaning of journal: Journal means chronological record of transactions.9. Meaning of ledger: Ledger is a set of accounts. It contains all accounts of the business enterprise whether real, nominal, personal.10. Posting: It means transferring the debit and credit items from the journal to their respective accounts in the ledger.11. Trial balance: Trial balance is a statement containing the various ledger balances on a particular date.12. Credit note: The customer when returns the goods get credit for the value of the goods returned. A credit note is sent to him intimating that his a/c has been credited with the value of the goods returned.13. Debit note: When the goods are returned to the supplier, a debit note is sent to him indicating that his a/c has been debited with the amount mentioned in the debit note.14. Contra entry: Which accounting entry is recorded on both the debit and credit side of the cashbook is known as the contra entry.15. Petty cash book: Petty cash is maintained by business to record petty cash expenses of the business, such as postage, cartage, stationery, etc.16. Promissory note: an instrument in writing containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument.17. Cheque: A bill of exchange drawn on a specified banker and payable on demand.18. Stale Cheque: A stale cheque means not valid of cheque that means more than six months the cheque is not valid.20. Bank reconciliation statement: It is a statement reconciling the balance as shown by the bank passbook and the balance as shown by the Cash Book. Obj: to know the difference & pass necessary correcting, adjusting entries in the books.21. Matching concept: Matching means requires proper matching of expense with the revenue.22. Capital income: The term capital income means an income which does not grow out of or pertain to the running of the business proper.23. Revenue income: The income, which arises out of and in the course of the regular business transactions of a concern.24. Capital expenditure: It means an expenditure which has been incurred for the purpose of obtaining a long

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term advantage for the business.25. Revenue expenditure: An expenditure that incurred in the course of regular business transactions of a concern.26. Differed revenue expenditure: An expenditure, which is incurred during an accounting period but is applicable further periods also. Eg: heavy advertisement.27. Bad debts: Bad debts denote the amount lost from debtors to whom the goods were sold on credit.28. Depreciation: Depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear, technology changes, laps of time and accident.29. Fictitious assets: These are assets not represented by tangible possession or property. Examples of preliminary expenses, discount on issue of shares, debit balance in the profit And loss account when shown on the assets side in the balance sheet.30. Intangible Assets: Intangible assets mean the assets which is not having the physical appearance. And it’s have the real value, it shown on the assets side of the balance sheet.31. Accrued Income: Accrued income means income which has been earned by the business during the accounting year but which has not yet been due and, therefore, has not been received.32. Outstanding Income: Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm.33. Suspense account: The suspense account is an account to which the difference in the trial balance has been put temporarily.34. Depletion: It implies removal of an available but not replaceable source, Such as extracting coal from a coal mine.35. Amortization: The process of writing of intangible assets is term as amortization.36. Dilapidation: The term dilapidation to damage done to a building or other property during tenancy.37. Capital employed: The term capital employed means sum of total long term funds employed in the business. i.e.(Share capital+ reserves & surplus +long term loans – (non business assets + fictitious assets)38. Equity shares: Those shares which are not having pref. rights are called equity shares.39. Pref.shares: Those shares which are carrying the pref.rights are called pref. shares Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the event of company winding up.40. Leverage: It is a force applied at a particular work to get the desired result.41. Operating leverage: the operating leverage takes place when a changes in revenue greater changes in EBIT.42. Financial leverage: it is nothing but a process of using debt capital to increase the rate of return on equity43. Combine leverage: It is used to measure of the total risk of the firm = operating risk + financial risk.44. Joint venture: A joint venture is an association of two or more the persons who combined for the execution of a specific transaction and divide the profit or loss their of an agreed ratio.45. Partnership: Partnership is the relation b/w the persons who have agreed to share the profits of business carried on by all or any of them acting for all.46. Factoring: It is an arrangement under which a firm (called borrower) receives advances against its receivables, from financial institutions (called factor)47. Capital reserve: The reserve which transferred from the capital gains is called capital reserve.48. General reserve: the reserve which is transferred from normal profits of the firm is called general reserve49. Free Cash: The cash not for any specific purpose free from any encumbrance like surplus cash.50. Minority Interest: Minority interest refers to the equity of the minority shareholders in a subsidiary company.51. Capital receipts: Capital receipts may be defined as “non-recurring receipts from the owner of the business or lender of the money crating a liability to either of them.52. Revenue receipts: Revenue receipts may defined as “A recurring receipts against sale of goods in the normal course of business and which generally the result of the trading activities”.53. Meaning of Company: A company is an association of many persons who contribute money or money’s worth to common stock and employs it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company.54. Types of a company:1. Statutory companies2. Government company3. Foreign company4. Registered companies:A. Companies limited by sharesB. Companies limited by guaranteeC. Unlimited companiesD. private companyE. public company55. Private company: A private co. is which by its AOA: Restricts the right of the members to transfer of shares Limits the no. Of members 50. Prohibits any Invitation to the public to subscribe for its shares or debentures.56. Public company: A company, the articles of association of which does not contain the requisite restrictions to make it a private limited company, is called a public company.57. Characteristics of a company:> Voluntary association> Separate legal entity

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> Free transfer of shares> Limited liability> Common seal> Perpetual existence.58. Formation of company:> Promotion> Incorporation> Commencement of business59. Equity share capital: The total sum of equity shares is called equity share capital.60. Authorized share capital: It is the maximum amount of the share capital, which a company can raise for the time being.61. Issued capital: It is that part of the authorized capital, which has been allotted to the public for subscriptions.62. Subscribed capital: it is the part of the issued capital, which has been allotted to the public63. Called up capital: It has been portion of the subscribed capital which has been called up by the company.64. Paid up capital: It is the portion of the called up capital against which payment has been received.65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt due by it to its holder.66. Cash profit: cash profit is the profit it is occurred from the cash sales.67. Deemed public Ltd. Company: A private company is a subsidiary company to public company it satisfies the following terms/conditions Sec 3(1)3:1. Having minimum share capital 5 lakhs2. Accepting investments from the public3. No restriction of the transferable of shares4. No restriction of no. of members.5. Accepting deposits from the investors68. Secret reserves: Secret reserves are reserves the existence of which does not appear on the face of balance sheet. In such a situation, net assets position of the business is stronger than that disclosed by the balance sheet.These reserves are created by:1. Excessive depot an asset, excessive over-valuation of a liability.2. Complete elimination of an asset, or under valuation of an asset.69. Provision: provision usually means any amount written off or retained by way of providing depreciation, renewals or diminutions in the value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.70. Reserve: The provision in excess of the amount considered necessary for the purpose it was originally made is also considered as reserve Provision is charge against profits while reserves is an appropriation of profits Creation of reserve increase proprietor’s fund while creation of provisions decreases his funds in the business.71. Reserve fund: The term reserve fund means such reserve against which clearly investment etc.,72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c or group of accounts so that the existence of the reserve is not known such reserve is called an undisclosed reserve.73. Finance management: Financial management deals with procurement of funds and their effective utilization in business.74. Objectives of financial management: financial management having two objectives that Is:1. Profit maximization: The finance manager has to make his decisions in a manner so that the profits of the concern are maximized.2. Wealth maximization: Wealth maximization means the objective of a firm should be to maximize its value or wealth, or value of a firm is represented by the market price of its common stock.75. Functions of financial manager:> Investment decision> Dividend decision> Finance decision> Cash management decisions> Performance evaluation> Market impact analysis76. Time value of money: The time value of money means that worth of a rupee received today is different from the worth of a rupee to be received in future.77. Capital structure: It refers to the mix of sources from where the long-term funds required in a business may be raised; in other words, it refers to the proportion of debt, preference capital and equity capital.78. Optimum capital structure: Capital structure is optimum when the firm has a combination of equity and debt so that the wealth of the firm is maximum.79. Wacc: It denotes weighted average cost of capital. It is defined as the overall cost of capital computed by reference to the proportion of each component of capital as weights.80. Financial break-even point: It denotes the level at which a firm’s EBIT is just sufficient to cover interest and preference dividend.81. Capital budgeting: Capital budgeting involves the process of decision making with regard to investment in fixed assets. Or decision making with regard to investment of money in long term projects.82. Payback period: Payback period represents the time period required for complete recovery of the initial investment in the project.

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83. ARR: Accounting or average rates of return means the average annual yield on the project.84. NPV: The Net present value of an investment proposal is defined as the sum of the present values of all future cash inflows less the sum of the present values of all cash out flows associated with the proposal.85. Profitability index: Where different investment proposal each involving different initial investments and cash inflows are to be compared.86. IRR: Internal rate of return is the rate at which the sum total of discounted cash inflows equals the discounted cash out flow.87. Treasury management: It means it is defined as the efficient management of liquidity and financial risk in business.88. Concentration banking: It means identify locations or places where customers are placed and open a local bank a/c in each of these locations and open local collection canter.89. Marketable securities: Surplus cash can be invested in short term instruments in order to earn interest.90. Ageing schedule: In an ageing schedule the receivables are classified according to their age.91. Maximum permissible bank finance (MPBF): It is the maximum amount that banks can lend a borrower towards his working capital requirements.92. Commercial paper: A cp is a short term promissory note issued by a company, negotiable by endorsement and delivery, issued at a discount on face value as may be determined by the issuing company.93. Bridge finance: It refers to the loans taken by the company normally from commercial banks for a short period pending disbursement of loans sanctioned by the financial institutions.94. Venture capital: It refers to the financing of high-risk ventures promoted by new qualified entrepreneurs who require funds to give shape to their ideas.95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a package of assets (called asset pool).96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its views by another party (lessee) over a specified period97. Trade Credit: It represents credit granted by suppliers of goods, in the normal course of business.98. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to overdraw from his account.99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit against credit granted by bank.100. Clean overdraft: It refers to an advance by way of overdraft facility, but not back by any tangible security.

Business Administration Paper - 2000

(1)      Public Accountants generally perform these services:

(a)     Income tax services, Management Advisory services, and independentauditing services

(b)      Internal auditing, Income tax services and management controlling.(c)      Public accounting, private accounting and budgeting.(d)      None of the above is correct.

(2)      Identify the organization created by Congress to regulate security markets includingflow of information from companies to public:

(a)      TVM(b)      NPV(c)      IRR(d)      SEC

(3)      Select the term that describes a cash distribution to a Corporation‟s Stockholders:

(a)      Paid out Capital(b)      Cash Management

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(c)       A dividend(d)      None of these(e)      All of the above are correct

(4)       Frederick Winslow Taylor work/book entitled the principles of Scientific Managementis published, in:

(a)      1875(b)      1901(c)       1911(d)      None of these

(5)      One of the most successful Industrialists and the father of Modern PersonnelManagement is:

(a)      F.W. Taylor(b)      James Watt(c)      C. Babbage(d)      Robert Owen

(6)      Who has the major Contributions in the Theory of Bureaucracy:

(a)      Henry Gantt(b)      Hanri Fayal(c)      W.D. Scatt(d)      Max Weber(e)      None of these

(7)       Which one, of the following MNCs (Multinational Co.) has the higher revenues duringmid. 1990s:

(a)      General Motor(b)      IBM(c)      AT &T(d)      General Electric(e)      None of the above

(8)      Give the, name of the author who has the major contributions in the field ofmarketing:

(a)      H. Koontz(b)      W.J. Stanton(c)      P.B. Miller(d)      Gitt Man(e)      All of these

(9)      The profit margin is a ratio between the corporation‟s net income and:

(a)      Total expense(b)      Total assets(c)      Cost(d)      Total revenues(e)      None of the above

(10)    MNCs are responsible for the majority of Foreign Direct Investment (FDIs) and have

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a higher revenues than the national income of some of the countries they serve:

(a)      Fully agreed(b)      Not agreed(c)      It is not possible(d)      None of these

(11)    Earned but uncollected revenues, that are recording the adjusted process, recordedwith a credit to the revenues and debit to the expense is called:

(a)      Adjusted Trail balance(b)      Expenses(c)       Accrued revenues(d)      None of these

(12)     Which one of the following is not a part/variable of the marketing Mix (4Ps):

(a)      Product(b)      Price(c)      Place(d)      Person

(e)      None of these

(13)    The major steps in the accounting cycle are the following:

(a)      The procedure used in worksheet(b)      Begin with Trail Balance(c)      Completed only once in business life(d)      None of the above(e)      All of these

(14)    Which of the following items is not unique to the financial statements ofmerchandising Companies?

(a)      Cost of good sold(b)      Gross profit(c)       Account receivable(d)      Net sales(e)      All of the above(f)      None

(15)    The repairs made to keep a plant/asset in normal and good operating condition arecalled:

(a)      Plant Management(b)      Operation Management(c)       Ordinary repairs

(16)    A company that owns more than 50% shares of another company and controls thatcorporation is known as:

(a)      Subsidizing(b)      Consolidated CO.(c)      None of these

(17)    The process of individual growth in the full utilization of a person‟s managerial

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capabilities is called management development:

(a)      True(b)      False

(18)    Promotion is not a part of marketing:

(a)      Agreed(b)      Not agreed(c)      None of these

(19)    A way of analyzing leadership style where leaders are classified on a grid with TWOdimensions is called:

(a)      Managerial grid(b)      Two way theory

(c)      None

(20)    Robert Owen is known as the Father of Modern Personnel Management:

(a)     Yes(b)       No(c)      May be Taylor

Business Administration Paper - 2001

(1)      Most preferred stock pays a fixed dividend at regular intervals.

(a)      True(b)      False

(2)      Any increase in an asset item is a source of funds.

(a)      True(b)      False

(3)       Depreciation is a book-keeping entry that allocates the cost of assets against incomebut does not involve any movement of capital.

(a)      True(b)      False

(4)      The maturity of a security relates to the owner‟s ability to convert it into cash onshort notice:

(a)      True(b)      False

(5)      The credit period represents the period of time during which a cash discount can betaken on short notice.

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(a)      True(b)      False

(6)      Which ratio is computed with the help of the following? Cost of goods sold/Inventory

(a)      Receivable turnover(b)      Times interest earned(c)       Inventory Turnover(d)      None of these

(7)       ________ is the right that is delegated to an individual or a department to controlspecific processes, practices, policies and other matters relating to activitiesundertaken by person in other departments.

(a)      Line authority(b)      Functional Authority(c)      Line and Staff Authority(d)      None of these

(8)      Decentralization is the tendency to disperse decision making in an organizedstructure:

(a)      True(b)      False

(9)      Programmes are plans which are general statements or understandings that guide orchannel thinking in decision making:

(a)      True(b)      False

(10)    _______ is that part of managing that involves establishing an international structure of roles for people to fill in an organization:

(a)      Leading(b)      Controlling(c)      Planning(d)      None of these (Organizing)

(11)     Henri Fayol applied the principle of „Division of Work‟ to all kinds of work,managerial as well as technical.

(a)      True(b)      False

(12)     ________ spell out specific required actions or non-actions, allowing no discretion:

(a)      Procedures(b)      Budgets(c)       Rules(d)      None of these

(13)    Business buyers are as geographically dispersed as final consumers.

(a)      True(b)      False

(14)    The distribution between a consumer good and an industrial good is based on the

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purpose for which product is purchased:

(a)      True(b)      False(15)    Intensive distribution occurs when the product is stocked in as many outlets as

possible.

(a)      True(b)      False

(16)     Merchant wholesalers are independently owned business that do not own (take titleto) the goods they sell:

(a)      True(b)      False

(17)    Which of the following elements in a compensation package provides the greatestamount of incentive for salespersons?

(a)      Salary(b)      Fringe Benefits(c)       Commissions(d)      Use of Company Vehicle

(18)    The process whereby the seller distinguishes between market segments, selects oneor more of these segments, and develops products and marketing-mixes tailored toeach segment is called _______ marketing.

(a)      Mass(b)      Target(c)      Product Variety(d)      Service

(19)    Goods that the consumer, in the process of selection and purchase, characteristicallycompares on such bases as suitability, quality, price and style are called _______goods.

(a)      Shopping(b)      Specialty(c)      Unsought(d)      Convenience

(20)    Product ______ is a period of rapid market acceptance and increasing profits.

(a)       Development(b)      Introduction(c)       Growth(d)      Maturity

Business Administration Paper - 2002

Q1.     Which one of the following statement is correct?

(a)       Decisions in public organizations emphasize political priorities, while decisions inbusiness organizations are rational and apolitical.

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(b)      Public decisions makers, in contracts to their business counter parts areconstrained by administrative procedure that limit managerial authority andautonomy.

(c)      It is hard to get high performance out of government employees because, comparedto their business counterparts they are logy, more security oriented and lessmotivated.

(d)      None of the above is true.

Q2.     Who has written the famous book “Principles of Scientific Management”?

(a)      Eltca Mayo(b)      Henls Fayol(c)       Fredric Taylor(d)      Maw weber(e)      None of These

Q3.      Which one of the following cannot be consider as an important dimension on whichnation‟s culture differ?

(a)      Individualism Vs Collectivism(b)      Power Distance(c)      Uncertainty Avoidance(d)      Economic development

Q4.     Market penetration pricing strategy can be pursued in price sensitive market?

(a)      True(b)      False

Q5.     A Product can have a combination of physical product and service

(a)      True(b)      False

Q6.     Vertical marketing System is integration of manufacturing and marketing activities

(a)      True(b)      False

Q7.     Distribution of free product samples is part of publicity

(a)      True(b)      False

Q8.     Which one of the following is not the part of marketing Mix?

(a)      Advertising(b)      Personel Selling(c)      Publicity(d)      Sales promotion(e)      None of the above is the part of martikng mix

Q9.     Which one of the following is not the part of product attributes?

(a)      Quality(b)      Positioning(c)      Brand(d)      Packaging

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(e)      None of the above

Q10.    Under the monopolistic combination, market consist of few sellers who are highlysensitive to each other‟s pricing and marketing strategies

(a)      True(b)        False

Q11:   Which  of  the  following  statements  is  not  part  of  theory  'X'assumptions?

(a)    Decisions are made in participative manner(b)     Employees inherently dislike work(c)     Employees must be coerced to achieve goals(d)     Employees tend to avoid responsibilities

Q12: Which of the following statement is not true?(a)     Planning that proves inaccurate is a waste of management time(b)     Planning can eliminate change(c)    Planning reduces flexibility(d)     None of these

Q13: Which of the following sources of power is dependent onauthority?

(a)     Legitimate power(b)      Coercive power(c)     Expert power(d)     Referent power(e)      None of the above 

Q14:   Deciding whether to record a sale when order for services is received or          when the services are performed is an example of a

(a)     Classification issue(b)      Recognition issue(c)      Valuation issue(d)      None of theseQ15: Payment for a two year insurance policy (in advance) is debit to(a) Unexpired insurance(b) Cash(c) Insurance expense(d) Expired insurance

Q16:   Which   of   the   following   is   an   important   reason   for  studying         accounting?(a)    Accounting   information   is   useful   in   making   economic          decisions(b)     Accounting plays an important role in society(c)     The study of accounting can lead to a challenging career(d)     None of the above

Q17: If a company has liability of 19,000 and owner's equity of 57,000 its assets are

(a)     38,000(b)     57,000(c)      76,000

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(d)     19,000

Q18:   Transactions are initially recorded in the

(a)     Books of Final Entry(b)     Books of original entry(c)    T accounts(d)     Accounting equationQ19:   The term Hybrid Security is used for

(a)     Common Stock(b)     Defferred Stock(c)    Preferred Stock(d)      None of the aboveBusiness Administration Paper - 2003

(1)       Business risk is influenced by the firm‟s decision to use debt in its financialstructure. TRUE

(2)      The most important function of management is controlling. TRUE

(3)      A short term creditor would consider liquidity ratios to be more important thanefficiency ratios. TRUE

(4)      According to Maslow, when a need is satisfied, it tends to lose its ability to motivate.TRUE

(5)      The term marketing mix refers to the degree of advertising Vs personal selling usedto market product. FALSE

(6)      The difference between an agent and a merchant wholesaler is that an agent alwaystakes title but a merchant wholesaler does not. FALSE

(7)      The management of working capital is required because of a lack of short termsynchronization between demand and supply. TRUE

(8)      A manager who believes that people inherently dislike work probably acceptsMcGregor‟s Theory X. TRUE

(9)      Inventory carrying costs can be minimized by carrying fewer units in inventory.TRUE

(10)    A balance sheet is an accounting report used solely for the corporate form ofbusiness. FALSE

(11)    For management, budgeting is perhaps the most powerful_____.

(a)      Forecasting tool(b)     Control device(c)      Hiring tool(d)      Accounting measure

(12)    The income statement is a summary of:

(a)     Revenue and expenses(b)      Assets, liabilities and capital

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(c)      Increases and decreases in capital(d)      None of these(13)     One benefit of using ratio analysis when interpreting financial statements is that:

(a)        Ratios facilitate comparisons between different companies.(b)      All ratios have exact standard values with which performance can be compared.(c)      Ratios take into account all the specific factors affecting particular companies and

industries.(d)      None of these

(14)    Planting and policy making are primarily functions of:

(a)      Top management(b)      Middle management(c)      Operating management(d)      None of these

(15)    An informal organization often exists within a business because:

(a)      Not all relationships can be specifically defined.(b)      Small organizations do not necessarily emphasize strict adherence to line authority.(c)      Human behavior naturally crosses established authority lines.(d)      All of these

(16)    In marketing, selling and buying would be called the:

(a)      Primary functions(b)      Exchange functions(c)      Profit functions(d)      Critical functions

(17)    Institutional advertising is:

(a)      Aimed only at people in institutions(b)      Run only by institutions(c)      Designed to promote a type of product rather than a particular brand.(d)      Designed simply to show that the firm is a good place to do business.

(18)    The current ratio of a firm having Rs. 25,000 of current assets, Rs. 30,000 of fixedassets, Rs. 5000 of current liabilities and Rs. 10,000 of fixed liabilities would be:

(a)      5:1(b)      7:1(c)      10:1(d)      None of these

(19)    The organizational form that replaces individual authority at all levels with grouprepresentation is:

(a)      Line(b)      Line and staff(c)       Functional(d)      Committee(20)     Working Capital may be expressed as:

(a)     Current assets minus current liabilities(b)      Current and fixed assets minus current and fixed liabilities(c)       Current assets over current liabilities

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(d)      Current and fixed assets over current and fixed liabilities

Business Administration Paper - 2004

(1)       In a large corporation, the firm‟s owners are usually its top managers. False

(2)      The basic information needed to construct a flow of funds statement is found on theincome statement. True

(3)      The operating break-even point is the point at which operating profits equal revenuesminus operating costs. False

(4)      A sinking fund is a poorly performing mutual fund whose net asset value is declining.False

(5)      Penetration Pricing is used when a marketer introduces a new product at a relativelyhigh price. False

(6)      The most common channel for consumer products is manufacturer-retailer-consumer. True

(7)      In the classification of consumer products, convenience products are usually moreexpensive than shopping products. False

(8)      During the maturity stage of the PLC, sales increase at faster rate than during anyother stage. False

(9)      A wide span of management results in few organizational levels, and a narrow spanresults in many levels. True

(10)    The Line relationship involves making decisions and acting on them.True

(11)    Data is defined as “formal system of gathering, integrating, comparing, analyzing,and dispersing information internal and external to the enterprise in a timely,effective and efficient manner”.False

(12)    A manager who believes that people inherently dislike work probably acceptsMcGregor‟s Theory X. True

(13)    If a manufacturer gives a 30 percent discount to retailers and a 10 percent discountto wholesalers, which type of discount is being given?

(a)      Quantity(b)      Cash(c)       Functional (also called trade discount)(d)      Seasonal

(14)    Publicity differs from advertising in as much as:

(a)      It is directed at large numbers of consumers.(b)      Its message is of a non personal nature.(c)      It is carried by the mass media.(d)      It is a non paid Form of reaching the public.

(15)     In which stage of the PLC are promotion expenses per product item usually highest?

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(a)        Introduction(b)      Growth(c)      Maturity(d)      Decline

(16)     Which of the following is not a disadvantage of using a Committee?

(a)      High cost in time and money(b)      Splitting responsibility(c)       Group deliberation and judgment(d)      Compromise decisions

(17)    Identify the Organization established by our Federal government to regulate securitymarkets:

(a)      SBP(b)      SEC(c)      NAB(d)      NFC

(18)     If the credit terms are 2/10, net 30 and the amount of invoice is Rs. 4000, howmuch is the discount if the invoice is paid in 20 days?(for example, the term 2/10, net 30 allows a customer to deduct 2% of the netamount owed if the customer pays within 10 days of the invoice date. If a customer does not pay within the discount period of 10 days, the net purchase amount(without the discount) is due 30 days after the invoice date.)

(a)      Zero(b)      Rs. 30(c)      Rs. 60(d)      Rs. 120(19)    Which of the following is not part of the promotion-mix?

(a)      Public relations(b)     Product planning(c)      Personal selling(d)      Advertising

(20)    Selling activities include:

(a)      Sales presentations(b)      Demonstrations(c)      Handling objections(d)     Closing the sale(e)      None of these

Business Administration Paper - 2005

(1)      Planning initiates other functions of management. True

(2)       Managements make things to happen. False

(3)       The ultimate criterion of control is the extent that activities are complete in waysthat lead to more profits. False

(4)      Computer Technology helps the management but does not replace the management.

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True

(5)      Promotional mix is also known as communication mix. True

(6)       Marketing environment is made up of micro-environment and macro-environment.True

(7)      Promotional mix is the part of marketing mix. False

(8)       Marketing strategy consists of specific strategy for target markets, positioning, themarketing mix and marketing expenditure levels. True

(9)       A Financial manager has a full control over its firm‟s stock price.False

(10)    Liquidity ratios measure a firm‟s ability to meet short term obligations.True

(11)     The internal rate of return method is the most widely used capital budgetingtechniques. False

(12)    Stock exchange facilitates investment in real assets by providing secondary marketto the financial securities.False

(13)    The organizing function of management includes:

(a)      How tasks to be grouped.(b)      Conflict resolution among sub-ordinates.(c)      Comparison of actual results with a budget.(d)      Definition of organization‟s goals.

(14)    The key to motivating today‟s diversified work force lies in:

(a)      Creativity(b)      Goal setting(c)      Support(d)      Flexibility

(15)    Control should be placed:

(a)       Where they are cost-effective(b)        On all activities(c)       Where there are problem areas(d)      On the single most important

(16)     The marketing logic by which the business unit hopes to achieve its marketingobjective is called:

(a)      Business strategy(b)      Marketing strategy(c)      Production & distribution strategy(d)      All of these

(17)    Strategic planning is the process of developing a formal strategy for:

(a)      Identifying clear objectives(b)      Long run survival & growth(c)      Continuity & Consistency(d)      All of these

(18)    Who are the true owners of Corporation?

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(a)       Debt holder(b)      Common stock holders(c)      Managers of the firm(d)      Board of directors

(19)    What does an efficient port folio provide?

(a)      Highest return for a given amount of risk(b)       Least risk for a given level of return(c)      Highest possible return and least amount of risk(d)        Both ‘a’ and ‘b’(20)    The economic order quaintly (EOQ) increases when which of the following increases?

(a)      Sales(b)     Ordering costs(c)      Carrying costs(d)      Both „a‟ and „b‟

Business Administration Paper - 2006

1)       The three stages of marketing practices through which a company may pass areentrepreneurial marketing, formulate marketing and entrepreneurial marketing.[True]

2)       The continual segmenting or fragmenting of markets impedes the new productdevelopment process.[False]

3)       Reverse-flow channels refer to situations where one channel level acquires a levelback in the channel, such as sears owning its own suppliers [True]

4)       Planning is concerned with defining an organization‟s goals and objectives and howto integrate and coordinate activities.   [True]

5)        Leadership and management are two terms for the same process.[False]

6)        Effective control systems monitor everything happening in the organization.[False]

7)       In informal planning, the organization‟s objectives are rarely verbalized. [True]

8)       The trait approach to leadership has identified a specific set of personalitycharacteristics that determine leader success.[True]

9)       A brand is an offering from a known source. [True]

10)     The concept of compounding deals with finding the future value of a presentsum.[True]

11)     Short term creditors would be most interested in the firm‟s of leveragesratios.[False]

12)     Working capital management includes in part the administration of cash, marketablesecurities, receivables and inventories. [True]

(13)    Which of the following is NOT one of the four specific drivers that underpin the neweconomy?

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a.       Industry convergenceb.       Disintermediation and reintermediationc.         Customer delivered valued.       Customization and customerizatione.       Digitalization and connectivity

(14)     ___ lays out the target markets and viable propositions that organization will offerbased on an analysis of the best market opportunities

a.         the strategic market planb.       the portfolio analysisc.       the human resource pland.       the tactical marketing plane.       marketing research

15)     the attractiveness of a market offering is based:

a.       on the product, its placement, its price and its promotionb.       on the match between customer needs and wants and distribution and

pricing of the productc.       almost entirely on the product being offeredd.       on product features and quality, services mix and quality, and price appropriatenesse.       entirely on the match between perceived product and actually product

16)     high levels of efforts are unlikely to lead to favorable job performance unless:

a.       technology is also consideredb.          quality of the effort is also consideredc.       team work is also consideredd.       management efforts are also considered

17)     In order to bring about effective organizational change, changes in technology needto be accompanied by making changes in _____:

a.       Strategiesb.         Structurec.       Peopled.       Both (b) and (c)

18)      A capital investment is one that:a.       has the prospect of short term benefitsb.         has the prospect of long term benefitsc.       Is only undertaken by large corporations with large amounts of capitald.       applies only to investment is fixed assets19)      If the general level of interest rates rises, the prices of already issue bonds will:

a.       Riseb.       Remain unchangedc.         Falld.       Fluctuate

20)     If the EOQ for an item decreases, the average level of inventory will:

a.         Decreaseb.       Increasec.        Remain the samed.       There is no relationship between EOQ and inventory levels

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Business Administration Paper - 2007

(1)       A decision is a choice made between two or more alternatives.(True)

(2)       Frank Gilbreth is known as father of Scientific Management.(False)

(3)      The responsibility for organizational planning rests with middle level management.(True)

(4)      The Hawthrone Experiments found that people were more concerned with preservingthe work group than with maximizing their pay. (True)

(5)      Selling concept assumes that heavy selling and promotional efforts are needed tostimulate more demand for the product. (True)

(6)      Any paid form of non-personal presentation and promotion of ideas, goods orservices by identified sponsor is known as public relation. (False)

(7)      Market Segmentation is concerned with dividing the market demographically andgeographically. (False)

(8)      Joint Venturing is a form of entering foreign markets by joining with foreigncompanies to produce or market a product or service. (False)

(9)      Another name of cash flow is accounting profit. (False)

(10)    The Financial Manager has full control over his firm‟s stock price.(False)

(11)    Systematic risk can be diversified away by adding more securities to a portfolio.(False)

(12)     Discounting is the process of finding present value. (True)(13)     Extreme division of labour leads to result in:

(a)      Motivation(b)        Boredom(c)       Decreased work skill(d)      Non-specialization(e)      None of these

(14)     Fayol defines 14 principles of management. Which of the following is not one ofthose principles?

(a)      Scalar chain(b)       Espirit de corps(c)      Centralization(d)      Directedness of command(e)      None of these

(15)     An example of pre-control established by management would be:

(a)       Rules(b)      Policies(c)      Budgets

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(d)      All of these

(16)    Firm‟s credit policy usually includes establishing:

(a)      Credit standards(b)      Credit terms(c)      Collection policy(d)      All of these

(17)     Liquidity ratios are computed by using information from:

(a)        Balance Sheet(b)       Income statement(c)      Cash flow Statement(d)      Both (a) and (b)

(18)    Conservative working capital management strategies involve:

(a)      Low risk, Low return(b)      Low risk, High return(c)       High risk, High return(d)      High risk, Low return

(19)    Product life cycle has the following stages:

(a)      Introduction and Maturity(b)       Growth and Maturity(c)      Introduction, Maturity and Decline(d)      Introduction, Growth, Maturity and Decline(20)    Which product is most likely to be purchased through routine decision-making?

(a)       Car(b)       Desk(c)     Soft Drink(d)      Shirt(e)      None of these

Business Administration Paper - 2008

(1)      The last stage of Maslow Need Hierachy is Esteem. (False)

(2)      An effective Manager is one who achieves the goal with the least amount ofresources. (True)

(3)     Audit is a type of controlling system. (True)

(4)      Removal of undesirable elements serves as Negative Reinforcement tool to motivatethe people. (True)

(5)      Marketing of services heavily rely on advertising. (True)

(6)      Advertising is paid, personal communication through media (False)

(7)      Skimming pricing is used when the customers are quality conscious.(True)

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(8)      Advertising is usually at the top of Promotion Mix of every product.(True)

(9)      Profit as against Share Price Maximization is always a desirable goal of organization.(False)

(10)    For a short-term creditor, liquidity ratios are more important than efficiency ratios.(True)

(11)    Low levels of net working capital decrease risks. (False)

(12)    The present value of an annuity is inversely related to future value of annuity.(True)

(13)    The three levels of a product are:

(a)      Core, Packaging and Promotion(b)      Actual, Core and Pricing(c)     Augmentation, Core and Actual(d)      None of these

(14)     MBO means:

(a)      Management based on Organization(b)      Management based on Objectives(c)        Management by Objectives(d)      None of these

(15)     The two broad price policies are:

(a)       Demand and sales based pricing(b)      Penetration and low pricing(c)       Skimming and Demand based pricing(d)      None of these

(16)     Quick Ratio is calculated by dividing:

(a)      Current Assets by Current Liabilities(b)       Current Assets by Inventories(c)      Current Liabilities by Current Assets(d)      None of these

(17)     Decreasing inventories is a source of:

(a)      Assets(b)      Funds(c)      Credit(d)      None of these

(18)    Entrepreneur is:

(a)       Manager looking for profit(b)      Manager looking for employee‟s satisfaction(c)        Manager looking for every opportunity(d)      None of these

(19)     The depth of a 'Product Mix' indicates:

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(a)      All products offered by a company with its versions(b)       All products offered by a company with its brands(c)      All products and service brands(d)      None of these

(20)     A person directly involved in operation and accomplishment of main objectives ofthe firm is called:

(a)      First-Line manager(b)      Line-Manager(c)      Staff-Manager(d)      None of these

Business Administration Paper - 2009

(1)       The key inputs into Discounted Cash Flow analysis are projected future cash flows.(True)

(2)       Market demand for a product is the total volume that would be sold by a definedcustomer group. (False)

(3)       Operational plans apply to the entire organization and establish the organization‟soverall goals. (False)

(4)       Preferred stock has a fixed divided paid every period forever so preferred stock isessentially a perpetuity.(True)

(5)       The cost of debt is the return that the firm‟s debtors demand on newborrowing.(True)

(6)       With the Internal Rate of Return, we try to find a single rate of return thatsummarizes the merits of a project. (True)

(7)       IBM is example of a manufacturer brand. (True)

(8)       Modifying job responsibilities is an example of structural change.(False)

(9)       ---------- is a statement reporting the effects of a firm‟s operating, investing andfinancing activities on cash flows over an accounting period.

a.       Income statementb.       Annual reportc.         Cash flow statementd.       Balance sheete.       None of these

(10)    ---------- studied five chief executives at work and identified ten managerial roles.

a.       Max weberb.       Henry fayolc.         Henry mintzbergd.       Fredrick taylore.       Michael porter

(11)    A product life cycle -----------------.

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a.       Shows how a product sales or profits may rise or fall over its lifeb.       Tells you how long a product will sell for and make a profitc.       Is divided into three stagesd.       Show how profitable a product wille.       None of these(12)    All of the following are fixed assets except

a.       Buildingb.       Stocksc.       Production plantd.       Vehicles

(13)    What is the influencing environmental factor when interest rates increase and firmsfind it difficult to borrow funds

a.       Political factorb.       Social factorc.       Economic factord.       Technological factore.       Competitive factor

(14)    Which of the following is not a market entry strategy

a.       Licensingb.       Indirect exportingc.       Joint ventured.       International marketinge.       None of these

(15)    ------------ is information about physical working conditions, work schedule and theorganizational and social context of the job.

a.       Job specificationb.         Job contextc.       Work activitiesd.       HR policy manuale.       None of these

(16)    The liquidity of a firm is a measure of ---------------

a.       Its ability to pay billsb.       Its ability to respond to changes in demandc.       How flexible it is in its production plannningd.       How quickly and easily a firm could relocate to another sitee.       None of these

(17)    Market share means ---------------

a.       How well a firm is doingb.       How much power a firm has in the marketc.       How many firms are there in the marketd.       How big a market ise.       None of these(18)     -------------- refers to a management philosophy that requires employers to

continuously set and relentlessly meet ever high quality, cost , delivery andavailability goals.

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a.       Performance managementb.       Performance appraisalc.         Continuous improvementd.       Management by objectivee.       None of these

(19)    Beta ------------.

a.       Is a measure of firm specific riskb.         Is a measure of market riskc.       Is a measure of total riskd.       All of thesee.       None of these

(20)    What is the price of a stock that is expected to pay a 1.00 divided next year if thecost of capital is 14% and the growth rate is zero

a.       7.14b.       6.75c.       11.9d.       6.13e.       None of these

Business Administration Paper - 2010

(1)      You wish to borrow $ 8000 to be repaid in 24 monthly installments at an annualinterest rate of 8%. What is your monthly payment?

a)       $ 262.82b)       $ 361.82c)       $ 150.5d)       $ 325.00e)        none

(2)      If you invest $ 600 every six months at 8% compounded semi annually, how muchwould you accumulate at the end of 10 years?

a)       $ 15,883.20b)       $ 16,926.82c)        $ 17, 866.85d)       $ 18,233.45e)       None(3)      A commercial bank will loan you $ 12,250 for three years to buy a car. The loan

must be repaid in 36 equal monthly payments. The annual interest rate on the loan Is 12% of the unpaid balance. How large are the monthly payments?

a)       $425.00b)       $350.67c)       $375.09d)       $406.88e)        none

(4)      What is the future value of $500 investment, with a stated rate of 6% compoundedmonthly for 7 years.

a)       700

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b)       730c)        760d)       790e)       none

(5)      You are considering investing in a preferred stock that has a dividend of $ 3.25 pershare. The market price of this stock is $ 48.625. What is the rate of return youwould expect to make on this perpetuity?

a)        6.68%b)       6.24%c)       6.05%d)       6.28%e)       none

(6)      What is not a disadvantage of traditional file processing system?

a)       Program-data dependenceb)        Reduce data redundancyc)       Limited data sharingd)       Lengthy development timee)       none

(7)      An enterprise data model is a (n) _______ model.

a)       numericalb)       mathematicalc)       narratived)        graphicale)       none(8)      Which is not a component of relational database?

a)       Entityb)       Tablec)       Attributed)        Hierarchye)       none

(9)      Data base application can be divided into 5 categories. Which is NOT a databaseapplication category?

a)       Personalb)       Departmentc)       Enterprised)        Relationale)       none

(10)    A data base that supports organization wide operations and decision making is a (n)________ database.

a)       departmentb)        enterprisec)       work groupd)       extra-nete)       none

(11)    As small companies begin to achieve success, they tend to adopt some of the tools

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used in professionally run marketing commas. This is a sign that the firm is in the________ stage of marketing practice.

a)        Entrepreneurial marketingb)       Formulated marketingc)       Intrepreneurial marketingd)       Effective marketinge)       none

(12)    The concept of a _______ is used to describe a cluster of complementary productsthat are closely related in the minds of the consumers but are spread across adiverse set of industries.

a)        Metamarketb)       Metamediaryc)        Market placed)       Marketspacee)        none

(13)    Marketers can increase the value of customers offering by:

a)       raising benefits and reducing costb)       raising benefits by more than raising the costc)       lowering benefits by less than the reduction in costd)        All of the above can increase the customers value

(14)    When a firm sees its competitors as all companies that compete for the sameconsumer dollars, they are concerned with the ________ level of competition.

a)       Brandb)        Industryc)       Formd)       Generice)       None

(15)    The number of channel levels from raw material to final product which a companywill participate defines the firm's _________ scope.

a)       Industryb)       Geographicalc)        Verticald)       Competence(16)    Which of the following best describes the organizational members who integrate and

coordinate the work of others?

a)        Managersb)       Operativesc)       Subordinatesd)       Customers

(17)    _________ represent the lowest level of management

a)       Team leadersb)        First line managersc)       Operativesd)       Laborerse)       none

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(18)    Which of the following roles is more important for lower-level managers than foreither middle or top-level managers?

a)       Negotiatorb)        Leaderc)       Coordinatord)       Entrepreneure)       none

(19)    Which of the following skills involve working well with other people?

a)       Technicalb)        Humanc)       Computerd)       Empiricale)        none(20)    The phrase most associated with scientific management is ________?

a)       Management Relationsb)        One of the bestc)       Supply and demandd)       Quality controle)       none

Business Administration Paper - 2011

(1)      Fredrick Winslow Taylor‟s Principles of Scientific Management suggested the use ofscientific methods to define:

(a)      The easiest way of doing a job(b)      The most complex way of doing a job(c)       The best way of doing a job(d)      None of these

(2)      The quantitative approach using quantitative techniques in Management is called:

(a)      Scientific Method(b)      Operations Research(c)       Quantitative Approach(d)      None of these

(3)      The perspective that Managers are directly responsible for an organization‟s successis known as:

(a)      Omnipotent view of management(b)      Management orientation(c)      Autocratic management(d)      None of these

(4)      Effective Management decisions are:

(a)      Emotional(b)      Based on lots of data(c)       Rational(d)      None of these

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(5)      Breakeven Analysis is a useful technique for:

(a)      Reducing operating costs(b)      Maximizing sales(c)      Resource allocation(d)      None of these(6)      Recruitment helps:

(a)      Improve productivity of HR(b)      Reduce number of employees(c)      Improve labour relations(d)      None of these

(7)      Grapevine is:

(a)      An office decoration plant(b)      An information network(c)      An official drink(d)      None of these (Informal Business Communication)

(8)      Most important asset in an organization is:

(a)      Money(b)      Plant and Machinery(c)       Employees(d)      None of these

(9)      Employees resist organizational change because it:

(a)      Reduces their compensation(b)      Creates uncertainty(c)      Puts more work on them(d)      None of these

(10)    Strictly observing Corporate Ethics is:

(a)      Not important in commercial organizations(b)      Against the concept of profit maximization(c)    An essential requirement of professional business management(d)      None of these

(11)   According to Herzberg‟s Motivation - Hygiene Theory, employee‟s salary is:

(a)    Hygiene Factor(b)      Motivating Factor(c)      Employee‟s Retention Factor(d)      None of these

(12)   Who has the most power in Value Chain?

(a)      Suppliers(b)      Distributors(c)       Customers(d)      None of these(13)    Marketing is:

(a)      Sales of goods and services(b)      The range of services starting and ending with the customer

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(c)      Sales planning and promotion(d)      None of these

(14)    Marketing Strategy is:

(a)      Activities focused to defeat competitors(b)      Activities aimed at creating value and profitable relationship with customers(c)      Activities for maximizing sales(d)      None of these

(15)    Cost strategy means charging:

(a)      Highest price for products(b)      Lowest price for products(c)      Varying prices for products(d)      None of these

(16)    Branding is:

(a)      Not possible for services(b)      Not very useful commercially(c)       Useful for building product loyalty(d)      None of these

(17)    Creation of value in a business means:

(a)      Earning maximum profits(b)      Promoting rapid growth in sales(c)       Optimizing shareholder’s return in a company(d)      None of these

(18)     Price/Earnings Ratio of a company shows relationship between its:

(a)      Net profit and Sales(b)      Gross profit and Net earnings(c)       Market price of its share and Earnings per share(d)      None of these

(19)    Free Cash Flows are:

(a)      Net after tax profit(b)      Expected Revenues minus expected costs and capital expenditures(c)      Cash in hand and in bank(d)      None of these(20)   Term interest earned is:

(a)       EBIT ÷ Interest on debt

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(b)      Net profit ÷ Debt(c)      Sales ÷ Interest Payable(d)      None of these

Opportunity cost:Unlike other types of cost, opportunity cost does not require the payment of cash or its equivalent. It is a potential benefit or income that is given up as a result of selecting an alternative over another. For example, You have a job in a company that pays you $25,000 per year. For a better future, you want to get a Master’s degree but cannot continue your job while studying. If you decide to give up your job and return to school to earn a Master’s degree, you would not receive $25,000. Your opportunity cost would be $25,000.Almost every alternative has an opportunity cost. It is not entered in the accounting records but must be considered while making decisions.

Sunk cost:The costs that have already been incurred and cannot be changed by any decision are known as sunk costs. For example, a company purchased a machine several years ago. Due to change in fashion in several years, the products produced by the machine cannot be sold to customers. Therefore the machine is now useless or obsolete. The price originally paid to purchase the machine cannot be recovered by any action and is therefore a sunk cost.These costs should not be taken into account while making any decision because no action can revers them.Sunk Costs: These are the costs (in time, money, mental and emotional energy spent, etc.) incurred in the past as a result of a decision made long ago. It's now impossible to recover these retrospective costs.Opportunity Costs: These are the immediate costs of not taking the next best alternative or, in economics speak, of not putting a resource to its best use.

A goal is a broad primary outcome.

A strategy is the approach you take to achieve a goal.

An objective is a measurable step you take to achieve a strategy.

A tactic is a tool you use in pursuing an objective associated with a strategy.Goals are long term and objectives are usually accomplished in the short or medium term.

A goal is a broad aim you establish to start the business planning process. For example, growing sales revenue in North America can be considered a goal. An objective is a specific milestone that you reach on the way to achieving your goal. For example, expanding your distribution network is an objective used to reach the goal of raising company revenue.

Difference between Selling and Distribution Cost distributon expense is a part of selling expense. its comes under the heading of selling expense. selling expense included various other heads like advertisement expense, distribution expense,packing expense, octroi, sales tax, hidden profit, cost of product etc etc. while distribution expense isthe expense occured by the producer of the goods in the form of transportation cost barred by him formaking the goods reach the retailers, wholesellers or directly to the godown or factory outlet

Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In other words, the cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing overhead. As a result, absorption costing is also referred to as full costing or the full absorption method.

Absorption costing is often contrasted with variable costing or direct costing. Under variable or direct costing, the fixed manufacturing overhead costs are not allocated or assigned to (not absorbed by) the products manufactured. Variable costing is often useful for management's decision-making. However, absorption costing is required for external financial reporting and for income tax reporting.

Opportunity cost is the benefits you lose by choosing one alternative over another one. The opportunity cost of choosing one investment over another one.

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There is an opportunity cost over choosing an investment in bonds over an investment in stocks.

Economic Order Quantity (EOQ)The economic order quantity is the amount of inventory to purchase that balances the cost of placing an order of inventory with the cost of carrying the inventory. It identifies the inventory order size that will minimize the cost of ordering and carrying inventory. OR

1. Economic order quantity (EOQ) is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula.

2. EOQ = 2AB/CS whole under root3. Where4. EOQ = Economic Ordering Quantity5. A = Annual consumption or usage of material in units.6. B = Buying cost per order.7. C = Cost per unit.8. S = Storage and carrying cost per annum.

OREconomic ordering quantity is the reorder quantity, which is the quantity to be purchased each time an order is placed.

The current ratio is the proportion (or quotient or fraction) of the amount of current assets divided by the amount of current liabilities.

The quick ratio (or the acid test ratio) is the proportion of 1) only the most liquid current assets to 2) the amount of current liabilities. In other words, the quick ratio assumes that only the following current assets will turn to cashquickly: cash, cash equivalents, short-term marketable securities, and accounts receivable. Hence, the quick ratio does not include inventories, supplies, and prepaid expenses.

ABSORPTION COSTINGAbsorption costing is the practice of charging all costs, both fixed and variableto operations, process or products. In marginal costing, only variable costs are chargedto productions.

activity based costing (ABC)ABC allocates direct and indirect costs to activities such as processing an order, attending to

a customer complaint, or setting up a machine.

What is the difference between the Cash Flow and Funds Flow

statements?

The cash flow statement, known formally as the Statement of Cash Flows, reports a company's change in cash and cash equivalents from one balance sheet date to another. The cash flow statement classifies the amount of the change according to operating, investing, and financing activities. The cash flow statement has been required by the Financial Accounting Standards Board since 1988, when it issued its Statement No. 95. You can read about the statement of cash flows at www.FASB.org/st.

Prior to 1988, accountants prepared a funds flow statement. Generally, the funds flow statement reported on the change in working capital from one balance sheet date to another.

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OR

1. ConceptCash flow statement is based on narrow concept of funds, which considers changes in cash. Funds flow statement is based on the changes in working capital which considers both the changes in cash as well as other components of current assets and current liabilities.

2. Basis Of PreparationCash flow statement is prepared on cash basis. Funds flow statement is prepared on accrual basis.

3. Working capitalCash flow statement does not require use of changes in working capital because all the changes inassets and liabilities are summarizes in cash flow statement. Funds flow statement requires to use of separate statement of changes in net working capital.

4. LinkThe preparation of cash flow statement considers only those transactions that are linked with flow of cash. The preparation of funds flow statement considers those transactions that are linked with flow of funds along with actual cash.

5. UsefulnessCash flow statement is more useful in short term analysis and cash planning. Funds flow statement is more useful in long-term analysis of financial planning. OR

2. The Cash Flow S tatement allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. 

Fund Flow Statement is showing the fund for the future activites of the Company.

3. Ideal Time;;;

4. the time for which workers are paid but the workers do not work. So it is a loss to the organisation.

5. 1. Normal Idle Time

This is that waste of time which we can not stop because it is normal and producer has to pay laborers for this idle time. For example :

a) Walking time from one department to other department.

b) Consuming time to start any job in factory.

c) Consuming time for fulfilling personal needs like drinking of water, refreshment and rest.

d) Consuming time to set the machines.

6. 2. Abnormal Idle Time

This is that wastage of time which we can stop by good supervision.

a) waste of time due to inefficiency of engineers.

b) Power failure

c) Delay of  supply of material to factory

d) Strike and lockout

What is budgeting?

Budgeting is a process. This means budgeting is a number of activities performed in order to prepare a budget. Abudget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period.

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In a business, the budgeting for operations will include the following:

preparing estimates of future sales

preparing estimates of future cash collections and disbursements

preparing estimates of the future day-to-day activities of the organization

summarizing these estimates into an income statement and balance sheet7. The budgeted income statement and balance sheet are also known as pro-forma financial

statements. Once prepared and approved, the budgeted income statement and balance sheet are used to control the future activities of the business.

Nature & Scope of Business Organizations

(This is a very basic topic, do not go in much details)

Meaning of Business Organization

1.

Business organization is composed of two words, business and organization. In order to understand the nature of business organization, it is necessary that the meaning of these two words is made clear to the readers.

(1) Business

Business is a human economic activity. It involves continuous and regular production and distribution of goods and services with a view to earn profit. Money flowing in and earning of profit through the satisfaction of the customers are the two measuring rods of the success of a business. 

(2) Organization

The meaning of the word organization is generally divided into two parts (i) material organization and (ii) human organization. 

(i) Material Organization

The material organization is the determining and providing of necessary raw materials, tools, capital, personnel etc in an enterprise fonts smooth functioning.

(ii) Human Organization 

It is the appointment of qualified staff, dividing the duties and re of the personnel employed. Then grouping these duties in the form of posts and delegating authority to each post so that work is carried out as planned. 

Business Organization  

Thus is a process or an art of establishing effective cooperation between the factors of production (land, material, capital equipment. personnel) for producing or acquiring wealth with a view to earn profit in an enterprise. Scope of business organization. Business organization thus is a process or an art of establishing effective cooperation between the factors of production (land, material, capital equipment. personnel) for producing or acquiring wealth with a view to earn profit in an enterprise. 

Scope of Business Organization  

The scope of business organization has considerably expanded after the Industrial Revolution. The process of production is now quite complicated. An organization is needed to determine what each person will do and how much authority each will have. The role of business organization in various forms of business ownership is discussed in brief.

(1) In Sole Proprietorship  

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Form of business, the organization structure is very simply. The entrepreneur generally introduces his own capital. He alone is the sole organizer, financier, decision taker, operator, and controller and above all responsible for air the success and failures of business, there is generally rule sub-division of main work into small groups. 

(2) In a Partnership Form of Business  

ownership, each partner provides capital, labour and management according to an agreement the partners determine among themselves the extent to which each partner shall take part in the management. The pattern of division of activities, determination of responsibilities. Delegation of authority etc depends upon the nature and size of business. As the partnership business is generally run on small scale, the business organization structure is relatively simple, temporary and informal. 

(3) In a Company Form of Business  

There is a formal pattern of organization. The work of organization begins even before its incorporation by the promoters. This work of organization continues after incorporation. An organization chart of responsibilities is prepared. The duties and responsibilities of the personnel employed are defined, procedures are aid down. Methods are evolved discussed and put before the personnel’ in clear terms. The scope of business organization in corporate business is quite wide and complicated.

Forms of Business Organization

Introduction

Business concerns are established with the objective of making profits. They can be established either by one person or by a group of persons in the private sector by the government or other public bodies in the public sector. A business started by only one person is called sole proprietorship. The business started by a group of persons can be either Partnership or Joint Stock Company or a Co-operative form of organization.Forms of business organization are legal forms in which a business enterprise may be organized and operated.

These forms of organization refer to such aspects as ownership, risk bearing, control and distribution of profit. Any one of the above mentioned forms may be adopted for establishing a business, but usually one form is more suitable than other for a particular enterprise. The choice will depend on various factors like the nature of business, the objective, the capital required, the scale of operations, state control, legal requirements and so on.

Sole Proprietorship

Meaning: A sole proprietorship or one man’s business is a form of business organization owned and managed by a single person. He is entitled to receive all the profits and bears all risk of ownership.

Features: 

The important features of sole proprietorship are:

The business is owned and controlled by only one person. The risk is borne by a single person and hence he derives the total benefit. The liability of the owner of the business is unlimited. It means that his personal

assets are also liable to be attached for the payment of the liabilities of the business. The business firm has no separate legal entity apart from that of the proprietor, and

so the business lacks perpetuity. To set up sole proprietorship, no legal formalities are necessary, but there may be

legal restrictions on the setting up of particular type of business. The proprietor has complete freedom of action and he himself takes decisions

relating to his firm. The proprietor may take the help of members of his Family in running the business.

Advantages

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Ease of formation: As no legal formalities are required to be observed.Motivation: As all profits belong to the owner, he will take personal interest in the business.

Freedom of Action: There is none to interfere with his authority. This freedom promotes initiative and self-reliance.

Quick Decision: No need for consultation or discussion with anybody.

Flexibility: Can adapt to changing needs with comparative ease.

Personal Touch: comes into close contact with customers as he himself manages the business. This helps him to earn goodwill.

Business Secrecy:   Maintaining business secrets is very important in today’s competitive world.

Social Utility: Encourages independent living and prevents concentration of economic power.

Disadvantages

Limited resources: one man’s ability to gather capital will always be limited.

Limited Managerial Ability

Unlimited Liability: Will be discouraged to expand his business even when there are good prospects for earning more than what he has been doing for fear of losing his personal property.

Lack of Continuity: uncertain future is another handicap of this type of business. If the sole proprietor dies, his business may come to an end.No Economies of Large Scale: As the scale of operations are small, the owner cannot secure the economies and large scale buying and selling. This may raise the cost of production.

Suitability of Sole Proprietorship Form

From the discussion of the advantages and disadvantages of sole proprietorship above, it is clear that this form of business organization is most suited where:

The amount of capital is small The nature of business is simple in character requiring quick decisions to be taken Direct contact with the customer is essential and The size of demand is not very large.

2.These types of conditions are satisfied by various types of small business such as retail shops, legal or medical or accounting profession, tailoring, service like dry cleaning or vehicle repair etc. hence sole proprietor form of organization is mostly suitable for these lines of businesses. This form of organization also suits those individuals who have a strong drive for independent thinking and highly venturous some in their attitude.

3. Partnership4.

Introduction:

Generally when a proprietor finds it’s difficult to handle the problems of expansion, he thinks of taking a partner. In other words, once a business grows beyond the capacity of a sole proprietorship and or a Joint Hindu Family, it becomes unarguably necessary to form partnership. It means that partnership grows out of the limitations of one-man business in terms of limited financial resources, limited managerial ability and unlimited risk. Partnership represents the second stage in the evolution of ownership forms.

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In simple words, a Partnership is an association of two or more individuals who agree to carry on business together for the purpose of earning and sharing of profits. However a formal definition is provided by the Partnership Act of 1932.

Definition

Section 4 of the Partnership Act, 1932 defines Partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”

Features of Partnership

simple procedure of formation: the formation of partnership does not involve any complicated legal formalities. By an oral or written agreement, a Partnership can be created. Even the registration of the agreement is not compulsory.Capital: The capital of a partnership is contributed by the partners but it is not necessary that all the partners should contribute equally. Some may become partners without contributing any capital. This happens when such partners have special skills, abilities or experience. The partnership firm can also raise additional funds by borrowing from banks and others.Control: The control is exercised jointly by all the partners. No major decision can be taken without consent of all the partners. However, in some firms, there may partners known as sleeping or dormant partners who do not take an active part in the conduct of the business.Management: Every partner has a right to take part in the management of the firm. But generally, the partnership Deed may provide that one or more than one partner will look after the management of the affairs of the firm. Sometimes the deed may provide for the division of responsibilities among the different partners depending upon their specialization.Duration of partnership: The duration of the partnership may be fixed or may not be fixed by the partners. In case duration is fixed, it is called as “partnership for a fixed term. When the fixed period is over, the partnership comes to an end.Unlimited Liability: The liability of each partner in respect of the firm is unlimited. It is also joint and several and, therefore any one of the partner can be asked to clear the firm’s debts in case the assets of the firm are inadequate for it.No separate legal entity: The partnership firm has no independent legal existence apart from that of the persons who constitute it. Partnership is dissolved when any partner dies or retires. Thus it lacks continuity.Restriction on transfer of share: A partner cannot transfer his share to an outsider without the consent of all the other partners.

5. Advantages6.

ease of formation: partnership can be easily formed without expense and legal formalities. Even the registration of the firm is not compulsory.large resources: when compared to sole-proprietorship, the partnership will have larger resources. Hence, the scale of operations can be increased if conditions warrant it.better organization of business; as the talent, experience, managerial ability and power of judgment of two or more persons are combined in partnership, there is scope for a better organsation of business.greater interest in business: as the partners are the owners of the business and as profit from the business depends on the efficiency with which they manage, they take as much interest as possible in business.prompt decisions: as partners meet very often, they take decisions regarding business policies very promptly. This helps the firm in taking advantage of changing business conditions.balanced judgement: as partners possesses different types of talent necessary for handling the problems of the firm, the decisions taken jointly by the partners are likely to be balanced.flexibility: partnership is free from legal restriction for changing the scope of its business. The line of business can be changed at any time with the mutual consent of the partners. No legal formalities are involved in it.diffusion of risk: the losses of the firm will be shared by all the partners. Hence, the share of loss in the case of each partner will be less than that sustained in sole proprietorship.protection to minority interest: important matters like change in the nature of business, unanimity among partners is necessary hence, the minority interest is protected.influence of unlimited liability: the principle of unlimited liability helps in two ways. First, the partners will be careful in their business dealings because of the fear of their personal properties becoming liable under the principle of unlimited liability. Secondly, it helps the firm in raising loans for the business as the financers are assured of the realization of loans advanced by them.

7. Disadvantages.

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8.great risk: as the liability is joint and several, any one of the partners can be made to pay all the debts of the firm. This affects his share capital in the business and his personal properties.lack of harmony: some frictions, misunderstanding and lack of harmony among the partners may arise at any time which may ultimately lead to the dissolution.limited resources: because of the legal celing on the maximum number of partners, there is limit to the amount of capital that can be raised.no legal entity: the partnership has no independent existence apart from that of the persons constituting it, i.e it is not a legal entity.instability: the death, retirement or insolvency of a partner leads to the dissolution of the partnership. Further even any one partner if dissatisfied with the business, can bring about the dissolution of partnership. Hence partnership lacks continuitylack of public confidence: no legal regulations are followed at the time of the formation of partnership and also there is no publicity given to its affairs. Because of these reasons, a partnership may not enjoy public confidence.sustainability: the advantages and drawbacks of partnership stated above indicate that the partnership form tends to be useful for relatively small business, such as retail trade, mercantile houses of moderate size, professional services or small scale industries and agency business.

But when compared to sole proprietorship partnership is suitable for a business bigger in size and operations.

Joint Stock Company

In the modern times the business and industry has been developed on a large scale the capital required for such industry and trade is huge which cannot be accumulated either in a sole proprietorship or a partnership organization. As a result of this change, a new form of organization has become quite popular in modern times which are known as Joint Stock Company. It is normally defined as;

“An association of many person who contribute money or money’s worth to common stock or employ it in some trade and business, and who share profit or loss arising from there.”

It means the joint stock company is a voluntary association of individual who contribute their money or profit to a common stock for carrying on a particular business. The money or money’s worth contributed by the member known as ‘share holders’ forms the capital of the company. The capital is divided into numbers of unit called share. Each share carries definite face value and is transferable in the market without any restriction or formalities.

A company as soon as incorporated takes a legal entity distinct from the share holder who composes it. It is managed by a group of persons known as directors. Directors are the representatives of share holders.

Formation of Joint Stock Company

All the joint stock companies whether public or private are governed by the company’s ordinance 1984 and must be formed according to the procedures laid down in that act. For the formulation of Joint Stock Company the following document must be submitted to the registrar, joint stock Company;

1. The list of directors along with their address.

2. the memorandum of association on which at least 7 person, who are promoters should sign in case of public limited company and two in case of private limited company. In addition of this it is also essential for the, to purchase the qualification share.

3. Articles of association duly signed as memorandum of association.

4. The consent of all the directors to act as directors.

5. A formal declaration by the secretary that all the formalities are duly completed.

6. A statement of normal capital.

Along with the above documents, registration fees, which varies with the amount of share capital is paid off to the treasury.

When the registrar of the joint stock companies is satisfied from all the formalities he will enter the name of the company in the register and will issue a certificate of incorporation. Now the company will have its

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separate existence.

Advantages of a Joint Stock Company

1. Huge Amount of Capital

It is in a position to raise large amounts of capital required for big business. The reasons are the limitations of liability and the ease of transferability of shares. The small value of shares allows a large number of persons to invest. So, due to limited liability and issuance of shares, large capital may be raised by a Joint Stock Company.

2. All People can Invest

In a Joint Stock Company, the shares are of different kinds so they are purchased by persons of different temperaments. The small value of shares allows the poor people also to purchase it. Besides, a company may also raise finance by the issue of debentures and bonds.

3. Limited Liability of Shareholders

The liability of shareholders is limited. It means that the risk is spread over a large number of shareholders and the possibility of hardship on a few is reduced. Secondly, if the business is going to be lost, the shareholders are not liable to loose anything from their private property.

4.Professional management

Management of a company is in the hands of the directors, who are elected democratically by the members or shareholders. These directors are known as the "Board of Directors". They manage the affairs of the company and are accountable to all the investors. So, the investors elect capable persons who have sound financial, legal and business knowledge to the board so that they can manage the company efficiently.

5. Stability of Business

The success of business also depends upon the life of the business. The Joint Stock Company is more suited in tis respect, for a company is a legal person having a perpetual succession.

6. Large-scale production

Since there is an availability of large financial resources and technical expertise, it is possible for the companies to have "large-scale" production. This enables the company to produce more efficiently and at a lower cost.

7.Research and development

Only in joint stock company form of business, it is possible to invest a lot of money on research and development so that new design, better quality products, etc. Can be achieved.

Disadvantages of a Joint Stock Company

1. Difficult to form:The formation & registration of joint stock company involves a long and complicated procedure. A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high.

2. Excessive government control:Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these causes a heavy penalty. This affects the smooth functioning of the companies.

3. Delay in policy decisions:Generally policy decisions are taken at the “Board of Directors” meetings of the company. Further, the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore,

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may delay action on the decisions.

Promotion (Memorandum of Association) & Management (Article of Association)

1.

Memorandum of Association

The first thing in the formation of a Joint Stock Company is the preparation of the Memorandum of Association. It is a document, which sets out the constitution of the company and as such, is really the foundation on which the structure of the company rests. That is why this document has often been called the charter of the company in its relation to the outside world. The document is prepared by the promoters of the company. The memorandum of Association must contain the following clauses:

1. Name Clause

In this clause the full name of the company is shown and the last word of the name of the company must be limited. The company can adopt any name but there are certain restrictions and the words like ROYAL, IMPERIAL, EMPIRE and ESTATE etc cannot be used without the special permission of the Government.

2. Object Clause

This clause is quite important and must be very carefully drafted as it determines the activities of the company. In the object clause each and every detail of activities of the business to be carried out must be laid down. Once the object clause is completed, it become very difficult to make any amendment. The value of the shares, the allotment money must be given in detail.

3. Situation Clause

This act provides that the company must have a registered office so that the registrar may be able to send notice etc. to the Company at the registered office.

4. Liability Clause

A declaration that shares holder's liability is limited.

5. Capital Clause

This clause must contain a statement as to the amount of capital with which the company proposes to be registered and the division there of into shares at a certain fixed amount.

Articles of Association

This is another important document, which must be prepared and filed with the Registrar of the companies. The Article of Association contains rules and regulations regarding the internal working and management of the company. It defines the powers, rights and duties of Directors, shareholders and the other officers of the company. The purpose of the Article of Association is to carry out the objects set out in the Memorandum. The Memorandum limits the jurisdiction beyond which the Article of Association cannot go. The Article of Association states how the general meetings are to be held, how the voting is to be transferred, and how they are to be forfeited, how the accounts are to be kept etc. If a company does not prepare its Article of Association, it can adopt of Table A of Companies Ordinance.

The articles must be properly drafted, serially numbered and printed and then filed with the Registrar of the Joint Stock Companies. The article must be signed by the subscribers and witnessed as in the case of Memorandum. It is usual to print the Memorandum and the Article in one booklet, as the company is required to provide the copies to members on request. The articles can be altered at any time by special resolution.

Co-operative Societies

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Concept 

"A co-operative is a user owned and user-controlled businessthat distributes benefits on the basis of use”

Co-operation is a movement of people. It is essentially an activity of the people for mutual help and collective progress.Co-operation is an activity, where groups of people having common interests come together and work for mutual benefit. The groups can organize themselves to cater to diverse interests, from housing societies, to industrial production to co-operative credit to massive co-operative banks.It is fundamental right of a citizen to form an association. At the same time voluntary membership is essence of Co-operation, Co-operative Society is not for earning profits. Beneficiaries are the members, who work together and share together.

Thus co-operation is a form of organization wherein persons voluntarily associate together on the basis of equality for the promotion of their social and economic growth.

1.

Co-operation: Nature and Substance

The word co-operation is quite familiar to a common man. For him co-operation is simple working together in any sphere of human activity. In this sense, the roots of co-operation can be traced as far back as the beginning of human civilization. The modern biologist have claimed that co-operation are the group instinct in man which enabled him to live together, work together, and help one another in times of difficulty, has been biologically one of the most important and vital instincts.It is true that some experts have highlighted man's progress in terms of aggression. However, we have also evidence available from the writings of great authorities like Propotkin who have stressed sociability to be as important a law of nature as mutual struggle. In his Mutual Aid, he asserts that, the human society has been sustained on the basis of mutual aid. H. G. Wells observed co-operative action in nature while Nietzsche felt that there was antagonism at the heart of the world. Broadly, on the basis of nature of things and course of development, one can certainly conclude that despite competitive struggle for existence among men, co-operation has contributed significantly as a force in the voluntary development of man. E. R. Bowell has rightly stated, "Co-operation is a universal instrument of creation”.

Features:

(i) Voluntary association. “A co-operative society is a voluntary association of persons and not of capital.” Any persons irrespective of his caste and creed, can join a co-operative society of his free will and can leave it at any time after giving due notice to the society. While leaving, he can withdraw his capital from the society. He cannot, however, transfer his share to another person. The voluntary character of the co-operative association has two major implications: (a) none will be denied the right and opportunity to become its member, and (b) the co-operative society will not compel anybody to become a member. Exception will, of course, have to be made in the case of people whose professional interests differ from those of the society, e.g., a private trader competing with a consumer co-operative. 

(ii)Finance. The capital of a co-operative society is raised from members by way of share capital. Since co-operatives are organised by relatively weaker sections of society, the share capital is generally limited. However, it is a part of government policy to assist and encourage co-operatives and, therefore, a co-operative society can usually augment its resources by loans from the State an Central co-operative Banks. 

(iii) Control and management. Democracy is the key-note of the management of a co-operative society. Since most of these societies operate on a local scale the meetings of the members are generally well attended. At these meetings, the members elect the managing committee an lay down the policy which its must follow to promote their common interest. Each member, whatever be his stake in the society, has one vote and hence an equal right to participate in the management of the society. Members cannot vote by proxy. Besides, the organisation a n control of a co-operative society tend to be perfectly democratic in so far as its bye-laws are approved by the members after it has been registered. Not merely this, even the day-to-day work of a co-operative society may be carried on by members working in different capacities, and outsiders may be employed only when

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the society grows too large. 

(iv) Service motto. A co-operative society is organised primarily with the object of rendering maximum service to its members in a certain field. It does not aim at profit at the cost of its members, for its members, for it is formed basically for providing certain essential facilities to members . This does not mean that a co-operative society will never work for profit. It is quite usual for societies to earn profits by extending their services to non-members.(v) Disposal of surplus. It is usual for commercial concerns to distribute profit among the owners in the ratio of their capital contribution, or in an agreed ratio. A co-operative form of ownership and organisation, the surplus arising out of a year's working is given to the members not directly as dividend on shares held by each of them, but in the form of a bonus which need not be proportionate to there respective capital contributions. The bonus may be paid to the members in proportion to purchases made during the year in the case of a consumers' co-operative store, or in proportion to the goods delivered for sale to the society in the case of a producers' co-operative store. In fact, the profit arising out of a difference between the cost price and market price may not be distributed among members but may be utilised in extending amenities and facilities to the members of for undertaking certain social activities for the benefit of the members. It may be noted that law requires that every co-operative society must transfer at least one-fourth of its profits to a general reserve. Likewise, it is provided that a portion of the profit, not exceeding 10 percent, may be utilised for the general welfare of the locality in which the society is functioning. 

(vi) Fixed return on capital. One of the basic principles of co-operative organisation, laid down by the pioneers of the co-operative movement lime Rochdale and Owen, was that a fixed or limited return of capital subscribed to the society must be paid out of the surplus to the members. Making the payment fixed interest on paid-up capital definitely a first charge on the trading surplus, gave those who joined the society a solid for leaving their saving in deposit with it. 

(vii) State control and corporate status. Although voluntary in their basic character, the co-operative societies are subject to considerable Stat control and supervision. In India, the co-operative State co-operative societies Act, as the case may be. The co-operatives desiring to be registered must fulfill the following broad and basic requirements: (i) A co-operative society must have at least 10 members who have attained majority in age (i.e., are above 18 years of age). (ii) The members should be bound together by a common bond' e.g., they may belong to the same village or locality, tribe, or occupation, etc. (iii) The members should present a joint application to the Registrar of Co-operative Societies furnishing important particulars like membership, share capital, objects, etc. (iv) A copy of the be-laws and the scheme of organisation should be submitted to the Registrar. On registration, the co-operative society will attain the corporate status (the status of a company) and will become entitled to certain privileges. It will also be subject to control and supervision by the State. In fact the co-operative department and has to furnish returns of membership and manual report an accounts to the Registrar of co-operatives. In some states like Madhya Pradesh, the Registrar of Co-operative Societies even approves of appointments in managerial position an lays down terms of employment. 

Advantages:

An advantage of a co-operative business is they are usually more stable, caring and responsible employers. They can give greater job satisfaction and variety, and encourage a strong work commitment. They are more responsible to the customer and the community within the business.

1. Any one is allowed to buy shares into the company.2.Creates a strong working commitment3.If the company is incorporated then the members in the company are entitled to Limtited Liability!

Disadvantages:

The following are the reasons of failure or defects and disadvantages of cooperative organization.1.Lack of capital. (a).Its members are generally related to the poor group of the society and they are not in a position to invest a large amount.(b).External financial resources of the society are limited.(c).It cannot borrow money from non-members.(d).It cannot issue any kind of debentures.(e).It share cannot be transferred to nonmembers.

It thus suffers shortage of capital for the operation of business.

2.Limited scale. Due to the various hindrances behind the growth of capital, it is not possible for the cooperative society to start its business at a large scale; it therefore, keeps its business limited in the narrow field of cooperation.

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3.Inefficient management. Expert and efficient management is important factor for running the business successfully. But a society cannot afford to hire the services of superior abilities due to its limited resources. Therefore its business cannot be carried on smoothly.4.Lack of prompt decision. As all the matters are decided by the management committee and complied by another authority, it cannot act with promptness, if a chance comes to make a timely purchase or sale, they have to wait to get others consent.

Relevant laws of Pakistan

Companies remain the most favoured form of business organization in Pakistan especially for medium and large-scale business enterprises. Legal regime for establishment and regulation of companies in Pakistan is given in the Companies Ordinance, 1984. Whereas the function of administration of these companies is vested in the Securities and Exchange Commission of Pakistan and the Registrar of companies appointed by the Securities and Exchange Commission of Pakistan for a Province of Pakistan where such company is to be registered.

Under the provisions of the Companies Ordinance, 1984 a company is a body corporate with separate legal entity and a perpetual succession and a company may be formed by persons associating for any lawful purpose by subscribing heir names to the memorandum of association and complying with other requirements for registration of a company under the provisions of the Ordinance.

The Companies Ordinance, 1984 provides three different types of companies:

A company limited by shares A company limited by guarantee An unlimited liability company

Further, under the Companies Ordinance, 1984 two types of limited liability companies are provided namely:

A private limited company A public limited company (which may be listed or unlisted)

Any one or more persons associated for any lawful purpose by subscribing their name(s) to the Memorandum of Association and complying with other registration specific requirements of the Companies Ordinance, 1984 may incorporate a private limited company. Provided that where a company has only one subscriber to the Memorandum of Association then such a company is called a Single Member Company, however, a Single Member Company remains a private limited company for all intents and purposes of the Ordinance. Whereas any three or more persons so associated may form a public limited company. A company limited by shares whether private company or a public company is the most common vehicle for carrying out a business enterprise in Pakistan.

Registration of a Company and Commencement of Business in Pakistan

The first step toward incorporation of a company in Pakistan is to file an application before the Registrar of companies for availability of name. If the proposed name of the company is available and it is not in contravention to the provisions of the Companies Ordinance, 1984 and the Rules formed there under, then the Registrar shall issue a certificate stating that the proposed name is available to be adopted.

The nest step is to file the Memorandum of Association and Articles of Association, which in effect is the constitution of any company, with the Registrar of companies in the Province where proposed company is to be incorporated, along with other necessary forms prescribed under the Companies Ordinance, 1984. When the company has been registered the Registrar issues a Certificate of Incorporation. Once such a certificate has been issued by the Registrar a private limited company may commence its business immediately. Nonetheless, a public limited company cannot commence its business or exercise its borrowing powers yet unless the Registrar has issued a Certificate for Commencement of Business. The Registrar issues the Certificate for Commencement of Business only if the following requirements have been fulfilled:Shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscriptionEvery director of the company has paid to the company the full amount on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cashNo money is or may become liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason of any failure to apply for or to obtain permission for the shares or debentures to be dealt in on any stock exchangeThere has been filed with the Registrar of Companies a duly verified declaration by the chief executive or one of the directors and the secretary in the prescribed form that the aforesaid conditions have been complied with and the Registrar of Companies has issued a Certificate of Commencement of Business

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In the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been filed with the Registrar of Companies, a statement in lieu of prospectus

A public limited company may either be listed or unlisted. In case of a listed company its shares may be quoted and dealt with on one of the three stock exchanges of Pakistan viz. Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange. Whereas the shares of an unlisted public limited company may not listed on a stock exchange. A public limited company that intends to have its shares listed on a stock exchange must obtain permission from the relevant stock exchange under the listing regulations of that stock exchange.

2.

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