Basic Accounting Terminologies

Introduction
Every human being consciously engages himself in some meaningful activity.

Although the measure of success may vary in each case one has to be careful and

cautious at every stage in his life. Bookkeeping and accountancy is a science, which

has attracted the attention all such human activities. Accounting enables a person to

assess the risk appropriate steps.

Account an account denotes a summarized record of transactions pertaining to one

person, one kind of asset, or one class of income, or one class of income or loss.

Assets properties of every description owned by a person will be called assets for

example land and building, plant and machinery, cash balance, bank balance etc.

Bad debts which are irrecoverable and written off from debtors A/C as a loss are

termed as bad debts.

Casting means the totaling of the books of account casting has to be done of the

ledger accounts and also of a journal.

Creditor a creditor is a person to whom we owe some thing. He is the person to whom

we have to pay.

Capital the dictionary meaning of the term capital is wealth capital is the total

account invested in business the capital of a business is the claim of the owner to the

business is the claim of the owner to the business.

Debtor is person who owes something he is the person who has to pay to other

person.
Drawing is the total amount withdrawn by a trader from his business for meeting

personal expenses. Trader becomes a debtor of business by the amount withdrawn by

him from business for private purpose.

Discount it is an allowance or a concession allowed by the receiver of benefit to the

giver of benefit. It is normally allowed to the customers, debtors, and retailers’ etc. the

discount may be classified in two ways.

1) Cash discount.

2) Trade discount.

Cash discount it is discount allowed to customer as an inducement to make payment

immediately. Cash discount is closely related to cash receipt and cash payment. When

cash is received, discount is allowed is a loss to a business while cash discount

received is a gain to him.

Trade discount it is an allowance made by a wholesaler to a retailer in order to

enable the retailer to sell the articles at list prices and earn a reasonable margin of

profit. The amount of trade discount is deducted from the invoice; therefore, it has no

connection as to the receipt and payment of cash. Hence, trade discount does not

appear in the books of accounts.

Entry the term entry refers to the recording of a transaction in the books of account.

It is the primary record of a transaction in the books called journal or any other

subsidiary journal.

Expenses the effort made by business to obtain the revenues are termed as expenses.

It is the amount spent on manufacturing and selling of goods and services.

Folio it means the page number of the book of original entry or of the ledger by

writing folio i.e. page number, one can easily find out on what page the original entry

is made and on what page the entry is made in the main book.

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Goods commodities in which a trader deals are called as goods.

Insolvent a person is said to be insolvent when his liabilities are more than asset

Insolvency when the liabilities of a firm are greater than its assets, it is referred to

as insolvency indicating the liabilities of a business to meet all its liabilities. Such a

business firm is said insolvent.

Journal is the book 0f accounts in which business transaction are first recorded. It is

a book of prime entry or first entry.

Liabilities debts owed by a person are called liabilities. Liabilities represent the

total amount to creditors. Debts arise because, goods may be purchased out but

payment may not be made at the time of purchasing the goods. Therefore the total

amount payable to creditors will be the liabilities.

Narration it is a brief explanation or description on to a journal entry it is given on

the line just below the journal entry within the brackets.

Posting transaction entered in the original books of entry are also to be recorded in

the ledger on the basis of the entry made in the original book is called posting.

Purchases the goods bought for resale or manufacture and resale are called

purchases. Purchases may be classified as

1) Cash purchase

2) Credit purchase

Revenue it represent the accomplishment of the enterprise until the company has

been successful in selling its products, no revenue is realized. Revenue is the amount

that adds to the capital.

Sales the goods sold by a business for cash or on credit are called sales. The sales

may be classified as;

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 1) Cash sales

2) Credit sales

Solvent a person is said to be solvent when his assets are equal to or more than his

liabilities.

Stock goods unsold lying with a business on any given date are called as stocks.

Transactions a transaction are an exchange of money or moneys worth between

two parties. It is dealing between two parties. It is dealing between two or more

persons.

The transactions are classified on the basis of exchange of goods and service they

may be.

1) Barter transactions.

2) Monetary transactions.

Monetary transactions are classified in they two types.

1) Cash transactions.

2) Credit transactions.

Book keeping is defined as the process of analyzing, classifying and recording

transaction in a systematic manner to provide the information about the financial

affairs of the business concerns.

Accounting is a wider concept, which includes book keeping accounting, is

involved not only maintaining records, but also balancing of accounts, interrupting the

balances, preparation of summaries, drawing conclusions from the summaries

knowing the results of financial transactions etc.

Classification of accounts.

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Accounts are classified in to four types

1) Personal accounts.

2) Real accounts.

3) Nominal accounts.

Personal accounts DEBIT THE RECIVER AND CREDIT THE GIVER

Real accounts DEBIT WHAT COMES IN AND CREDIT WHAT GOES OUT

Nominal accounts DEBIT EXPENSES AND LOSSES AND CREDIT GAINS OR

INCOMES.

Journal is derived from the French word “jour’ which means a day journal is the

book of original entry or primary entry. It is book of daily record first of all the

business transactions are recorded in the journal and subsequently they are posted in

the ledger.

Ledger “ a group of accounts is known as ledger” a ledger is the principle book of

account a journal is meant for passing the entries of business transaction. A ledger is a

bound book. It contains many pages, which are called folios. These pages are

consecutively numbered. For each account a separate page is kept. Every ledger has

an index. It is generally an alphabetic index one page is allotted for each alphabet. All

the accounts commencing with that particular alphabet are indicated on that particular

page only. The page number on which the particular account appears is shown in the

index. This facilities appear is shown against the account in the index. The facilities

immediate reference.

Ledger posting

After the transaction has been analyzed into its debit and credit elements in a journal,

each such debit and credit elements must be transferred in a journal accounts. The

process of transfer of entries from journal to ledger account is called ledger posting.

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Trial balance

After posting the transaction to respective ledger accounts they are balanced and then

a trial balance is drawn. A trial balance is a statement, which shows the list of

accounts showing debit balances and list of accounts showing credit balance. If

double entry principles are strictly followed the total of the entire debit balances must

agree with the total of all the credit balance.

Trade discount

The amount of trade discount is deducted from the bill itself. Therefore, a trade

discount does not appear in the books of accounts. If a trade discount is given in the

transaction, the amount of such a trade discount is deducted from the gross value of

purchase and only the net value (arrived at after allowing a trade discount) is recorded

in the purchase books.

Debit note

A debit note is sent to the supplier when the goods purchased from him are returned.

A debit note is a statement sent by the buyer to the supplier stating the full details of

the good returned. It is sent along with the goods. It intimates the supplier that his

account has been debited by the value of the good returned to him.

Credit note

A credit note is sent to the customers when we receive goods returned from them. It

gives the full details of the good returned by the customer. Credit notes are generally

is printed in red ink. Transaction is recorded in this book on the basis of credit notes.

Trial balance

The dictionary for accountants written is “ a list or abstract of the balance or of total

debits and total credits of the accounts in a ledger, the purpose being to determine the

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equality of posted debits and credits and to establish a basic summary for financial

statements”.

Subsidiary books (sub division of journal)

If all the business transaction were recorded in one and the same journal, the journal

would be bulky and cumbersome. It would be very difficult to make clerks to work on

the same journal at one and the same time. Instead of recording all the transaction in

on and the same journal, they are recorded in separate journals meant for the purpose.

Therefore, in order to meet the requirements of modern business, the original

journal is divided into the following
 Purchase book

 Sales book

 Purchase return book

 Sales return book

 Cash book

 Bills receivable book.

 Bills payable book.

 Journal proper.

Final accounts

The final accounts are prepared to find out the profit or loss and to know the financial

position of the business. These account consist of

 The trading account

 The profit and loss account

 Balance sheet

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Trading account

A trading account is prepared to find out the gross profit or gross loss in the

business done during the year. The gross profit is the difference between the cost

of good sold and the sale proceed without any deduction of indirect expenses.

Hence, in the trading account it is necessary to include all items of expenses

directly affecting the cost of good sold. The cost of good sold includes the

purchase price of the good sold plus buying and bringing expenses and the

expenses of conversion of raw material into saleable finished goods.

Profit and loss account

Profit and loss account is another summary account, which is prepared after

preparation of trading account. Trading account does not disclose the net income

or loss. There are other expenses in order to ascertain the profit or not loss.

Balance sheet

A balance sheet is a statement of the financial position of a business on a given

date. It is a snapshot of the financial condition of the business. The balance sheet

is not account; it is only a statement showing asset and liabilities of the business.

It is important to note that the balance sheet always balances. The total value of

the assets is always equal to the capital and liabilities.

We can define balance sheet as “a statement of financial position of any

economics unit as at a given moment of time, its assets, at cost, depreciated cost or

another indicated value, its liabilities and its ownership equities”

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 Introduction
Of Working Capital
Meaning:

Working capital could be defined as the portion of assets used in current

operations. The movements of the funds from capital to income and profits and back

to working capital are one of the most important characteristics of the business. This

cyclical operation is concerned with utilization of the funds with the hope that will

return with an additional amount called income. If the operations of the company are

to run smoothly, a proper relationship between fixed capital and current capital has to

maintain.

Sufficiently liquidity is important and must be achieved and maintained to

provide that funds to pay off obligation as they arise.

The adequacy of cash and other current assets together with their efficient

handling, virtually determine the survival o demise of the company. A businessman

should be able to judge the accurate requirement of working capital and should be

quick enough to raise the enquired funds to finance he working capital needs.

Working capital is also called as net current assets, “it is the excess of current assets

over current liabilities.” All organization has to carry working capital. It is important

from the point of view of both liquidity and profitability. Poor management of

working capital means that funds that unnecessarily tied up in idle assets hence

educing liquidity and also reducing ability to invest in productive assets such as plant

and machinery. So affecting profitability.

The term working capital refers to current assets, which may be defined as:

i) Those which are convertible into cash or equivalents with the period of

one year and

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 ii) Those which are required to meet day to day operations,

The fixed as well as current assets, both requires investment of ‘Funds’. So the

management of working capital and fixed assets apparently seem to involve it type of

consideration but it is no so. The management of working capital involve different

concept and methodology than the techniques used in fixed assets management.

Objective behind the Study

Of Working Capital & Research
Methodology
Working capital management is very important in modern business. The analysis

of working capital is also very useful for short-term management of funds. The

following are objective of study:

1) To make. Items wise analysis of the elements or component of working capital

to identify the items responsible for change in working capital.

2) To calculate working capital for Four Month.

Scope & Limitation of the Study

1. The Study is limited to Four Month projected performance of the

Company.

2. The data used in this study have been given commercial Manager. As

per the requirement and necessary some data are grouped and sub

grouped.

3. For making a clear-cut opinion, Ratio technique of financial

management has been used.

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 Data & Methodology of the Study:

The data of Siemens Ltd. For the four Month used in this study have been

taken from company. Editing, classification and tabulation of the financial data, which

are collected from the above-mentioned sources, have been done as per the

requirement of the study.

Types of working capital

The type, kinds of a thing are depending upon the different utilization of

working capital. It prominently works in the direction of performing different

functions in different situation and in the context of divergent variables. So following

are some important types of working capital.

Net Working Capital

Gross Working Capital

Negative Working Capital

Types of Working Capital

Permanent Working capital

Cash Working Capital

Temporary Working Capital

. Balance Sheet Working Capital

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1) Net Working Capital:

Term Net working capital can be define in two way

i) It is the difference between current assets and current liabilities.

ii) Amount left for operational requirement.

2) Gross Working Capital:

Gross working capital means the total current assets.

3) Permanent Working Capital:

It is the minimum amount of the current assets, which are needs to conduct the

business even during the dullest season of the year. This amount varies from year

to year depending upon the growth of a company and stage of the business cycle

in which it operates. It is the amount of funds required to produce the goods and

services, which are necessary to satisfy demand at a particular point.

It represents the current assets, which are required on a continuing basis over the

year. It is maintain as the medium to carry on operation at any time. Permanent

working capital has following features:

i) It is classified on the basis of the time factor.

ii) Its size increase with the growth of the business.

iii) It constantly shifted from one assets o another and continues to remain in

the business process.

4) Temporary Working Capital:

It represents the additional assets, which are required at different times during

the operating year. Seasonal working capital is the additional amount of current

assets particularly cash, receivables, and inventory which is required during the

more active business seasons of the year. It is the temporary investment in the

current assets and possesses he following features:

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 a) It is not always gainfully employed, though is May also shift

from one asset to another as permanent working capital does.

b) It is particularly suited to business of seasonal on cyclical

nature.

5) Balance Sheet Working Capital:

The balance sheet working capital is one, which is calculated from the items

appearing in the balance sheet. Gross working capital, which is represented by the

excess of current assets over current liabilities, is example of the balance sheet

working capital.

6) Cash Working Capital:

It is one, which is calculated from the items appearing in he Profit and Loss

Account. It shows the real flow of money or value at a particular time and

considered to be most realistic approach in working capital management. It is the

basic of he operation cycle concept, which has assumed a great importance in

financial management in recent year. The reason is that the cash working capital

indicates he adequacy of he cash flow which is an essential pre requisite of a

business.

7) Negative Working Capital:

It emerges when current liabilities exceeds current assets, such a situation is

absolutely theoretical and occurs when a firm is nearing a crisis of some

magnitude.

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 Principles of Working Capital

Management:
There are some principles of sound working capital management policy. They

are as follows:

1) Principle of Risk Variation:

Risk here refers to inability of a firm to meet its obligation when they become

due for payment. Large investment in current assets with less dependence on a short

term borrowing increase liquidity, reduces dependence on short term borrowing

increases liquidity, reduces risk.

On the other hand less investment in current assets and greater dependence on

debt increase the risk, reduces liquidity and increases profitability. In other word these

is a definite inverse relationship between he degree of risk and profitability.

A conservative management prefers to minimize risk by maintaining a higher level of

current assets or working capital while a liberal management should be to establish a

suitable trade off between profitability and risk.

2) Principle of Cost of Capital:

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 The various sources of rising of working capital finance have different cost of

capital and the degree of risk involved. Generally higher the risk lower is the cost and

lower the risk higher is the cost. A sound working capital management should always

try to achieve a proper balance between these two.

3) Principle of Equity position:

According this principle, the amount of working capital invested in each

component should be adequately justified by a firm’s equity position. Every rupee

invested in the current assets should contribute to he net worth of he firm.

4) Principle of Maturity of Payment:

This principle is concerned with planning he sources of finance for working

capital. According to this principle, a firm should make every efforts o related

maturity of payment to its flow of internally generated funds. Maturity pattern of

various current obligations is an impotent factor in risk assumptions and risk

assessment.

Factors determining working capital

1) Nature or character of Business:

The working capital requirement of a firm basically depends upon he nature of

its business. Public utility undertaking like Electricity, Water Supply, and Railways

15
need very limited working capital because they offer cash sales only and supply

services, not products and as such no funds are tied up in inventories and receivables.

On the other hand trading and financial firms require less investment in fixed assets

but they have to invest large amount in current assets like inventories, receivables and

cash. So they need large amount of working capital.

2) Production cycle:

Another factor, which has a bearing on the quantum of working capital, is the

production cycle. The term ‘production or manufacturing cycle’ refers to the time

involved in the manufacturing of goods. It covers the time span between the

procurement of raw material and the completion of the manufacturing process leading

to the production of finished goods.

In other words, there is sometime gap before raw material becomes finished

goods. To sustain such activities that need for working capital is obvious. The longer

time span (production cycle) the large will be the tied up funds and therefore, larger is

working capital need and vise versa.

3) Production Policy:

In certain industry the demand is subject to wide fluctuations due to seasonal

variations. The requirement of working capital in such case, depend upon the

production policy. The production can be either kept steady by accumulating

inventories during slack period with a view to meet high demand during peak season

of the production could be curtailed during the slack season and increased during the

peak season. If policy is to keep production steady by accumulating inventories it will

require higher working capital.

4) Credit Policy:

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 The credit terms granted to customers have a bearing in the magnitude of

working capital by determining the level of book debts. The credit sales result in

higher book debs. Higher book debts mean more working capital. On the other hand,

if liberal credit terms are available from the supplies of goods trade needs less

working capital.

The working capital requirement of a business are thus, affected by term of

purchase and sale, and the ole given to credit by a company in its dealing with

creditors and debtors.

5) Growth and Expansion:

The working capital requirement of concern increase with the growth and

expansion of its business activities. Although, It is difficult to determine the

relationship between the growth in the volume of business and the growth in the

working capital of a business, yet it may be concluded that for normal rate of

expansion in the volume of business. We may have retained profits to provide for me

working capital but in fast growing concern, we shall require lager amount of working

capital.

6) Seasonal Variation:

In certain industry raw material is no available throughout the year. They have

to buy raw material in bulk during the season to ensure uninterrupted flow and

process them during the entire year. So a huge amount is blocked in form of row

material during the peak season, which gives more requirements for working capital

and less requirement during the slack season.

7) Earning Capacity:

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 Some firm have more earning capacity than others due to quality of the

products, monopoly condition etc. Such firms with high earning capacity may

generate cash profits from operations and contribute to their working capital.

8) Dividend Policy:

The dividend policy of a concern influence on the requirement of the working

capital. A firm that maintains a steady high rate of cash dividend irrespective of its

profits level needs more working capital than the firm that retains large part of its

profits and does not pay at high rate of cash dividend.

9) Other Factors:

Certain other factors such as operating efficiency, management ability,

irregularities in supply, import policy, assets structure, importance of labour, banking

facilities etc, also influence the requirement of working capital.

Sources of Working Capital

Mainly there are two sources of working capital:

i. Permanent or Fixed working capital

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 ii. Temporary or variables working capital

In any concern, a part of the working capital investments are as investment in

fixed assets. This is so because there is always a minimum level of current assets,

which are copiously required by the enterprise to carry out its day-to-day business

operation and this minimum, cannot be expected to reduce at any time. This minimum

level of current assets need long term working capital, which is permanently blocked.

Similarly, some amount of working capital may be required to meet the seasonal

demands and some special exigencies such as rise in prices, strikes, etc. this gives rise

to short term working capital which is required for day to day transaction also.

The fixed proportion of working capital should be generally financed from the fixed

capital sources while the temporary or variable working capital equipment may be

met from the short term sources of capital.

Sources of Working Capital

Long term Sources Short Term sources

Shares
Debentures Commercial Banks
Public Deposits Indigenous Banks
Ploughing back of Profits Trade Creditors
Loans from Financial institution Installment Credit
Advances
Account receivable
Credit
Accrued Expenses
Differed Income
Commercial Paper

Methods of Calculation of Required

Working Capital
The methods of calculation of required working capital are as follows:

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 Working Capital Cycle:
The working capital cycle is also known as operating cycle. It refers to the

duration between the firm’s payment of cash for raw material, entering into

production and inflow of cash from debtors and realization of receivables. Simply

speaking, operating cycle is the duration between the outflow of cash and inflow

of cash and this may be evidenced from the following working capital cycle.

Receivables

Cash Finished Goods

Raw Material Work In Process

The above and network diagram may offer a clear picture of a complete

working capital i.e. it is a cash phenomenon. In the diagram, raw material, stock refers

to material only. In work in process, components involve are raw material, wages, and

overhead more specifically manufacturing overheads. Finished stock consists

components of material, wages and overheads inclusive of factory, office and

administration and selling and distribution. Debtors include material, wages,

overheads and profits. Credit involves for the components of raw material, etc.

something a contingency margin is also given while estimating the working capital

requirement.

The operating cycle consists of him following events, which continues

throughout his life of a firm remaining engaged in commercial activities.

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 Avg. Stock of Raw Material
1) Raw Material Holding Period =
Avg. Cost of Consumption per day

Avg. Stock of Work in Process

2) Work in Process Holding Period =
Avg. Cost of Production per day

Avg. Stock of Finished Goods

3) Finished Goods Holding Period =
Avg. Cost of Goods Sold per day

Avg. Book Debt

4) Receivables Collection Period =
Avg. Credit Sales per day

Avg. Trade Creditors

5) Creditors Collection Period =
Avg. Credit Purchased per day

In the form of a simple equation working capital cycle or operating cycle can
be represented as bellow:

O = R+W+F+D-C

Where, O = Operating Cycle (In Days)

R = Raw Materials Holding Period
W = Work in Process Holding Period
F = Finished Goods Holding Period
D = Receivables Collection Period
C = Creditors Collection Period.

Total Operating Cost

Working Capital Required =
Number of Operating Cycle

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Components of Working Capital:

Current Assets: Amount

------
i) Stock of Raw Material (for…month consumption)
------
ii) Work In Process (for…Month)
a) Raw Materials
b) Direct Labour
c) Overheads
------
iii) Stock of Finished Goods (for…month sales)
------
iv) Sundry Debtors or Receivables (for…month sales)
------
v) Payments in Advance (if any)
------
vi) Balance of Cash (required to meet day-to-day Expenses)
------
vii) Any Other (if any)

Less: Current Liabilities:

i) Creditors (for…month purchase of raw materials) ------

ii) Outstanding Expenses (for month) ------

iii) Others (if any) ------

Working Capital (CA – CL) ---------

Add: Provision/ Margin for contingencies ------

Net Working Capital Required ----------

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Management of working capital:

Working capital, in general practice, refers to him excess of current assets over

current liabilities. Management of working capital therefore, is concerned with

problems that arise in attempting to mange him current assets, current liabilities, and

interrelationship that exists between them. In other word it refers to all aspects of

administration of both current assets and current liabilities.

The basic goal of working capital management is to manage the current assets

and current liabilities of a firm in such way that a satisfactory level of working capital

is maintained, i.e. neither inadequate nor excessive. This is so because both

inadequate as well as excessive working capital position is bad for the business.

Inadequacy of working capital, may lead the firm insolvency and excessive working

capital implies idle funds, which earn no profit for the business. Working capital

management policies of the firm have a great effect on its profitability, liquidity and

structural health of the organization. In this context, working capital management is

three-dimensional nature:

1) Dimension I is concerned with the formulation of he policy with regard to

Profitability, risk and liquidity.

2) Dimension II is concerned with the decision about his composition and level

of current assets.

3) Dimension III is concerned with the decision about his composition and level

of current liabilities.

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This dimension aspect of his working capital has been more clearly and precisely
Explains by the following diagram.

Profitability, Risk &

Liquidity

Dimension I

Dimension III Dimension

II

Composition
& Level of
current assets

Composition & level

Of current Liabilities

Evaluation of working capital

The working capital management needs attention of all the finance head/ working

capital management is important for avoiding unnecessary blockage of fund. Like that

liquidity is important at it refer to the short-term financial strength of company.

It is very important to have proper balance in regard to the liquidity of the firm.

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 Table I - Statement of Working Capital Requirement

Particulars 2002-03 2003-04 2004-05 2005-06

A) Current Assets: -
i) Inventories 1,215,892 1,698,235 3,283,909 4,842,246
ii) Sundry Debtors 3,559,062 4,172,586 7,319,804 11,097,716
iii) Cash & Bank Balance 2,584,729 4,309,852 4,855,139 9,394,447
iv) Other Current Assets - - 1,798 3,597
v) Loans & Advances 1,753,370 1,802,032 1,809,396 4,164,082

9,113,053 22,982,705 17,270,127 29,502,088

B) Current Liabilities:
i) Current Liabilities 6,532,933 8,552,122 12,759,018 24,275,052
ii) Provisions 511,492 632,131 2,468,701 3,415,310

7,044,425 9,184,253 15,227,719 27,690,362

Working Capital (A-B) 2,068,628 2,168,452 2,042,408 1,811,726

Add: Provision for Contingencies -- -- -- --

Net Working Capital Requirement 2,068,628 2,168,452 2,042,408 1,811,726

Graphical Representation of Working Capital Requirement

Working Capital Requirement

2,200,000
Working Capital (in Rs.)

2,100,000

2,000,000
Working Capital
1,900,000
Requirement
1,800,000

1,700,000

1,600,000
2002-03 2002-04 2002-05 2002-06
Year

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 Table II - Statement of Changes in Working Capital

Particulars Previous Current Year Effect on Working Capital

Increase Decrease
Year
A) Current Assets: -
i) Inventories 3,283,990 4,842,246 1,558,256
ii) Sundry Debtors 7,319,804 11,097,716 3,777,912
iii) Cash & Bank
Balance 4,855,139 9,394,447 4,539,308
iv) Other Current
Assets 1,798 3,597 1,799
v) Loans &
Advances 1,809,396 4,164,082 2,354,686

Total Current Assets: 17,270,127 29,502,088

B) Current Liabilities:
i) Current Liabilities 12,759,018 24,275,052 11,516,034
ii) Provisions 2,468,701 3,415,310 946,609

Total Current Liabilities: 15,227,719 27,690,362

Working Capital (A-B) 2,042,408 1,811,726

Net Increase Or Decease In 230,682

Working Capital 230,682

2,042,408 2,042,408 12,462,643 12,462,643

Table I: -

It is observed that current asset decrease in 2004-05 as compare to 2002-03 to 2003-

04 but in the year 2005-06 it had been increase from 1.72cr to 2.95cr and the current

liabilities has been increase from 2002-06. Current asset decreases in 2004-05 and

again it increases 2005-06. It shows fluctuation in these years. Working capital of

SIEMENS ltd at only in the 2003-04 it increased reaming year i.e. 2004-05 and 2005-

06 it decreases, it means that in the year excluding 2003-04 working capital falls

26
down which shows the current liabilities increasing in greater percentage as

compare to current asset.

In the 2002-03, 2004-05 and 2005-06 working capital shows the negative

trend due to the increase in the current liability in the condition of the year 2003-04 is

increased it shows the positive trend.

Table II: -
Statement of changes in the working capital is prepared to show the changes

in the working capital between the two balance sheet dates. This statement is prepared

with the help of the current asset and current liabilities derived from the 2 balance

sheets

So,

i) An increase in current asset increases working capital

ii) A decrease in current assets decreases in working capital

iii) An increase in current liabilities decreases working capital.

iv) A decrease in current liabilities increase working capital

It is worth noting that schedule of changes in working capital is prepared only

from current assets and current liabilities and the other information is not of any use

for preparing this statement.

The company should look in to the proper current liabilities.

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 Bibliography

1. Book about Excise Manual

-By R. K. Jain

2. Commercial Department.

-By Mr. Manoj Dhok.

3. Annual Report of SIEMENS in India

4. Financial Management by

-Khan & Jain

-S. N. Maheshwari

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