Accrual Accounting And Gfs Glossary

Glossary for Accrual Accounting and GFS – Tarun Das

(A) Glossary for Accrual Accounting and GFS, and (B) Glossary for Financial and Monetary Statistics

Prof. Tarun Das1, Ph.D. Glocom Inc. (USA) Strategic Planning Expert Ministry of Finance Government of Mongolia February 2008

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This report is primarily based on the Government Finance Statistics Manual 2001 (GFSM 2001) and Monetary and Financial Statistics Manual 2007 (MFSM 2007) published by the International Monetary Fund (IMF), Washington, D.C. It may be mentioned here that the author was a Member of the Expert Group Meeting at IMF, Washington D.C. in February 2001 to discuss the Draft GFS Manual 2001 and to incorporate final round changes and conclusions in GFSM 2001 (refer the Preface by Mrs. Carol S. Carson, the then Director, Statistics Department, IMF in the GFS Manual 2001, p.ix, reproduced here as Annex).The author was also the Country Coodinator for India on IMF Government Finance Statistics (GFS) and Special Data Dissemination Standards (SDDS) when he worked as Economic Adviser in the Ministry of Finance, Government of India during 1989-2006. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

Glossary on Accrual Accounting Government Finance Statistics Monetary and Financial Statistics

The set of glossary is based on the following manuals and reports published by the International Monetary Fund (IMF), Washington, D.C. (1) (2) (3) (4) (5) (6)

Government Finance Statistics (GFS) 1986 Government Finance Statistics Manual (GFSM) 2001 Government Finance Statistics (GFS) Yearbook 2006 Monetary and Financial Statistics Manual (MFSM) 2007 Monetary and Financial Statistics (MFS): Compilation Guide 2007 International Financial Statistics (IFS) 2007

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Glossary for Accrual Accounting and GFS – Tarun Das

Glossary Accrual Accounting and GFS Prof. Tarun Das , Ph.D.

Abroad. Pertaining to a nonresident, as in classifications of transactions and stocks for which the counterparty is a nonresident. Synonymous with foreign. Accounting equation: Assets = liabilities + owner's equity. The accounting equation is the basis for the financial statement called the balance sheet. Accounts payable: Also called A/P, accounts payable are the bills a business organization owes to suppliers. Accounts receivable: Also called A/R, accounts receivable are the amounts owed to the company by the customers. Accounting rules. Instructions for recording economic flows and stocks. Accrual basis of recording. A recording system in which the time assigned to flows is when economic value is created, transformed, exchanged, transferred, or extinguished. Adjusted overall fiscal balance. The overall fiscal balance adjusted to exclude some or all revenue, grants, certain enclave activities such as the mineral sector, and/or large and infrequent transactions that could distort the fiscal analysis. Adjusting entries: Special accounting entries that must be made when the books are closed at the end of an accounting period. Adjusting entries are necessary to update the accounts for items that are not recorded in daily transactions. Administrative fee. A fee for a compulsory license, such as a drivers’ license or a passport, or another fee that is treated as the sale of a service. Aging report: An aging report is a list of all receivable amounts and their due dates. An aging report can also be prepared for accounts payable, which helps to manage outstanding bills. Allowance for bad debts: Also called reserve for bad debts, is an estimate of uncollectable accounts. It is known as a "contra" account because it is listed with the assets, but it will have a credit balance instead of a debit balance. For balance sheet purposes, it is a reduction of accounts receivable.

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Glossary for Accrual Accounting and GFS – Tarun Das Amortization. (1) The decrease in the value of an intangible nonproduced asset resulting from a decrease in the remaining period of its service life. (2) The repayment of a portion of the principal of a loan, bond, or other debt instrument. (3) The decrease in the discount or premium recorded with respect to the maturity value of a debt instrument resulting from the passage of time. Arrear. An obligatory payment by a debtor to a creditor that is not made by its due-for-payment date, including any grace period. See due-for-payment basis of recording. Asset. An entity over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits may be derived by its owners by holding it or using it over a period of time. Autonomous pension fund. An employer social insurance scheme providing retirement benefits that is a separate institutional unit. Autonomous pension funds that are organized and managed by government units are classified as public financial corporations. See employer social insurance scheme and retirement benefit. Balance sheet. A statement of the stocks of assets owned by a unit, the stocks of financial claims (liabilities) held by other units against the owner or owners of those assets, and the net worth of the unit or sector at a specific time. See asset, financial claim, liability, and net worth. Balancing item. The net value of a set of accounting entries, usually obtained by subtracting one aggregate from a second aggregate. Budgetary unit. A unit financed by the legislative budget of its government. Capital: Also called equity. Money invested in the business by the owners. Capital grant. A noncompulsory transfer from one government unit or international organization to a second government unit or international organization in the form of cash that the recipient is expected or required to use to acquire an asset or assets other than inventories, an asset other than inventories and cash, the cancellation of a liability by mutual agreement between the creditor and debtor, or the assumption by one unit of a debt of the other unit. See transfer transaction. Capital tax. A tax levied once or at irregular and very infrequent intervals on the values of the assets or net worth of institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos, or other transfers.

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Glossary for Accrual Accounting and GFS – Tarun Das Capital transfer. A transfer of a non-cash asset, the cancellation of a liability by mutual agreement between the creditor and debtor, the transfer of cash that was raised by disposing of an asset, the transfer of cash that the recipient is expected to use for the acquisition of an asset, or the assumption by the one unit of a debt of the other unit. In each case inventories are excluded. Cash basis of recording. A recording system in which the time assigned to flows is when cash is received or disbursed. Although nonmonetary flows can be recorded, most accounting systems using the cash basis do not record nonmonetary flows because the focus is on cash management rather than resource flows. Cash surplus/deficit. The net cash inflow from operating activities minus the net cash outflow from investments in nonfinancial assets. Cash. The sum of cash on hand and cash equivalents. Cash on hand consists of notes, coins, and deposits held on demand with a bank or other financial institution. Cash equivalents are highly liquid investments that are readily convertible to cash on hand at the government’s option and overdrafts considered integral to the cash management function. Central bank subsector. The unit or group of units consisting of the central bank itself, currency boards or independent currency authorities that issue national currency that is fully backed by foreign exchange reserves, and other government-affiliated agencies that are separate institutional units and primarily perform central bank activities. Central bank. The public financial corporation that is a country’s monetary authority. It issues currency; has liabilities for demand or reserve deposits of other depository corporations, and often the government; and may hold all or part of the international reserves of the country. Central government subsector. The group of units consisting of all government units belonging to the central government and all nonmarket nonprofit institutions controlled and mainly financed by the central government. Central government. The government whose political authority extends over the entire territory of the country. The central government can impose taxes on all resident institutional units and on nonresident units engaged in economic activities within the country. Typically it is responsible for providing collective services for the community as a whole, such as national defense. In addition, it may provide services for the benefit of individual households, such as health and education, and it may make transfers to other institutional units.

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Glossary for Accrual Accounting and GFS – Tarun Das Change in inventories. Additions to inventories less withdrawals from inventories. Also, the total value of inventories on the closing balance sheet minus the total value on the opening balance sheet minus the net result of holding gains and other changes to the volume of inventories. Chart of accounts: The list of account titles used to keep accounting records. Classification of the Functions of Government (COFOG). A classification of the functions, which general government units aim to achieve through various kinds of outlays. Closing: Closing the books refers to procedures that take place at the end of an accounting period. Adjusting entries are made, and then the income and expense accounts are "closed." The net surplus/ profit that results from the closing of the income and expense accounts is transferred to an equity account such as retained earnings. Commitments basis of recording. A recording system in which the time assigned to flows is when a general government unit has committed itself to a transaction. Generally, this basis applies only to purchases of assets, goods, and services, and the time assigned is when a purchase order is issued by the general government unit. Flows for which the commitments basis is not applicable are recorded on one of the other three (accrual, cash, or due-forpayment) bases. Nonmonetary transactions may or may not be recorded. The United States of America uses commitments basis of recording. Compensation of employees. The total remuneration, in cash or in kind, payable to an employee for work done during the accounting period, except for work connected with own-account capital formation. It consists of wages, salaries, and social contributions made on behalf of employees to social insurance schemes. Excluded are amounts payable to contractors, selfemployed outworkers, and other workers who are not employees. Consolidation. A method of presenting statistics for a set of units as if they constituted a single unit. All transactions and debtor-creditor relationships among the units being consolidated are matched and eliminated. Consumption of fixed capital. The decline during an accounting period in the value of fixed assets, major improvements to land, and the costs of ownership transfer incurred on the acquisition of valuables and nonproduced assets as a result of physical deterioration, normal obsolescence, or normal accidental damage. It is based on the average prices of the assets for the period. Changes in the asset’s value due to changes in the price of the asset are excluded. Contingency. A condition that may affect the financial performance or position of the general government sector depending on the occurrence or nonoccurrence of Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das one or more future events. Contingencies are not treated as financial assets or liabilities because they are not unconditional claims or obligations. Contingent liability. A contingency that will result in a liability if it occurs. Examples are guarantees of debts of other units and the obligations of social security schemes. Corporation. A legal entity created for the purpose of producing goods or services for the market that may be a source of profit or other financial gain to its owners. A corporation is collectively owned by shareholders who have the authority to appoint directors responsible for its general management. Cost of goods sold: Cost of inventory items sold to customers. It may consist of several cost components, such as merchandise purchase costs, freight, and manufacturing costs. Counterparty. (1) The second unit in a two-unit transaction. (2) The second unit in a financial claim (either the debtor or the creditor). Credit. (1) One of two equal-valued entries required by the double-entry accounting system to record a flow. A credit entry is a decrease in an asset, an increase in a liability, or an increase in net worth. A revenue entry refers to an increase in net worth and is recorded as a credit. (2) The provision of resources by one institutional unit (the creditor or lender) to another unit (the debtor or borrower). (3) An amount deductible from the tax that otherwise would be payable (a tax credit). (4) A method of using transferable deposits to make a direct third-party payment (payment by direct debit or credit). Creditor. The owner of a financial claim. Credit memo: Writing off all or part of a customer's account balance. A credit memo is required, when a customer who bought merchandise on account returned some merchandise, or overpaid on their account. Currency. The notes/ coins in circulation that are used to make payments. Current assets: Assets that are in the form of cash or will generally be converted to cash or used up within one year. Examples are accounts receivable and inventory. Current grant. A noncompulsory transfer from one government unit or international organization to a second government unit or international organization made for purposes of current expense. It is not linked to or conditional on the acquisition of an asset by the recipient. Also, any grant that is not a capital grant. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das Current liabilities: Liabilities payable within one year. Examples are accounts payable and payroll taxes payable. Current market price (value). The market price (value) on the date for which a stock or flow is recorded. See market price (value). Current transfer. Any transfer that is not a capital transfer. See transfer and capital transfer. Debit. One of two equal-valued entries required by the double-entry accounting system to record a flow. A debit is an increase in an asset, a decrease in a liability, or a decrease in net worth. An expense refers to a decrease in net worth and is recorded as a debit. Debit memo: Billing a customer again. A debit memo would be required, for example, when a customer has made a payment on their account by check, but the check bounced. Debt assumption. The acceptance by one unit of responsibility for the debt of another unit, including the assumption of a guaranteed debt when the creditor invokes the contract conditions permitting the guarantee to be called. Debt cancellation. See debt forgiveness. Debt forgiveness. The cancellation of a debt (or part of a debt) by mutual agreement between a creditor and debtor. Debt repudiation. The unilateral cancellation of debt by a debtor. Debt repudiation is not regarded as an economic flow and is not recorded in the GFS system. Debt rescheduling. A bilateral arrangement to alter the dates for servicing an existing debt, usually on terms more favorable for the debtor and possibly with partial debt forgiveness, including extending repayment schedules, extending grace periods for interest and principal payments, or rescheduling debt service payments that are in arrears. See also debt restructuring. Debt restructuring. A bilateral arrangement to alter the terms for servicing an existing debt, often on more favorable terms for the debtor and possibly with partial debt forgiveness. In addition to debt rescheduling, debt restructuring can include the replacement of the existing debt with a new debt. See also debt rescheduling. Debt write-down. A unilateral reduction by a creditor in the value of a financial asset because its value cannot be collected completely. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das Debt write-off. A unilateral elimination of a financial asset by a creditor because it cannot be collected. A unilateral write-off by a debtor (debt repudiation) is not recognized in the GFS. Debt. Any liability that requires a payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. All liabilities in the GFS system are debt except for shares and other equity and financial derivatives. Debt-for-equity swap. The exchange of a debt instrument (or part of a debt instrument) for shares and other equity issued by the same debtor. Debtor. The unit required to make payments in accordance with the terms and conditions specified in a contract underlying a financial claim. Defined-benefit scheme. A retirement scheme in which the benefits are guaranteed by the employer. The amounts of the benefits usually are determined by a formula based on the participants’ length of service and salary. Defined-contribution scheme. A retirement scheme in which the level of contributions by the employer is guaranteed, but the benefits that will be paid depend on the assets of the fund. Demonetization of gold. See monetization of gold. Depletion. The decline in the value of a subsoil asset, non-cultivated biological resource, or water resource because a portion of the asset has been extracted. Deposit. A financial asset that has a fixed nominal value, and can be used to make payments or as a medium of exchange. It may earn interest or entitle the deposit holder to specific services. Depreciation. An expense item in accounting that corresponds to consumption of fixed capital in the GFS. It is normally calculated using the original costs of fixed assets, while consumption of fixed capital is calculated using the average prices of the assets in the current period. Derivative. See financial derivative. Derived measure. An analytic tool that summarizes the values of selected flows or stocks that have been individually recorded in the GFS system. Derived measures consist of aggregates and balancing items. Discount factor. A number used to convert a future cash flow, such as a debt payment, to its present value. Normally, a discount factor is estimated as the amount that would have to be invested now, at an appropriate interest rate given Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das the risk associated with the future cash flow, to generate an amount equal to the future cash flow. Discount rate. The interest rate used to estimate a discount factor. Disposal of an asset. Any transaction other than consumption of fixed capital that decreases a unit’s holdings of assets. Dividend. A distribution of profits by a corporation to its shareholders or other owners, including profits of a central bank transferred to a government unit, profits derived from the operation of monetary authority functions outside the central bank, and profits transferred by state lotteries. Domestic. Pertaining to a resident, as in classifications of transactions and stocks for which the counterparty is a resident. Double-entry accounting. A system used for recording flows. Each flow is recorded with two equal-valued entries, referred to as a credit entry and a debit entry. A debit is an increase in an asset, a decrease in a liability, or a decrease in net worth. A credit is a decrease in an asset, an increase in a liability, or an increase in net worth. Drawing account: A general ledger account used by sole proprietorships and partnerships to keep track of amounts drawn out of the business by an owner. Due-for-payment basis of recording. A recording system in which the time assigned to flows that give rise to cash payments is the latest time they can be paid without incurring additional charges or penalties or, if sooner, when the cash payment is made. Nonmonetary flows may or may not be recorded. Economic asset. Any asset recorded in the GFS system. Economic classification. The classification used to identify the types of expense incurred when a Government supplies goods and services to the community or redistributes income and wealth. Employer social benefit. A social benefit provided by an employer social insurance scheme. Employer social contribution. A social contribution by an employer to a social insurance scheme. See social contribution and social insurance scheme. Employer social insurance scheme. A social insurance scheme in which an employer provides social insurance benefits to its employees, former employees, or their beneficiaries.

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Glossary for Accrual Accounting and GFS – Tarun Das Equity: The net worth of your company. Also called owner's equity or capital. Equity comes from investment in the business by the owners, plus accumulated net profits that have not been paid out to the owners. Equity accounts are balance sheet accounts. Expenditure. Total expense plus the net acquisition of nonfinancial assets. Expense. A transaction that results in a decrease in net worth. Expense accounts: These are the accounts used to keep track of the costs of doing business: where money goes. Examples are advertising, payroll taxes, and wages. Expenses are income statement accounts. External debt. Debt owed by a resident to a nonresident. Extra budgetary unit. A government unit not financed by the legislative budget of the controlling government. Financial asset. A financial claim, monetary gold, or a Special Drawing Right. Financial claim. An asset that entitles one unit, the owner of the asset and the creditor, to receive one or more payments from a second unit, the debtor, according to the terms and conditions specified in a contract between the two units. See liability. Financial corporations sector. The group of units consisting of all corporations, quasi-corporations, and market nonprofit institutions principally engaged in financial intermediation or in auxiliary financial activities closely related to financial intermediation. Financial derivative. A financial instrument that is linked to a specific financial instrument, indicator, or commodity, and through which specific financial risks can be traded in financial markets Financial instrument. The contract underlying a financial claim. Normally a financial instrument is created when one unit provides funds to a second unit and the second unit agrees to repay the funds in the future. Financial lease. An arrangement for financing acquisitions of fixed assets. It is a contract between a lessor and a lessee whereby the lessor owns a fixed asset and puts it at the disposal of the lessee, and the lessee contracts to pay rentals that permit the lessor to recover all or almost all of its costs, including interest. As a result, the risks and rewards of ownership pass from the lessor to the lessee, and a change of ownership from the lessor to the lessee is deemed to take place. See operating leasing. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das Financial transaction. A transaction involving the acquisition or disposal of a financial asset. Financing. The net result of transactions in financial assets and liabilities. It equals net lending/borrowing with the opposite sign. Fine. A compulsory current transfer imposed on a unit by a court of law or quasijudicial body for violations of laws or administrative rules. Out-of-court agreements are also included. Synonymous with penalty. Fiscal balance. See overall fiscal balance. Fiscal burden. The amount of compulsory transfers imposed by units of the general government sector on the rest of the economy. It can be approximated by the sum of tax revenue and compulsory social security a supranational organization also imposes compulsory transfers, they may need to be added. Fines, penalties, and forfeits are compulsory transfers but are not normally part of the fiscal burden. Fixed asset. A produced asset that is used repeatedly or continuously in processes of production for more than one year. Foot: To total the amounts in a column, such as a column in a journal or a ledger. Foreign. Pertaining to a nonresident, as in classifications of transactions and stocks for which the counterparty is a nonresident. Synonymous with abroad. Functional classification. The classification used to identify the purpose, or socioeconomic objective, for which an expense was incurred or a nonfinancial asset was acquired. Funded social insurance scheme. A social insurance scheme with identifiable reserves or accounts assigned for the payment of benefits. General government sector. The group of units consisting of all resident government units and all resident nonmarket nonprofit institutions that are controlled and mainly financed by resident government units. General government unit. A government unit or a nonmarket nonprofit institution controlled and mainly financed by government units. General ledger: A general ledger is the collection of all balance sheet, income, and expense accounts used to keep the accounting records of a business.

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Glossary for Accrual Accounting and GFS – Tarun Das Government final consumption expenditure. A national accounting concept that is not measured directly in the GFS system. It consists of expenditures on goods and services that are used (without further transformation) for the satisfaction of individual or collective human needs or wants. Its value can be approximated in the GFS system by compensation of employees plus the use of goods and services plus consumption of fixed capital minus the sales of goods and services plus purchases for direct transfer to households. Government unit. An institutional unit that carries out the functions of government as its primary activity. Government. The public authorities of a country and their agencies, which are entities established through political processes that exercise legislative, judicial, and executive authority within a territorial area. The principal economic functions of a government are (1) to assume responsibility for the provision of goods and services to the community on a nonmarket basis, either for collective or individual consumption, and (2) to redistribute income and wealth by means of transfer payments. An additional characteristic of government is that these activities must be financed primarily by taxation or other compulsory transfers. Grant. A noncompulsory transfer from one government unit or international organization to a second government unit or international organization. Gross debt position. The sum of all liabilities except shares and other equity and financial derivatives. Gross investment. The net value of acquisitions less disposals of nonfinancial assets. Gross operating balance. Revenue minus expense other than consumption of fixed capital. Also the net operating balance plus consumption of fixed capital. Gross saving. The gross operating balance minus net capital transfers receivable. Historic monument. A structure or site of special archaeological, historic, or cultural significance. General government units typically use historic monuments to produce cultural or entertainment-type services. Holding gain or loss. A change in the monetary value of an asset or liability resulting from a change in the level and structure of prices, assuming that the asset or liability has not changed qualitatively or quantitatively. Holding gains and losses can apply to all assets and liabilities and, in the case of assets and liabilities expressed in a foreign currency, include gains and losses resulting from changes in exchange rates. Also known as a revaluation.

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Glossary for Accrual Accounting and GFS – Tarun Das Holding gain. Short for holding gain or loss. Household. A person or small group of persons who share the same living accommodation, pool some or all of their income and wealth, and consume certain types of goods and services collectively, mainly housing and food. Households sector. The group of units consisting of all resident households. Imputed social contribution [GFS]. The value that would be needed to secure the de facto entitlement to social benefits when a government unit provides social benefits directly to their employees, former employees, or dependents out of their own resources without involving an insurance enterprise or an autonomous or non-autonomous pension fund. Income accounts: These are the accounts maintained to keep track of sources of income. Examples are merchandise sales, consulting revenue, and interest income. Income statement: Also called a profit and loss statement or a "P&L." It lists income, expenses, and net profit (or loss) which equals income minus expenses. Incurrence of a liability. A transaction that increases a unit’s liabilities. In-kind transaction. See non-monetary transaction. Institutional unit. An economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities. Insurance technical reserves. Either the net equity of a unit in pension schemes and life insurance reserves (households only), prepaid non-life insurance premiums, and reserves against outstanding claims or the net liability of a unit operating an insurance or pension scheme for the same items. Intangible nonproduced asset. A construct of society evidenced by legal or accounting actions, including patented entities, leases and other contracts, and purchased goodwill. Some entitle their owners to engage in certain specific activities or to produce certain specific goods or services and to exclude other units from doing so except with the permission of the owner. The owners of the assets may be able to earn monopoly profits by restricting the use of the assets. Interest [GFS]. The expense that a debtor incurs for the use of the principal outstanding, which is the economic value that has been provided by the creditor. Interest accrues continuously over the period that the liability exists. The rate at which interest accrues may be stated as a percentage of the outstanding Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das principal per time period, a predetermined sum of money, a variable sum of money dependent on a defined indicator, or some combination of these methods. Internal transaction. An event involving a single unit acting in two different capacities that is analytically useful to treat as a transaction. International organization. An institutional unit whose membership consists entirely of national states or other international organizations whose members are national states. Their authority derives directly from the national states that are members or indirectly from the national states that are members of the other international organizations. International organizations are established by formal political agreements between members, have sovereign status, and are not subject to the laws or regulations of the country, or countries, in which they are located. All supranational authorities are international organizations. International organizations sector. The group of units consisting of all international organizations, all of which are nonresidents. International reserves. Those external assets that are available to and controlled by the monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of such imbalances through intervention in exchange markets to affect the currency exchange rate, and for other purposes. Reserve assets consist of currency, deposits, securities denominated in foreign currencies, monetary gold, SDRs, and the nation’s reserve position in the IMF. Inventories. Goods and services held by producers for sale and use in production at a later date. Journal: The chronological, day-to-day transactions of a business are recorded in sales, cash receipts, and cash disbursements journals. A general journal is used to enter period end adjusting and closing entries and other special transactions not entered in the other journals. In a traditional, manual accounting system, each of these journals is a collection of multi-column spreadsheets usually contained in a hardcover binder. Land. The ground itself, including the soil covering, associated surface water, and major improvements that cannot be physically separated from the land, but excluding buildings and other structures constructed on the land or through it, such as roads, office buildings, and tunnels, cultivated vineyards, orchards, other plantations of trees, animals, crops, subsoil assets, non-cultivated biological resources, and water resources below the ground. Liability. An obligation to provide economic benefits to the unit holding the corresponding financial claim. When a financial claim is created, a liability of equal value is simultaneously incurred by the debtor as the counterpart of the Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das financial asset. The payments that the creditor has a contractual right to receive are also the payment or payments that the debtor is contractually obligated to provide. See financial claim. Liquidation of a liability. A transaction that decreases a unit’s liabilities. Loan. A financial instrument that is created when a creditor lends funds directly to a debtor and receives a nonnegotiable document as evidence of the asset. Local government subsector. The group of units consisting of all general government units belonging to or controlled and mainly financed by a local government and any institutional units that are responsible to two or more local governments. Local government. A government whose legislative, judicial, and executive authority is restricted to the smallest geographic areas distinguished for administrative and political purposes. Such governments may or may not be entitled to levy taxes on institutional units or economic activities taking place in their areas. Long-term liabilities: Liabilities that are not due within one year. An example would be a mortgage payable. Market establishment. An establishment that sells or otherwise disposes of all or most of its output at economically significant prices. See economically significant price. Market output. Goods and services that are sold at economically significant prices, otherwise disposed of on the market, or intended for sale or disposal on the market. Market price/ value. The amount for which goods, assets other than cash, services, labor, or the provision of capital are in fact exchanged or could be exchanged for cash. Market producer. A unit that markets its entire output, where market output includes output in the form of own-account capital formation. Merchandise inventory: Goods held for sale to customers. Monetary gold. Gold coins, ingots, and bars with a purity of at least 995/1000 that are (1) owned by units performing monetary authority functions and (2) a part of the official reserve assets. Monetary public corporation. A resident depository corporation controlled by a general government unit. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

Monetary transaction. A transaction in which one unit makes a payment or incurs a liability stated in units of currency and the second unit receives the payment or another asset, also stated in units of currency. Monetization of gold: The reclassification of non-monetary gold to be monetary gold by the monetary authority. Mutual agreement. An action taken with prior knowledge and consent by two units, but not necessarily entered into voluntarily. Naturally occurring asset. See tangible nonproduced asset. Net acquisition of assets. Total acquisitions of assets less total disposals. Net financial wealth. See net financial worth. Net financial worth. The total value of all financial assets minus the total value of all liabilities. Net income: Called profit or net profit and equals income minus expenses. Net income is the bottom line of the income statement (also called the profit and loss account). Net incurrence of liabilities. Total incurrence of liabilities from transactions minus total reductions of liabilities from transactions. Net lending/borrowing. The net acquisition of all financial assets from transactions minus the net incurrence of all liabilities from transactions. Equally, it is the net operating balance minus the net acquisition of nonfinancial assets. Net operating balance. Revenue minus expense. It measures the change in net worth resulting from transactions. Net saving. Gross saving less consumption of fixed capital. Net wealth. See net worth. Net worth. The total value of all assets minus the total value of all liabilities. Nominal holding gain. See holding gain or loss. Nominal value of debt. The amount that a debtor owes to a creditor at any moment. It reflects the value of the instrument at creation and subsequent economic flows, such as transactions, valuation changes (excluding market price changes), and other changes, such as debt forgiveness. It is equal to the Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das required future payments of principal and interest discounted at the existing contractual interest rate. Non-autonomous pension fund. An employer social insurance scheme providing retirement benefits in which the employer has established segregated reserves, but the organization and operations of the scheme do not qualify as an institutional unit. All of the assets, liabilities, transactions, and other events of the pension fund are included among corresponding items of the employer operating the scheme. Nonfinancial asset. Any asset other than a financial asset. Nonfinancial assets consist of fixed assets, inventories, valuables, and nonproduced assets. Most nonfinancial assets provide benefits either through their use in the production of goods and services or in the form of property income. Nonfinancial corporations sector. The group of units consisting of all resident institutional units created for the purpose of producing goods and nonfinancial services for the market. Nonfinancial public corporations subsector. The group of units consisting of all resident nonfinancial corporations controlled by general government units. Nonfinancial public sector. The group of units consisting of all units of the general government sector plus all resident nonfinancial public corporations. Nonmarket establishment. An establishment that does not sell or otherwise dispose of all or most of its output at economically significant prices. Nonmarket nonprofit institution. A nonprofit institution that provides nonmarket goods or services to households. Nonmarket output. Goods and services that are supplied free or at prices that are not economically significant to other institutional units or the community as a whole. Nonmarket producer. A unit that mainly supplies goods or services free or at prices that are not economically significant to households or the community as a whole. These producers may have some sales of market output as a secondary activity. Nonmonetary financial public corporation. Any financial corporation controlled by general government units except the central bank and other public depository corporations.

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Glossary for Accrual Accounting and GFS – Tarun Das Nonmonetary public sector. The group of units consisting of nonfinancial public corporations, non-monetary financial public corporations, and the general government sector. Nonmonetary transaction. Any transaction that is not a monetary transaction. See monetary transaction. Nonproduced asset. An asset needed for production that has not itself been produced. Nonprofit institution. A legal or social entity created for the purpose of producing or distributing goods and services, but is not capable of being a source of income, profit, or other financial gain for the institutional units that established, control, or finance it. Nonprofit institutions serving households sector. The group of units consisting of all resident nonmarket nonprofit institutions, except those controlled and mainly financed by government. Non-recurrent tax. A tax that is levied once or at irregular intervals. See recurrent tax. Nonresident. An institutional unit that does not have a center of economic interest within the economic territory of a country. See resident. Obligations for social security benefits. Social security benefits that have already been earned according to the existing laws and regulations but are payable in the future. Operating leasing. A productive activity that involves renting fixed assets for terms less than the expected service lives of the assets. The lessor provides a service to the lessee in exchange for the lease payments. See financial lease. Other accounts receivable/payable. A category in the GFS classification of financial assets and liabilities. It consists of trade credits, advances, and miscellaneous other items due to be received or paid and not included in any other category of financial assets and liabilities. This category includes accrued but unpaid taxes, dividends, purchases and sales of securities, rent, wages and salaries, social contributions, and social benefits. Other changes in the volume of assets. Any change in the value of an asset or liability that does not result from a transaction or a holding gain or loss. Other economic flow. A change in the volume or value of an asset or liability that does not result from a transaction.

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Glossary for Accrual Accounting and GFS – Tarun Das Other volume change. See other changes in the volume of assets. Output. The value of goods and services produced within a unit by processes of production. It is a national accounting concept that is not measured directly in the GFS system. Overall fiscal balance. Net lending/borrowing adjusted through the rearrangement of transactions in assets and liabilities that are deemed to be for public policy purposes. Notably, all proceeds under privatization would be included as financial items; and subsidies given in the form of loans would be recognized as an expense. Overall primary balance. The overall fiscal balance plus net interest expense. Own-account capital formation. The production of nonfinancial assets by a unit for its own use. Partnership: An unincorporated business with two or more owners. Partitioning. The division of a single transaction as viewed by the parties involved into two or more transactions for recording in the GFS system. Payments in kind. A payment made in the form of goods, services, or non-cash assets. Penalty. See fine. Pension fund. A fund established for the purpose of providing benefits on retirement for specific groups of workers, dependents, and other beneficiaries. A pension fund can be a separate institutional unit (an autonomous pension fund) or the assets, liabilities, transactions, and other events of the pension fund may be included among the corresponding items of the employer operating the scheme (a non-autonomous pension fund). Pension scheme. A social insurance scheme for providing pensions to a designated group of people, usually workers, their dependents, and other beneficiaries. Pension. A fixed sum paid regularly to a person, normally following retirement. The person may be the retiree, a dependent, or another beneficiary. Perpetual inventory method. A method commonly used to estimate the writtendown replacement cost of a category of assets, especially tangible fixed assets. With this method, the value of the assets is based on estimates of acquisitions and disposals that have been accumulated (after deduction of the accumulated

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Glossary for Accrual Accounting and GFS – Tarun Das consumption of fixed capital, amortization, or depletion) and revalued over a long enough period to cover the acquisition of all assets in the category. Post: To summarize all journal entries and transfer them to the general ledger accounts. This is done at the end of an accounting period. Prepaid expenses: Amounts you have paid in advance to a vendor or creditor for goods or services. A prepaid expense is actually an asset of your business because your vendor or supplier owes you the goods or services. An example would be the unexpired portion of an annual insurance premium. Prepaid income: Also called unearned revenue, represents money received in advance for providing a service to customer. Prepaid income is actually a liability of business because it still owes the service to the customer. An example would be an advance payment for some consulting services to be performed in the future. Present value. The current value of a future cash flow, normally determined by dividing the future cash flow by a discount factor. Primary operating balance. The net operating balance plus net interest expense. See net operating balance. Principal outstanding. The economic value that has been provided by a creditor to a debtor. Privatization. The disposal to private owners by a government unit of the controlling equity of a public corporation or quasi-corporation. Produced asset. A nonfinancial asset that has come into existence as the output from a production process. Profit and loss statement (P&L): An income statement that lists income, expenses, and net profit (or loss). The net profit (or loss) equals income minus expenses. Property expense attributed to insurance policyholders. The expense of a unit operating an insurance or retirement scheme attributed to its liability for insurance technical reserves. See property income attributed to insurance policyholders. Property expense. The expense payable by one unit to a second unit for the use of a financial asset or tangible nonproduced asset owned by the second unit. See property income.

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Glossary for Accrual Accounting and GFS – Tarun Das Property income [GFS]. The income received when a unit places a financial asset or a tangible nonproduced asset that it owns at the disposal of another unit. Interest, dividends, withdrawals from income of quasi-corporations, property income attributed to insurance policyholders, and rent are the types of property income recognized in the GFS system. Property income attributed to insurance policyholders. The income received from a unit’s investment in the financial asset, insurance technical reserves. Insurance technical reserves consist of prepayments of non-life insurance premiums, reserves against outstanding claims, and actuarial reserves against outstanding risks associated with life insurance policies and retirement schemes. These reserves are considered to be assets of the policyholders or their beneficiaries. The income generated by insurance technical reserves is classified as property income attributed to insurance policyholders. Proprietorship: An unincorporated business with only one owner. Provincial government. See state government. Public corporation. A corporation owned or controlled by government units. Public nonfinancial corporation. A corporation that produces goods and/or nonfinancial services for the market and is owned or controlled by government units. Public sector. The group of units consisting of all units of the general government sector plus all public corporations. Quasi-corporation. An entity that is not incorporated or otherwise legally established, but which functions as if it were a corporation. Real holding gain. The value accruing to an asset as a result of a change in its price relative to the prices of goods and services in general. An increase in the relative price of an asset leads to a positive real holding gain and a decrease in the relative price of an asset leads to a negative real gain, otherwise called a real holding loss. The reverse is true for liabilities. Reassignment. Reclassification of a transaction when one unit acts as an agent for another unit. Recording basis. The set of guidelines that determines the time assigned to flows and, in some cases, the types of flows that are recorded. See accrual basis of recording, cash basis of recording, commitments basis of recording, and duefor-payment basis of recording.

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Glossary for Accrual Accounting and GFS – Tarun Das Recurrent tax. A tax that is levied regularly rather than once or at irregular intervals. See non-recurrent tax. Regional central bank. An international financial organization that acts as a common central bank for a group of member countries. It has its headquarters in one country and usually maintains national offices in each of the member countries. The headquarters is an international organization. Each national office acts as the central bank for that country and is treated as a resident institutional unit in that country. Regional government. See state government. Remuneration in kind. A transaction in which an employer compensates an employee with goods, services, or assets other than money. Rent. The property income or expense accrued with respect to certain leases of land, subsoil assets, and other naturally occurring assets. Rent accrues continuously to the asset’s owner throughout the period of the contract. Rental. A payment for services produced by lessors of produced assets and provided to the lessees. Payments by lessees of nonproduced assets are rent rather than rentals because lessors of these assets are not considered to be engaged in a productive activity. Repayment of a liability. A transaction that decreases a unit’s liabilities. Synonymous with liquidation of a liability. Rerouting. Reformulation of a transaction when a unit that is in fact a party to a transaction does not appear in the actual accounting records because of administrative arrangements. Reserve for bad debts: Also called allowance for bad debts, it is an estimate of uncollectable customer accounts. It is known as a "contra" account because it is listed with the assets, but it will have a credit balance instead of a debit balance. For balance sheet purposes, it is a reduction of accounts receivable. Resident. An institutional unit with a center of economic interest in the economic territory. Retained earnings: Profits of the business that have not been paid to the owners; profits that have been "retained" in the business. Retained earnings are an "equity" account that is presented on the balance sheet and on the statement of changes in owners' equity. Retirement benefit. A social benefit paid to retirees and their dependents or other beneficiaries, usually in the form of a pension or health services. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

Retirement scheme. A social insurance scheme that provides retirement benefits. Revaluation. See holding gain or loss. Revenue. A transaction that results in an increase in net worth. Royalties. A name often given to payments with respect to a lease for the extraction of subsoil assets owned by another unit. In the GFS system, these payments are classified as rent. Saving. See gross saving and net saving. Sector. A group of resident institutional units that have similar objectives. Securities other than shares. Negotiable financial instruments serving as evidence that units have obligations to settle by means of providing cash, a financial instrument, or some other item of economic value. The security normally specifies a schedule for interest payments and repayments of principal. Severance. (1) A tax imposed on the extraction of minerals and fossil fuels. (2) A payments to workers/ survivors, who lose their jobs because of redundancy, incapacity, or accidental death. Shares/ other equity. Instruments and records acknowledging, after the claims of all creditors have been met, claims on the residual value of a corporation. Most equity securities do not provide the right to a predetermined income or to a fixed sum on dissolution of the corporation. Ownership of equity is usually evidenced by shares, stocks, participations, or similar documents. Social assistance benefit. A social benefit paid by a social assistance scheme. Social assistance benefits do not include payments made in response to events or circumstances that are not normally covered by social insurance schemes, such as natural disasters. See social protection scheme and social benefit. Social assistance scheme. A noncontributory social protection scheme. Social benefit [GFS]. A payment, in cash or in kind, to protect the entire population, or specific segments of it, against certain social risks Examples of social benefits are the provision of medical services, unemployment compensation, and social security pensions. See social risk. Social contribution [GFS]. A payment to a social insurance scheme by the insured persons or by other parties on their behalf in order to secure entitlement to the social benefits of the scheme. The contributions may be compulsory or Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das voluntary. A general government unit can pay social contributions on behalf of its employees (an expense) or receive social contributions as the operator of a social insurance scheme (either revenue or the incurrence of a liability). Social insurance benefit. A social benefit paid by a social insurance scheme. See social protection scheme and social benefit. Social insurance scheme. A contributory social protection scheme. Social protection scheme. A systematic framework for providing interventions intended to relieve households and individuals of the burden of a defined set of social risks. See social risk. Social risk. An event or circumstance that may adversely affect the welfare of households either by imposing additional demands on their resources or by reducing their incomes. Social security benefit. A social benefit paid by a social security scheme. Social security contribution. A payment to a social security scheme by the insured persons or the employers to secure entitlement to the social security benefits of the scheme, provided the contributions are determined as a function of earnings, payroll, or the number of employees. Payments by self-employed persons determined using self-employment income as a proxy for gross wages are also treated as social security contributions. Social security contributions may be compulsory or voluntary. A general government unit can pay social security contributions on behalf of its employees (an expense) or receive social security contributions as the operator of a social security scheme (revenue). Social security fund. A government unit devoted to the operation of one or more social security schemes. To satisfy the general requirements of an institutional unit, the fund must be separately organized from the other activities of government units, hold its assets and liabilities separately, and engage in financial transactions on its own account. Social security scheme. A social insurance scheme that is imposed, controlled, and financed by a government unit and covers the entire community or large sections of it. Social security subsector. Group consisting of all social security funds. Sole proprietorship: An unincorporated business with only one owner. Special Drawing Right (SDR). An international reserve asset created by the IMF and allocated to its members to supplement existing reserve assets. SDRs are held only by the monetary authorities of IMF member countries and a limited Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das number of authorized international financial institutions. An SDR represents an unconditional right to obtain foreign exchange or other reserve assets from other IMF members. It is a financial asset for which there is no corresponding liability, and the members to whom they have been allocated do not have an unconditional liability to repay their SDR allocations. State government subsector. The group consisting of all general government units belonging to or controlled and mainly financed by a state government and any institutional units responsible to two or more state governments. State government. The government whose legislative, judicial, and executive authority extends over the entire territory of a state, which is the largest geographical area into which the country as a whole may be divided for political or administrative purposes. A state may be described by other terms, such as a province or region. The authority of a state government does not extend over other states. A state government usually has the fiscal authority to levy taxes on institutional units that are resident in or engage in economic activities in its area of competence. Statement of Government Operations. A summary of all transactions of the general government sector in a given accounting period. They are classified as revenue, expense, net acquisitions of nonfinancial assets, net acquisitions of financial assets, or net incurrences of liabilities to demonstrate the effect of fiscal policy on the net worth of the general government sector, on its demand for credit, and on its holdings of assets and liabilities. Statement of Other Economic Flows. A summary of changes to government’s net worth that are not the result of transactions. The changes are classified as changes either in the value or volume of assets, liabilities, and net worth. Statement of Sources and Uses of Cash. A summary of government’s cash inflows and outflows. It shows the total amount of cash generated or absorbed by current operations, transactions in nonfinancial assets, and transactions involving financial assets and liabilities other than cash itself. The net change in the government’s cash position is the sum of the net cash received from these three sources. Stock. The value of a unit’s holdings of a type of asset or liability at a specific time. Strategic stock. A government’s stocks of goods held for strategic and emergency purposes, goods held by market regulatory organizations, or other commodities of special importance. Subsector. A group of institutional units that are all members of the same sector.

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Glossary for Accrual Accounting and GFS – Tarun Das Subsidy. An unrequited payment by a government unit to an enterprise based of the level of its production activities or the quantities or values of goods or services it produces, sells, exports, or imports. Subsidies may be designed to influence levels of production, the prices at which outputs are sold, or the remuneration of the enterprises. Included are transfers to public corporations and other enterprises that are intended to compensate for operating losses. Supranational authority. An international organization endowed with the authority to tax or imposes other compulsory contributions within the territories of the countries that are members of the authority. It is not a resident of any country. Tangible nonproduced asset. A naturally occurring asset over which ownership rights are enforced. Included are land, subsoil mineral deposits, fish in open but territorial waters, and the electromagnetic spectrum. Tax assessment. An estimate, made by the taxpayer or the tax authority, of tax due. Tax credit. An amount deductible from the tax that otherwise would be payable. Tax liability. The amount of tax owed by a taxpayer. Tax refund. Repayment by the tax authority of tax overpayments. Tax. A compulsory transfer to the general government sector. Certain compulsory transfers, such as fines, penalties, and social security contributions, are excluded. Refunds and corrections of erroneously collected tax revenue are treated as negative taxes. Fees that are clearly out of all proportion to the costs of providing services are included. Transaction. An interaction between two units by mutual agreement or an action within a unit that is analytically useful to treat as a transaction. Transfer transaction. A transaction in which one unit provides a good, service, asset, or labor to another unit without receiving a good, service, asset, or labor of any value in return. Trial balance: A trial balance is prepared at the end of an accounting period by adding up all the account balances in your general ledger. The debit balances should equal the credit balances. Unearned revenue: Also called prepaid income, it represents money received in advance for providing a service to customer. It is actually a liability of a business because it still owes the service to the customer. An example would be an

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Glossary for Accrual Accounting and GFS – Tarun Das advance payment received for some consulting services which will be performed in the future. Unfunded social insurance scheme. A social insurance scheme without identifiable reserves or accounts assigned for the payment of benefits. Unit. See institutional unit. Use of goods and services. The value of goods and services used by government for the production of other goods and services, with the exception of goods and services used in the production of assets as own-account capital formation. Also included is the value of goods purchased for resale less the net change in inventories of work in progress, finished goods, and goods held for resale. The value of goods and services acquired for in-kind transfers to households or as grants are excluded because they are not used in a production process. Valuables. Produced goods of considerable value that are acquired and held primarily as stores of value and not used primarily for purposes of production or consumption. Wages and salaries [GFS]. All compensation of employees except for social contributions by employers. Included are payments in cash or in kind. Social contributions paid by deduction from employees’ wages and salaries are included in wages and salaries. Excluded are reimbursements of expenditures made by employees in order to enable them to take up their jobs or to carry out their work, such as expenditures on tools, equipment, special clothing, or other items that are needed exclusively or primarily to enable them to carry out their work. Also excluded are social benefits paid by employers. See compensation of employees. Work-in-progress inventories. Goods and services that have been partially processed, fabricated, or assembled by the producer but that are not usually sold, shipped, or turned over to others without further processing and whose production will be continued in a subsequent period. Written-down replacement cost. The initial acquisition cost of an asset plus an appropriate revaluation for subsequent price changes, minus an allowance for consumption of fixed capital, amortization, or depletion.

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Glossary for Monetary and Financial Statistics Accrued interest This is the interest that has been earned by an investor but not become due for payment to the investor. Bond buyers pay bond sellers accrued interest whenever a bond is purchased. Thus, if a bond were sold between its semiannual interest payment dates, the purchaser would pay the market price of the bond plus the appropriate fraction of the accrued coupon interest earned but not yet received by the party selling the bond. The amount of accrued interest helps determine the price of a bond. Annuity An equal amount paid every year in lieu of a lump sum payment for a certain fixed period or for life. Some investment schemes offered by commercial banks, Life Insurance companies, investment companies, Unit Trusts offer annuity payments. Auction Auction is a process of calling of bids with an objective of arriving at the market price. It is basically a price discovery mechanism. There are several variants of auction. Auction can be price based or yield based. In securities market we come across below mentioned auction methods. •

French Auction System: After receiving bids at various levels of yield expectations, a particular yield level is decided as the coupon rate. Auction participants who bid at yield levels lower than the yield determined as cut-off get full allotment at a premium. The premium amount is equivalent to priceequated differential of the bid yield and the cut-off yield. Applications of bidders who bid at levels higher than the cut-off levels are out-right rejected. This is primarily a Yield based auction.

•

Dutch Auction Price: This is identical to the French auction system as defined above. The only difference being that the concept of premium does not exist. This means that all successful bidders get a cut-off price, say US$100, and do not need to pay any premium irrespective of the yield level bid for.

•

Private Placement: After having discovered the coupon through the auction mechanism, if on account of some circumstances the Government / Central Bank decides to further issue the same security to expand the outstanding quantum, the government usually privately places the security with Central Bank, who in turn may sell these securities at a later date through their open

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Glossary for Accrual Accounting and GFS – Tarun Das market window albeit at a different yield. Commercial banks and corporate bodies may also undertake private placements of their shares with permission from the regulatory authority. •

On-tap issue: Under this scheme of arrangements after the initial primary placement of a security, the issue remains open to yet further subscriptions. The period for which the issue remains open may be sometimes time specific or volume specific

Bank Credit Commercial banks predominantly provide short term credit for financing working capital needs, although, some of the larger universal banks may aggressively provide term loans. The various types of advances provided by the commercial banks are cash credits, overdrafts, demand loans, purchase and discount of commercial bills and installment or hire purchase credit. Basis Points (bps) One basis Point is 1/100th of 1 % point i.e. 100 basis point will make 1% point. It is used to measure changes in yields of a bond. For example, if a bond yielding 6.09% changes in price to yield 6.20%, it is said to have increased 11 basis points. Basis points (bps) are commonly referred to as "beeps". Bank Rate The minimum rate at which the Central Bank makes short-term advances (usually for overnight) to the commercial banks. Bill of exchange (BOE) A bill of exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Bond Rating Bond rating is a measure of expected performance, quality and safety of a bond issue. Domestic as well as international credit rating organisations provide primary rating service in a country. Bridge Loan

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Glossary for Accrual Accounting and GFS – Tarun Das Bridge Loans are given at the time when the entities come out (or want to come out) with a public offer in the capital market, but need financing for Covering the cost of issues and for Using the loan proceeds as a bridge for the funds that are obtained only after the public issue gets completed.

Cash Reserve Ratio (CRR) CRR is the statutory reserve that has to be maintained by banks either in cash or as balance with the Central Bank. CRR is intended to be a reserve by which the Central Bank assures itself that the bank is safe and has the liquidity for servicing its depositors. In India, as per Section 42 of the Reserve Bank of India (RBI) Act, RBI is allowed to announce any level of CRR depending on the market conditions within a certain band, the minimum being 3% and the maximum 15%. Constituent Account Scheduled commercial banks and Financial Institutions are allowed to directly participate in the Subsidiary General Ledger (SGL) account being maintained by the Central Bank. All other entities may indirectly participate in the securities market by opening a constituent account with any of the direct SGL participants. Coupon Bonds typically pay interest periodically at the pre specified rate of interest. The annual rate at which the interest is paid is known as the coupon rate or simply the coupon. Interest is usually paid every half-year though some bonds pay interest monthly, quarterly, annually or at some other frequency. The dates on which the interest payments are made are known as the coupon due dates. Convexity The convexity of a bond measures the curvature of the price/yield relationship of a bond's cash flows. The larger the convexity, the steeper the curvature of the price/yield curves. This behavior is more evident for large changes in yield. High convexity is frequently a desired characteristic because for a given percentage change in yield, up or down, the bond's percentage price gain will be greater than its percentage price loss. Another way of looking at this is to compare two bonds, one with high convexity and one with low convexity. The highly convex bond will become shorter faster than the low convexity bond for a given rise in rates, and will become longer faster than the low convexity bond for a given fall in rates.

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Glossary for Accrual Accounting and GFS – Tarun Das In mathematical terms, convexity is related to the second derivative of price with respect to yield. Whereas modified duration may be used to calculate price changes for small changes in yield, duration and convexity together allow you to estimate price changes for large yield movements according to the following relationship: dP= -Duration*Price*dY+0.5*Convexity*Price*dYsqrd. where dP = change in price ("delta P") dY = change in yield ("delta Y") Convexity, in conjunction with modified duration, is used to immunize portfolios for large movements in interest rates. Credit Deposit Ratio (CDR) It represents the ratio of Total Credit disbursed to Total Deposits garnered by a bank. Total Credit includes Loans, Overdrafts, Cash Credits and Bills purchased and discounted. Total Deposits include the Time and Demand deposits. Credit Risk Credit risk is the risk that an issuer of a debt security or a borrower may default on its obligations. In a slightly different context, it is also defined as the risk that payment may not be made on the sale of a negotiable instrument (i.e. counterparty risk). Current Yield This is the yield or return derived by the investor on purchase of the instrument (yield related to purchase price) It is calculated by dividing the coupon rate by the purchase price of the debenture. For example, if an investor buys a 10% US$100 debenture of ABC company at US$90, his current Yield on the instrument would be computed as: Current Yield = (10%*100)/90 X 100, That is 11.11% p.a. Day Count Basis In the fixed income securities markets, there are a number of ways that days between dates are computed for interest rate calculations. The day count basis indicates the manner by which the days in a month and the days in a year are to be counted. The notation utilized to indicate the day count basis is (days in month)/ (days in year). For example, 30/360 assumes that each of the twelve months in a year consists of exactly 30 days. On the other hand, Actual/Actual considers the actual number Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das of days in a month and the actual number of days in a year. Other types of day count basis are Actual/360, Actual/365, and 30/360 European. The 30/360 European day count basis differs from 30/360 basis in the algorithm used to handle the end of the month. The five basic day count basis are the following: • Actual/360 • Actual/365 • Actual/Actual • 30/360 • 30/360 European Each of these is explained below: Actual/360 This calculates the actual number of days between two dates and assumes the year has 360 days. Many money market calculations with less than a year to maturity use this day count basis. For example, A Rs. 1 crore six month CD issued on 15/04/04 and maturing on 15/10/04, with an 8% coupon would pay an interest payment of: Actual days between 15/04/04 to 15/10/04 = 183 days Interest = 0.08 x 10,000,000 x (183/360) = Rs 40,666.67 Actual/365 This calculates the actual number of days between two dates and assumes the year has 365 days. Using an Actual/365 day count basis, a Rs. 1 crore six month CD issued on 15/04/04 and maturing on 15/10/04, with an 8% coupon would pay an interest payment of: Actual days between 15/04/04 to 15/10/04 = 183 days Interest = 0.08 x 10,000,000 x (183/365) = Rs 40,109.59 Actual/Actual This day count basis calculates the actual number of days between two dates and assumes the year has either 365 or 366 days depending on whether the year is a leap year. More accurately, if the range of the date calculation includes February 29 (the leap day), the divisor is 366, otherwise the divisor is 365. Again using our CD example, the interest payment would be: Actual days between 15/04/04 to 05/10/04 = 183 days Interest = 0.08 x 1,000,000 x (183/365) = Rs 40,109.59 Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das Notice that even though 2004 is a leap year, the denominator used for this calculation was 365 because February 29, 2004 does not fall into the date range of the calculation. If the issue date was before February 29, the divisor would have been 366 instead. 30/360 This day count convention assumes that each month has 30 days and the total number of days in the year is 360 (12 months x 30 days per month). There are adjustments for February and months with 31 days. The formula for the 30/360 day calculation is as follows: Assume Date 1 is of the form D1/M1/Y1 and Date 2 is of the form D2/M2/Y2. Let Date 2 be later than Date 1. Then: If D1 = 31, change D1 to 30 If D2 = 31 and D1 = 30, change D2 to 30 Days between dates = (Y2-Y1) x 360 + (M2-M1) x 30 + (D2-D1) 30/360 European The 30/360 day count basis is different outside of the United States. They further simplified this calculation. The formula for the 30/360 European day calculation follows: Assume Date 1 is of the form M1/D1/Y1 and Date 2 is of the form M2/D2/Y2. Let Date 2 be later than Date 1. Then: If D1 = 31, change D1 to 30 If D2 = 31, change D2 to 30 Days between dates = (Y2-Y1) x 360 + (M2-M1) x 30 + (D2-D1) Demand Loan Demand loans have to be repaid when demanded by the creditor and as such they are short-term loans. The demand loan comprises of minimum level of borrowing which the borrower is expected to use throughout the year. Discounted cash flow Cash Flows occur over a period of time. But even under complete absence of inflation or risk, money still has time value. US$100 receivable today, after one year or after 10 years is not same in value. To make an absolute comparison, these cash flows in different periods have to be expressed in terms of today's value or present value. Cash Flows that are discounted by suitable rate of return are known as discounted cash flows.

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Glossary for Accrual Accounting and GFS – Tarun Das Duration Duration is a measurement that allows an investor to compare bonds for potential price volatility by considering both the term and the coupon together. It is defined as the average time that it would take to receive all cash flows in terms of current dollars. Both coupon payments and principal are factored into the calculation. Bonds with longer terms are more volatile than shorter term bonds because cash flows are received over a longer period of time, and therefore are subject to a greater deal of uncertainty. Similarly, market prices of higher coupon bonds are less volatile than a lower coupon bond because a greater proportion of the bond's total return is realized with the semi-annual payments than at maturity. Face Value Face value is the amount that is to be paid to an investor at the maturity date of the security. Debt securities can be issued at varying face values. The face value is also known as the repayment amount or par. Forward Transactions A forward transaction is an order to buy or sell a security at a future period at a specific price. Forward transactions are not exchange traded or standardized. There is no margin paid over between the counter parties, only a settlement on the agreed date. Frequency of interest payment A debt instrument has interest payments at regular intervals. The interest payments are either at monthly, quarterly, half-yearly or yearly rests. This frequency of interest payments is specified at the time of issue of the debt instrument. Coupon payments are made at regular intervals throughout the life of a debt security and may be quarterly, semi-annual (twice a year) or annual payments. Fixed rate securities generally have semi-annual coupon payments. The frequency of coupon payments is a key factor in determining the overall return from an investment. At first glance, a debt security offering a high interest rate appears to be a better investment than a security with a low interest rate, but the actual return received depends on how often the interest is paid. A security that has an annual interest rate of 10% and a semi-annual coupon payment will pay 5% every six months. Interest on 360 day a year basis Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

For all government loans and state loans, the interest is calculated on the basis of 360 days a year. In this method, each month is regarded of 30 days irrespective of actual number of days in that month. Interest on calendar year basis The interest is calculated on the basis of 365 days a year basis. The interest on most of the debt securities excluding the government loans and the state loans are calculated on the basis of 365 days a year basis. Actual numbers of days that have expired since last interest payment date are counted for accrued interest payment. Interest Rate Risk Risk associated with fluctuations of bond prices in response to the general movement of the interest rates and to changes in investor perceptions of government monetary policy and economic data. Internal Rate of Return (IRR) The IRR is that discount rate at which the NPV of a cash stream becomes zero. Here, the net present value is given (as zero) and the discount rate is calculated. If the IRR is greater than the required rate of return (discount rate), then the security/project is worth investing in, otherwise not. Issuer The organisations which offer the debt securities for sale are know as Issuer of the debt. Debt issuers include the Government, banks and companies. Issued at Discount An instrument that is initially issued at a price less than its face value is know to be issued at a discount. For example, a bond having face value of Rs.100 and issued at Rs.95 is said to be issued at a discount. London Interbank Offered Rate (LIBOR) LIBOR is the benchmark or the reference rate. This is calculated everyday, at a specific time, as the average of the lending rates of a group of 15 reference banks in London on short-term funds lent to first class banks. Rates charged to non-bank customers on loans are stated as LIBOR plus a margin or spread. Maturity premium Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

An instrument, which on maturity is redeemed at a price higher than the face value, is said to be redeemed with a premium at maturity. For example, a bond having face value of US$100 and redeemed at US$105 at maturity is said to be redeemed at a maturity premium of US$5. Monetary Policy Implemented by the Central Bank, it is policy using money supply and control of credit in the economy to control the general direction of interest rates, inflation and maintain the stability of the exchange rate of the currency. Tightening monetary policy is indicative of rising interest rates and statutory reserve ratios usually near the end of a phase of economic expansion. Conversely, loosening monetary policy is accompanied by decreasing interest rates and statutory ratios that usually precedes economic expansion. Mortgage A mortgage is defined as a pledge of property (real estate) to secure payment of a debt. If the mortgagor fails to pay the lender (the mortgagee), the lender can foreclose the loan, seize the property and sell it in order to realize his dues. Nationalized Banks A Nationalized Bank is a bank whose majority ownership vests with the Government.

Negotiable Instruments Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. The word negotiable means transferable from one person to another for consideration and instrument means a written document by which a right is created in favour of some persons. Thus, a negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery. Net Demand and Time Liabilities (NDTL) Banks have to maintain statutory reserves on their NDTL. For calculating its NDTL, a bank has to first sum up its total gross liabilities, which include all demand and term deposits. Once the gross demand and time liabilities (DTL) is Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das determined, the bank can deduct its Interbank assets (IBA) from this DTL only to the extent of its Interbank liabilities (IBL). The banks are required to maintain their CRR and SLR with reference to the NDTL as of the reporting Friday. Net Present Value (NPV) NPV of a cash stream is simply the difference between the present value of cash outflow and summation of present values of cash inflows at a given discount rate. Here, the discount rate is given and the NPV is calculated. If the NPV is positive, the security/project will be worth investing in, otherwise not. This is because a positive NPV implies that the security/ project provides a return higher than the discount rate per annum. Nidhi A type of Mutual Benefit Finance company which exits in India. A Mutual Benefit Finance company is notified as a Nidhi company under Section 620A of the Indian Companies Act, 1956 by the Government of India based on the performance of the company. To become a nidhi, benefit funds need to have 2000 members and a paid-up capital of Rs.25 lakhs (Rs.2.5 million). Once the benefit funds comply with these, Department of Company Affairs declares such companies as Nidhis. Non Banking Finance Company (NBFC) There are different categories of NBFC's, which include the following: • Loan and Investment Companies • Equipment Leasing and Hire Purchase Companies • Miscellaneous Non-Banking Finance Companies and • Residuary Non-banking Finance companies. Nostro Account An account opened by a domestic bank with a foreign bank in their currency for the purpose of remittances and withdrawals is known as a nostro account. Private Banks Private Bank is a bank registered as public limited company where private share holders have the majority share. Promissory Note A Promissory Note is an instrument in writing (not being a bank note or a currency note) containing an unconditional promise, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das bearer of the instrument. Maker is the person who makes the promissory note and promises to pay, and the person to whom the payment is made is the payee. Reset Date The date at which the interest rate on a debt security is reset to a new rate. Scheduled Banks Scheduled banks are those, which must have a minimum paid-up capital and reserves and must also satisfy the Central Bank that its affairs are not conducted in a manner detrimental to the interests of its depositors. Scheduled banks are required to maintain a certain amount of reserves with the Central Bank. They, in return, enjoy the facility of financial accommodation and remittance facilities at concessional rates from the Central Bank. They are also entitled to get refinance facilities from the Central Bank. Statutory Liquidity Ratio (SLR) SLR is the statutory reserve that is set aside by banks for investment in cash, gold or unencumbered approved securities valued at a price not exceeding the current market price. SLR should not be less than 25% and not exceeding 40% of NDTL as per Section 24 of the Banking Companies Regulation Act. The effective SLR level that a bank has to maintain keeps changing depending on the announcement by the RBI in its credit policies The objectives of SLR are 1) to restrict the expansion of bank credit 2) to augment the investment of the banks in Government securities and 3) to ensure solvency of banks. Strip Transaction In a strip transaction, an interest bearing bond is divided into separate principal and interest components. Both the principal and the future interest payments are separately tradable. Thus, the bond is stripped and principal is traded separately as zero coupon bond and interest components are traded as annuities. Subsidiary General Ledger (SGL) An SGL account enables scripless form of trading by routing all transactions through a ledger document. All scheduled commercial banks and financial institutions have an account with the Reserve Bank of India. So RBI acts as the depository and maintains SGL accounts of various entities wherein the transaction / holding is represented by a book entry.

Term to Maturity Glocoms Inc. (USA)

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MOF, Govt. of Mongolia

Glossary for Accrual Accounting and GFS – Tarun Das

The length of time to maturity for a given fixed income security. Term Loan • • •

 Loans sanctioned for a period exceeding one year with specific schedule of repayment,  Interim cash credits / bridge loans pending disbursement of sanctioned term loans, and  Installment credit where repayment is spread over more than one year

Value at Risk (VaR) Simply speaking, value at risk is the forecasted amount that may be lost, on the investments and other exposures that the bank may have, if an adverse market move were to happen. Vostro Account A domestic currency account opened by a foreign bank with a domestic bank for the purpose of remittances and withdrawals in domestic currency is known as a vostro account. Yield Curve A graphic representation of the relationship among yields of bonds with similar credit qualities but different maturities. A normal yield curve is upward sloping and is explained by the hypothesis of term risk. That is, because uncertainty increases with longer terms to maturity, yields will increase as well to compensate holders for the perceived greater risk. Occasionally a yield curve may be flat or inverted. An inverted curve is marked by higher yields at the short end of the spectrum. They decrease as term increases. Usually, government securities are used to construct such curves. Yield to maturity (YTM) The yield to maturity is the annualized return from a debt security from the date it is bought in the secondary market to the date of its redemption. YTM is the return on holding the instrument to maturity. The YTM assumes that any coupon payments received before redemption can be reinvested at this yield. Zero Coupon Bond A bond that pays no periodic interest and sold at a deep discount from the face value. Buyer's rate of return comes from the gradual appreciation of the bond. Glocoms Inc. (USA)

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Glossary for Accrual Accounting and GFS – Tarun Das

Annex Government Finance Statistics Manual 2001 (GFSM 2001)

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Glossary for Accrual Accounting and GFS – Tarun Das

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