ACCOUNTING TERMS

➢ Assets

Assets are valuable and economic resources of an enterprise useful in its operations.

Assets can be broadly classified as:

1) Current Assets: Current Assets are those assets which are held for short period and can

be converted into cash within one year. For example: Debtors, stock etc.

2) Non-Current Assets: Non-Current Assets are those assets which are hold for long period

and used for normal business operation. For example: Land, Building, Machinery etc.

They are further classified into:

a) Tangible Assets: Tangible Assets are those assets which have physical existence

and can be seen and touched. For Example: Furniture, Machinery etc.

b) Intangible Assets: Intangible Assets are those assets which have no physical

existence and can be felt by operation. For example: Goodwill, Patent, Trade

mark etc.


➢ Liabilities

Liabilities are obligations or debts that an enterprise has to pay after some time in the

future. Liabilities can be classified as:

1) Current Liabilities: Current Liabilities are obligations or debts that are payable within a

period of one year. For Example: Creditors, Bill Payable etc.

2) Non-Current Liabilities: Non-Current Liabilities are those obligations or debts that are

payable after a period of one year. Example: Bank Loan, Debentures etc.


➢ Receipts

A written acknowledgment of having received, or taken into one's possession, a specified

amount of money, goods, etc. receipts, the amount or quantity received. the act of

receiving or the state of being received. Receipts can be classified as:

1) Revenue Receipts: Revenue Receipts are those receipts which are occurred by normal

operation of business like money received by sale of business products.

2) Capital Receipts: Capital Receipts are those receipts which are occurred by other than

business operations like money received by sale of fixed assets.


➢ Expenses

Costs incurred by a business for earning revenue are known as expenses. For example: Rent, Wages, Salaries, Interest etc.


➢ Expenditure

Spending money or incurring a liability for acquiring assets, goods or services is called

expenditure. The expenditure is classified as:

1) Revenue Expenditure: It is the amount spent to purchase goods and services that are

used during an accounting period is called revenue expenditure. For Example: Rent,

interest, etc.

2) Capital Expenditure: If benefit of expenditure is received for more than one year, it is

called capital expenditure. Example: Purchase of Machinery.

3) Deferred Revenue Expenditure: There are certain expenditures which are revenue in

nature but benefit of which is derived over number of years. For Example: Huge

Advertisement Expenditure.


➢ Business Transaction

An Economic activity that affects financial position of the business and can be measured

in terms of money e.g., expenses etc.


➢ Account

Account refers to a summarized record of relevant transactions of particular head at one

place. All accounts are divided into two sides. The left side of an account is called debit

side and the right side of an account is called credit side.


➢ Capital

Amount invested by the owner in the firm is known as capital. It may be brought in the

form of cash or assets by the owner.


➢ Drawings

The money or goods or both withdrawn by owner from business for personal use, is

known as drawings. Example: Purchase of car for wife by withdrawing money from

Business.


➢ Profit

The excess of revenues over its related expenses during an accounting year is profit.

Profit = Revenue – Expenses.


➢ Gain

A non-recurring profit from events or transactions incidental to business such as sale of

fixed assets, appreciation in the value of an asset etc.


➢ Loss

The excess of expenses of a period over its related revenues is termed as loss. Loss =

Expenses – Revenue.


➢ Goods

The products in which the business deal in. The items that are purchased for the purpose

of resale and not for use in the business are called goods.


➢ Purchases

The term purchased is used only for the goods procured by a business for resale. In case

of trading concerns it is purchase of final goods and in manufacturing concern it is

purchase of raw materials. Purchases may be cash purchases or credit purchases.


➢ Purchase Return

When purchased goods are returned to the suppliers, these are known as purchase return.


➢ Sales

Sales are total revenues from goods sold or services provided to customers. Sales may be

cash sales or credit sales.


➢ Sales Return

When sold goods are returned from customer due to any reason is known as sales return.


➢ Debtors

Debtors are persons and/or other entities to whom business has sold goods and services

on credit and amount has not received yet. These are assets of the business.


➢ Creditors

If the business buys goods/services on credit and amount is still to be paid to the persons

and/or other entities, these are called creditors. These are liabilities for the business.


➢ Bill Receivable

Bill Receivable is an accounting term of Bill of Exchange. A Bill of Exchange is Bill

Receivable for seller at time of credit sale.


➢ Bill Payable

Bill Payable is also an accounting term of Bill of Exchange. A Bill of Exchange is Bill

Payable for purchaser at time of credit purchase.


➢ Discount

Discount is the rebate given by the seller to the buyer. It can be classified as:

1) Trade Discount: The purpose of this discount is to persuade the buyer to buy more

goods. It is offered at an agreed percentage of list price at the time of selling goods. This

discount is not recorded in the accounting books as it is deducted in the invoice/cash

memo.

2) Cash Discount: The objective of providing cash discount is to encourage the debtors to

pay the dues promptly. This discount is recorded in the accounting books.


➢ Income

Income is a wider term, which includes profit also. Income means increase in the wealth

of the enterprise over a period of time.


➢ Stock

The goods available with the business for sale on a particular date is known as stock.


➢ Cost

Cost refers to expenditures incurred in acquiring manufacturing and processing goods to

make it saleable.


➢ Voucher

The documentary evidence in support of a transaction is known as voucher. For example,

if we buy goods for cash we get cash memo, if we buy goods on credit, we get an invoice,

when we make a payment we get a receipt.


➢ Double Entry System of Book-keeping

Double Entry System of Book-keeping refers to a system of accounting under which both

the aspects (i.e. debit or credit) of every transaction are recorded in the accounts

involved. The individual record of person or thing or an item of income or an expense is

called an account. Every debit has equal amount of credit. So the total of all debits must

be equal to the total of all credits.


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