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Basic Accounting Terms

Basic accounting terms are defined including: 1. Business transactions which affect the financial position and can be measured in money. 2. Accounts which are records of transactions divided into debit and credit sides. 3. Assets and liabilities which are valuable resources and obligations/debts of a business classified as current or non-current.

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125 views2 pages

Basic Accounting Terms

Basic accounting terms are defined including: 1. Business transactions which affect the financial position and can be measured in money. 2. Accounts which are records of transactions divided into debit and credit sides. 3. Assets and liabilities which are valuable resources and obligations/debts of a business classified as current or non-current.

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satyam sk
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© © All Rights Reserved
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Basic accounting terms

1. Business Transaction: An Economic activity that affects the financial position of the business
and can be measured in terms of money e.g., purchase of goods for in business.
2. Account: Account refers to a summarised record of relevant transactions of a particular
head in one place. All accounts are divided into two sides. The left side of an account is
called the debit side and the right side of an account is called the credit side.
3. Capital: The 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.
4. Drawings: The money or goods or both withdrawn by the owner from the business for
personal use, are known as drawings. Example: Purchase of car for wife by withdrawing
money from the business.
5. Assets: Assets are valuable and economic resources of an enterprise useful in its operations.
Assets can be broadly classified as:
A. Current Assets: Current Assets are those assets that are held for short period
and can be converted into cash within one year. For example, Debtors, stock,
etc.
B. Non-Current Assets: Non-Current Assets are those assets that 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
can be seen and touched. For Example: Furniture, Machinery etc.
b. Intangible Assets: Intangible Assets are those assets which have no
pend existence and can be felt by operation. For example: Goodwill, Patent,
Trademark etc.
6. Liabilities: Liabilities are obligations or debts that an enterprise in the future. after sometime
in the future. Liabilities can be classified as:
A. Current Liabilities: Current Liabilities are obligations or debts that are payable
within a period of one year. For Example: Creditors, Bill Payable etc.
B. 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.
7. 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.
8. Profit: The excess of revenues over its related expenses during an accounting Profit =
Revenue - Expenses.
9. Gain: A non-recurring profit from events or transactions incidental to of fixed assets,
appreciation in the value of an asset etc.
10. Loss: The excess of expenses of a period over its related revenue is termed as loss. Loss =
Expenses -Revenue
11. 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.
12. Purchases: The term purchases are 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.
13. Receipts
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 those receipts which are occurred by other than
business operations like money received by sale of fixed assets.
14. Expenses: Costs incurred by a business for earning revenue are known as expenses. For
example: Rent, Wages, Salaries, Interest etc.
15. Expenditure: Spending money or incurring a liability for acquiring assets, goods or services is
called expenditure. The expenditure is classified as:
1. Revenue Expenditure: If the benefit of expenditure is received within a year, it 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.

16. Purchase Return: When purchased goods are returned to the suppliers, these are known as
purchase return.
17. Sales: Sales are total revenues from goods sold or services provided to customers. Sales may
be cash sales or credit sales.
18. 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.
19. 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.
20. 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.
21. 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.
22. Goods and Service Tax (GST): GST is an indirect tax which is levied on the supply of goods
and service.

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