Brain Train Academy

Basic Accounting Terms

Capital
It is the amount invested by the proprietor.
It may be in the form of money or assets having monetary value.
Capital is also known as Owner's equity or Net worth

Drawings
It is the amount withdrawn or goods taken by proprietor for personal use.
Drawings reduce the investment of the owners.

Liabilities:
Liabilities means amount owed or payable by the business.
Liability towards the owners of the business is termed as internal liability. On the other hand liability
towards outsiders (creditors, bank overdraft, long term borrowings etc) is termed as external liability.
Liabilities are further classified into

i) Non Current liabilities: It is that liability which is payable after a period of more than one year from the
end of the accounting year. Examples are long term loans, debentures etc.

ii) Current liabilities: It is that liability which is payable within 12 months from the end of the accounting
period. Examples are Creditors, Bills payable etc.

Assets
Assets are the properties (tangible and intangible assets) owned by a business. In other words, anything
which will enable the firm to get cash or an economic benefit in the future is an asset.
Assets are classified into:

i) Non Current Assets: Non-current assets are those assets which are held by a business not with a
purpose to resell but are held either as investment or to facilitate business operations. Non-current assets
include:

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Fixed Assets: Fixed assets are those assets which are not meant for resale but for generating revenue in
the business. They are further classified into

a) Tangible Assets: Tangible assets are those assets which have a physical existence i.e. they can be
seen and touched. Examples are Land, Building, and Furniture etc.
b) IntangibleAssets: Intangible assets are those assets which do not have physical existence i.e. they
cannot be seen and touched. Examples are Goodwill, Patents, Copyright and
Trademark etc.

ii) Current assets: Current assets are those which are held by the business with the purpose of
converting them into cash with a period of one year. Examples are Debtors, bills receivable etc.

iii) Fictitious assets: Fictitious assets are those assets which are neither tangible assets nor intangible
assets. They are losses not written off in the year in which they are incurred but in more than one
accounting year. Examples are Discount or Loss on issue of Debentures etc

Expenditure
It is the amount spent or liability incurred for acquiring assets, goods or services. They are categorized into

i) Capital Expenditure: It is an expenditure incurred for acquire assets or improving the existing assets
which will increase the earning capacity of the business. Examples are Purchase
of machinery, furniture etc. It is shown on the assets side of the Balance sheet.

ii)Revenue Expenditure: It is the expenditure incurred the benefit of which is consumed or exhausted
within the accounting period. It has a direct relationship with revenue. Examples
are Salaries, rent etc. It is shown on the debit side of Trading account or Profit
and Loss account.

iii) Deferred Revenue Expenditure: It is revenue expenditure in nature but is written off or charged in
more than one accounting period. Examples are Advertising expenditure.

Expenses
It is the cost incurred for generating revenue. Examples are salaries, wages, rent etc.

i)Prepaid expense: It is an expense that has been paid in advance and the benefit of which will be
available in the following year or years.

ii)Outstanding expense: It is an expense that has been incurred but has not been paid.

Income
It is the profit earned during a period. It the difference between revenue and expense.

Contact :- 8375994540
Address:- Wz 112 ,Apna Bazaar Naraina Village, Near Doctor Water (Mata Mandir)
Profit
It means income earned by the business from its operating activities. It is further divided into:

i) Gross profit: It is the difference between revenue from sales over its direct cost.
ii) Net Profit: It is the profit earned after allowing for all expenses.

Gain
It is a profit irregular or non-current in narure. It is a profit that arises from transactions which is not an
operating activities of the business but are incidental to it such as gain on sale of fixed assets or
investments.

Loss:
It is the excess of expenses over its revenue. It decreases the owner's equity. For example goods lost by
fire, theft etc.

Purchase:
It is used for purchases of goods for resale or for producing the finished products which are also to be sold.
It includes both cash purchases and credit purchases.

Sales:
It is associated with or used for sale of goods that is dealt with by the firm. It includes both Cash sales and
Credit sales.

Goods:
Goods are the physical items of trade. It applies to all the items making up the sales or purchases of
business.

Stock
It is tangible asset held by an enterprise the purpose of sale in the ordinary course of business or for the
purpose of using it in the production of goo meant for sale. It may be Opening stock (stock in hand in the
beginning of the year) and Closing stock (stock in hand at the end of the accounting year).

Debtor
He is a person who owes amount to the enterprise against credit sale of goods or services.
In other words a debtor is a customer or client who hasn’t paid to firm for the sale of goods and services to
him.

Creditor

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Address:- Wz 112 ,Apna Bazaar Naraina Village, Near Doctor Water (Mata Mandir)
He is a person to whom an enterprise owes amount against credit purchase of goods or services.
In other words a creditor is an entity who supplied goods and services to the firm and hasn’t yet been paid
for it.

Voucher
It is an evidence of a business transaction. Examples are Cash memo, Invoice or Bill, Receipt, Debit note,
Credit note etc.

Discount
When customers are allowed rebate in the prices of goods or from the amount paid by customers it is
known as discount. It includes:

i) Trade Discount: It is a rebate allowed by the seller on the basis of sales, either quantity or value.
ii) Cash Discount: It is a rebate allowed for timely payment of the due amount.

Contact :- 8375994540
Address:- Wz 112 ,Apna Bazaar Naraina Village, Near Doctor Water (Mata Mandir)