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Accounting Terms

This document defines key accounting terms: 1. Transactions involve the transfer of money, goods, or services between parties like purchases, sales, loans, salaries, rent, etc. 2. A proprietor owns a business and contributes capital to earn a profit. 3. Capital is the amount invested by the proprietor that increases with profits and decreases with losses or withdrawals. 4. Liabilities are the financial obligations a business owes like loans, creditors, expenses, overdrafts.

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56 views14 pages

Accounting Terms

This document defines key accounting terms: 1. Transactions involve the transfer of money, goods, or services between parties like purchases, sales, loans, salaries, rent, etc. 2. A proprietor owns a business and contributes capital to earn a profit. 3. Capital is the amount invested by the proprietor that increases with profits and decreases with losses or withdrawals. 4. Liabilities are the financial obligations a business owes like loans, creditors, expenses, overdrafts.

Uploaded by

Nishi Yadav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ACCOUNTING

TERMS
1 Transactions
Transactions are those activities of a business, which
involve transfer of money or goods or services between
two persons or two accounts. For example, purchase of
goods, sale of goods, borrowing from bank, lending of
money, salaries paid, rent paid, commission received and
dividend received. Transactions are of two types, namely,
cash and credit transactions.

2 Proprietor
A person who owns a business is called its proprietor. He
contributes capital to the business with the intention of
earning profit.
3 Capital
It is the amount invested by the proprietor/s in the
business. This amount is increased by the amount of
profits earned and the amount of additional capital
introduced. It is decreased by the amount of losses
incurred and the amounts withdrawn. For example, if Mr.
Anand starts business with Rs.5,00,000, his capital would
be Rs.5,00,000.

4 Liabilities
Liabilities refer to the financial obligations of a business.
These denote the amounts which a business owes to
others, e.g., loans from
banks or other persons, creditors for goods supplied, bills
payable, outstanding expenses, bank overdraft etc.
5 Assets
Assets are the properties of every description belonging to the
business.
Tangible Assets: These assets are those having physical
existence. It can be seen and touched. For example, plant &
machinery, cash, etc.
Intangible Assets: Intangible assets are those assets having no
physical existence but their possession gives rise to some rights
and benefits to the owner. It cannot be seen and touched.
Goodwill, patents, trademarks are some of the examples.
Current Assets less than 1 year- stock, cash, debtors

6 Drawings
It is the amount of cash or value of goods withdrawn from the
business by the proprietor for his personal use. It is deducted
from the capital.
7 Debtors
A person (individual or firm) who receives a benefit without
giving money or money’s worth immediately, but liable to
pay in future or in due course of time is a debtor. The
debtors are shown as an asset in the balance sheet. For
example, Mr. Arul bought goods on credit from Mr. Babu for
Rs.10,000. Mr. Arul is a debtor to Mr. Babu till he pays the
value of the goods.

8 Creditors
A person who gives a benefit without receiving money or
money’s worth immediately but to claim in future, is a
creditor. The creditors are shown as a liability in the balance
sheet. In the above example Mr. Babu is a creditor to Mr.
Arul till he receive the value of the goods.
9 Purchases
Purchases refers to the amount of goods bought by a
business for resale or for use in the production. Goods
purchased for cash are called cash purchases. If it is
purchased on credit, it is called as credit purchases. Total
purchases include both cash and credit purchases.

10 Purchases Return or Returns Outward


When goods are returned to the suppliers due to defective
quality or not as per the terms of purchase, it is called as
purchases return. To find net purchases, purchases return
is deducted from the total purchases.
11 Sales
Sales refers to the amount of goods sold that are already
bought or manufactured by the business. When goods are
sold for cash, they are cash sales but if goods are sold and
payment is not received at the time of sale, it is credit
sales. Total sales includes both cash and credit sales.

12 Sales Return or Returns Inward


When goods are returned from the customers due to
defective quality or not as per the terms of sale, it is called
sales return or returns inward. To find out net sales, sales
return is deducted from total sales.
13 Stock/inventory
Stock includes goods unsold on a particular date. Stock may
be opening and closing stock. The term opening stock means
goods unsold in the beginning of the accounting period.
Whereas the term closing stock includes goods unsold at the
end of the accounting period.

14 Revenue
Revenue means the amount receivable or realised from sale
of goods and earnings from interest, dividend, commission,
etc.
15 Expense
It is the amount spent in order to produce and sell the goods
and services. For example, purchase of raw materials,
payment of salaries, wages, etc.
16 Income
Income is the difference between revenue and expense.

17 Voucher
It is a written document in support of a transaction. It is a
proof that a particular transaction has taken place for the
value stated in the voucher. It may be in the form of cash
receipt, invoice, cash memo, bank pay-in-slip etc. Voucher is
necessary to audit the accounts.

18. Receipt
Receipt is an acknowledgement for cash received. It is
issued to the party paying cash. Receipts form the basis for
entries in cash book.
19. Account
Account is a summary of relevant business transactions at
one place relating to a person, asset, expense or revenue
named in the heading. An account is a brief history of
financial transactions of a particular person or item. An
account has two sides called debit side and credit side.

20. A debit is an accounting entry that either increases an


asset or expense account, or decreases a liability or equity
account. It is positioned to the left in an accounting entry.
A credit is an accounting entry that either increases a
liability or equity account, or decreases an asset or expense
account.
Account
Every transaction has two aspects and each aspect has an account. It
is stated that ‘an account is a summary of relevant transactions at
one place relating to a particular head’.

Personal Impersonal

Natural Real

Artificial Nominal

Representative
I. Personal Accounts :
The accounts which relate to persons. Personal accounts include the
following.

i. Natural Persons : Accounts which relate to individuals. For example,


Mohan’s A/c, Shyam’s A/c etc.

ii. Artificial persons : Accounts which relate to a group of persons or


firms or institutions. For example, HMT Ltd., Indian Overseas Bank, Life
Insurance Corporation of India, Cosmopolitan club etc.

iii. Representative Persons: Accounts which represent a particular person


or group of persons. For example, outstanding salary account, prepaid
insurance account, etc.

The business concern may keep business relations with all the above
personal accounts, because of buying goods from them or selling goods to
them or borrowing from them or lending to them. Thus they become
either Debtors or Creditors.
The proprietor being an individual his capital account and his drawings
account are also personal accounts.
II. Impersonal Accounts:
All those accounts which are not personal accounts. This is further
divided into two types viz. Real and Nominal accounts.

i. Real Accounts: Accounts relating to properties and assets which are


owned by the business concern. Real accounts include tangible and
intangible accounts. For example, Land, Building, Goodwill,
Purchases, etc.

ii. Nominal Accounts: These accounts do not have any existence, form
or shape. They relate to incomes and expenses and gains and losses of
a business concern. For example, Salary Account, Dividend Account,
etc.
GOLDEN RULES
Personal

• Debit The receiver


• Credit The giver

Real

• Debit What comes in


• Credit What goes out

Nominal

• Debit All expenses and losses


• Credit All the income and gains

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