BASIC ACCOUTING TERMS

Business Transactions
The term business transaction is a transaction recorded in the book of accounting and
entered into two parties accounting enterprise . It involves transferring between two
persons . Examples are :payment of creditors ,sales of goods , purchase of goods etc.

Characteristic features of business transactions

•It is associated with the transfer of goods and services according to the money.
•It transfers goods and services.
•Business transactions changes the financial position of a person.
•It has two sides , debit and credit. Debit means receiving and credit means giving the
benefits .
•After doing the transactions the liability and capital should be equal to the asset.
•After each transaction , it should be clearly check that it may cause the financial status of
business.
Account
It can be defined as a record in which all the transactions are recorded . It can also show
the way to run a business and also to identify whether the business is running in profit
or loss.
Capital
It is the cash invested in a business individually or by partners in the form of cash , buildings,
land , assets etc . It increases as the person invested receives profit or earnings and it is
decreased when he/she takes back the capital invested.
The person who invest capital in companies are known as "SHARE HOLDERS ". Capital can be
also known as "NET PROFIT" or "OWNER'S EQUITY".
Capital=assets-liability
Drawings
Drawings can be defined as the goods or capital taken for personal use . While taking this, it
reduces the capital of the business . While preparing balance sheet, drawings should be
reduced from the capital of the propertior .
Liability
Liability is the amount that is paid by the business . It is divided into two, Internal and
External liability. The liability which are to the owners of the business are internal liability and
the liability to outsiders of the company are known as external liability. Examples of liability
are bank overdraft, long- term borrowings etc . Liability can be classified as,
•Current liability : It is the liability which can be paid with in one year . Examples are bills
payables, creditors, short-term loans.

•Non-current liability : The liability which takes more than one year for the re-payment .
Examples are debentures , long-term loans etc.
Assets
Assets are properties that are owned by the enterprise . It can be also defined as the benefit
of an enterprise in future. Examples are land , machinery , furniture , copy writes , good will
etc.
Characteristics of assets
•It has to be owned by the bussiness.
•It can be physically appeared or not appeared.
•There has to be some capital in it.
•It should be able to measure its terms of money.
Assets can be classified into:
1.Non- current assets: These are assets that are made by the business for a long period of
time . Examples are long-term loan , fixed assets , non-current investment.
2.Fixed assets: Fixed assets are the non-current assets which are used for increasing earnings
and not to resell . It can be classiffied into:
•Tangible assets: The assets that can be physically appeared . Examples are land , machinery ,
building etc.
•Intangible assets: The assets that are not appeared physically are known as Intangible assets .
Example good will.
3.Current assets: These are the assets that are owned by and enterprise in which assets are
converted or changed into cash with in a short period.

4.Fictious assets: These are the assets that are not appeared physically nor appeared
physically . They are the losses which are not recorded in the year in which they are owned.

Receipts
These are the amount that are receives by selling the goods . It can be classified into,
1.Revenue receipts: It is the amount which are recieve in a business against the sale of goods .
They are shown in the profit and loss account . Example, amount received .
2. Capital receipts: The amount which are recieved by selling the resource which are not
revenue in nature . Examples are sale of machinery , building , furniture etc .These are shown
on the balance sheet.
Expenditure
It is the amount that is spend for buying goods or services . It is classified into,
Capital expenditure: It is an expenditure used for improving the existing assets . It can be
both physically appeared and not appeared . These are showed on the balance sheet .
Examples are purchase of furniture , manufacture of goods , purchase of machinery .It
shown in the asset side of the balance sheet.

Revenue expenditure : it s the expenditure which is consumed with in the accounting

period. Example are goods sold, salaries, electricity etc.
Revenue expenditure is short on the debit side of profit and loss account.
Deferred revenue expenditure: it is an expenditure which is charged in more than one
accounting year because it take one financial year to earn or get benefit.
Expense
It is the cost for identifying the revenue
Characteristics:
•Cash payment are salaries ,rent , wages etc.
•It is a part of fixed asset.
•Cost of good sold etc.
Expense can be classified into :
•Pre-paid expense
It is the expense that is paid before the date of paying.
•Outstanding expense
It is the expense which is not paid but bought.
Income:
It is the difference between expense and revenue. It can be also defined as the profit earned.
Income = Revenue -Expense
Profit
It can be defined as the income which is earn with the help of business.
It is divided in to two.
•Gross Profit:
It is the difference between direct cost and revenue.
•Net Profit:
The deduction of total expense from total revenue is termed as net profit.
Gain:
It is the increase in the income of the owner. It can be also define as the profit earned.
Examples are land, machinery etc.
Loss:
It is the decrease in the level of income of the owner.
Examples, lows on sale of fixed asset.
Purchase:
The term purchase is used to record the goods or raw materials purchased. The goods which
are purchased using cash are called cash purchase and which are purchased on credit are
known as credit purchase.
Purchase Return:
The goods which are returned back are known as purchase return or return outward.
Sales:
Sales can be used as a term for the sale of goods. It has both cash and credit sales. The goods
which are sold on cash are known as cash sales and the goods which are sold using credit are
known as credit sales.
Sales Return:
The goods which are given back to the purchaser are known as sales return or return inward.
Revenue from Operations:
The revenue which are earned by the operating activities done on an enterprise.
Goods:
It is the physical thing which is used for selling and buying to earn profit.
Examples are A/C, Fridge etc.
Stock / Inventory
It is a physically appeared asset for the sale of goods. Stock may be of two type.
•Opening Stock : It is the stock which will be there from the previous years stock.
•Closing stock : The stock which will be over at the end of the year.
Stock may be of following kinds
1.Stock or inventory of goods.
2.Stock of raw materials.
3.Work in Progress
Trade receivables
It is the amount which is given by the customer by selling goods to them. It the sum of debtor
and bills receivable.
Debtor
The person who borrowers money from a person or company is called a debtor.
Bills Receivables
It is a change of bill to a specified date for the debtor.
Trade Payable:
It is amount given to the seller in purchase of good.
Creditor:
A person who gives money to a enterprise is known as creditor.
Cost:
It is the amount given for a good or material.
Voucher:
It is an evidence kept while a business transaction takes place.
Discount:
It is the deduction of price of good. Discount is of two types.
Trade Discount:
The discount given by the seller to the consumer.
Cash discount :
It is the discount given for a specific period of time. It is return on the book of both debtor
and creditor.
Bad debts:
It is the amount borrowed by the business, that is written because it cannot be recovered.
Balance Sheet :
It is the statement of an individual about the financial position. It includes assets, liability,
capital, reserves etc.
Book value:
It is the book in which all the values of goods are recorded.
Books of account:
It is a book in which all the transactions are recorded.
Cost of goods solved:
The goods which are solved directly.
Credit:
Credit is written on the right side of an account it direct from the Italian word "credito"
Debit:
If an account is debited, it is written on the left side( debit side). It is derived from the Italian
word "Debito".
Depreciation:
It is the fall in asset.
Entity:
It is an unit that performs economic activity.
Entry:
The transactions recorded in the book of account.