Accounting Terminology

Business Transaction:

                    Every business Operation deals with exchange of cash, goods and services. This results in change in the financial position of the business concern. Hence, a business transaction may be defined as an activity that brings a change In the aspects of the business. It is also transfer of may or money’s worth between two parties. Event like purchase an sale of goods, receipts and payments of cash etc…,

Business:

                   It is an activity which involves exchange of goods/services with the intention of earning income and profit.

Assets:

                 Assets refer to any properties or things owned by a business concern including the amount due to it from others.

                                 

                                    Eg: Building

                                           Machinery

                                           Stock

                                           Cash and Bank Balance

                                           Investment etc..,

Fixed Assets:

                    It is permanent assets it is also provide long-term benefits for running the business. Change in the value of these assets is minimum.

                

            Eg: Land, Building, Plant, Machinery, Vehicles, and Furniture

Floating Assets:

                   In these assets dedicate their benefits for running the business and which change in value with in a short span of time. Values of those assets always change.

               

                 Eg: Goods, Debtors, Cash & Investment etc..,

Current Assets:

                Cash and other short term assets or circulating assets like debtors, stock, bills receivable , cash etc…,

               

                 Eg: Investment, debtors, Closing Stock, Cash at Bank, Cash in     

                       hand, prepaid expenses, accrued incomes

Fictitious Assets:

                   It is also called intangible assets. In these assets are types of peculiar assets whose existence in invisible but whose benefit is enjoyed.

               

                 Eg: Good will, Copy rights, Patents. Unabsorbed portion of

                       Differed revenue expenses like advertisement, preliminary                                                                                

                        Exp, samples can also be shown under this heading.

Cash transactions:

                  When payment for business activity in made immediately, it is called cash transaction.

Credit Transactions:

                  When the payment is postponed to a future data it is called credit transaction.

               

Non-Cash Transaction:

                   A non-cash transaction is a business transaction where these is no payment or receipt of cash either immediately or at a future date.

               

                  Eg: Depreciation, bad Debts etc..,

Proprietor:

                The owner of business is called proprietor he invests capital in the business with the intention of earning profit.

Capital:

   

               It is the Amount invested by the proprietor in the business. It is always equal to (Assets-Liabilities) it is also called owners equity i.e. Owners claim against the Assets.

Assets  =  Capital  + Liabilities Capital  =  Assets – Liabilities Liabilities = Assets - Capital

                     

Drawings: 

              It is the value of cash or goods withdrawn from the business by the owner for his personal use.

Goods:

              It refers to commodities, articles or things in which a trader deals. Goods refer to commodities or things intended for resale. Unsold goods lying in a business concern on any given date are called stock.

Debtor:

           A debtor is a person who owes money to the business.

Creditor:

           A Creditor is a person to whom the business owes money.

Liabilities:

              It is refer to debits or amount due from a business to other either for money borrowed or for goods or assets purchased on credit or services received without making immediate payment. This includes (Bank Loan, or Over Draft, Trade Creditors, Outstanding Expenses) etc….,

Fixed liabilities:

               Fixed or long term liabilities are the loans payable after a reasonable long term durations say 5 to 10 years.

                  

             Eg: Debentures, long term lones, Mortgage loans etc…,

Current liabilities:

                 Current liabilities are the Repayment obligation payable from one year to three years. These are no hard and fast rules for this.

                  

           Eg: Sundry creditors, Bills payable, Bank loans etc..,

Contingent Liabilities:

                 It is the liabilities which may arise in future depending on happening of an uncertain event.

                  

                    Eg: Damages payable but still under dispute. Bills

                           Discounted But likely to dishonored etc..,

Liquid Liabilities:

                    Which are to be paid at very short notice can be included in this category.

Eg: Outstanding expenses, Income Received in Advance,                   

                          Bank Overdraft etc..,

Equity:

                  All claims against the assets of business are called “equity” the claim of outsider is called “creditors Equity” or liability. The claim of the proprietor in called “owners Equity” or capital.

Book Debt or Debt:

                The amount due form a debtor is called debt. Book debt is nothing but debt. It is called “Book Debt” because it is the amount due from debtor as per the books of account.

Good Debt: It is a debt which is fully recoverable.

Bad Debt: A Debt which is irrecoverable is called “Bad debt”.

Revenue:

                It refers to the earnings of a Business. It includes the sale proceeds of goods, receipts for services rendered and earnings from interest, Commission etc..,

Expense: 

          It is the amount spent in conducting business activities. It is the expenditure, in return for some benefit.

                  

                    Eg: Salary paid to staff.

                           Rent paid to landlord etc..,

DEBIT	CREDIT
To debit an account means to enter the transaction on the debit side of that account. It means left hand side of the account. (Incoming benefit or receiving benefit is called Debit)	To Credit an account means to enter the transaction on the credit side of that account. It means right hand side of an account. (Out going benefit or giving benefit in called credit)

Entry:

             The record of a transaction in a journal is called “entry”. In practice the term is used for record made in any book of account.

Posting:

             Posting is the process of entering in the ledger the information already recorded in journal or subsidiary books.

Books of Accounts:

             Books of account refer to suitable ruled account books in which business transactions are recorded. These are mainly two sets of books of accounts maintained by a concern. They are:

a)     Journal or subsidiary Books

b)    Ledger.

Journal:

             It is an account Book. Where business transactions are first recorded. It is a book of original entry. Every business transactions recorded in a chronological order. And day to day transactions are to be recorded in a journal.  This book also called “daily recorded” or “day book” and also “book of prime entry”

   Eg: Sales Returns, purchase rate, C/R and payment, loans & advances

Ledger:

           It is a book in which various accounts are opened. It is also called “Book of final entry”

Brought Down (b/d): 

              This term is written in the ledger to show the opening balance in any account. It suggests that the account has been brought down from the previous period.

Carried down (c/d):

         This is written in the ledger account at the time of closing the account.

Accounting:

                “It is the art of recording, classifying and summarizing in a significant and In  terms of money, transactions and events which are in part at least, of a financial character and interpreting the results there of.”

AICPA: American Institute of Certified Public Accountants.

Account:

                It is a summarized statement of Debit & Credit. These are two parts for every account. The left hand side of the part is called “Debit” side and the right hand side of the is known as “Credit” side.

Expenditure:

             Amount spent for acquiring goods or services for running business is known as expenditure. It may be

                                                Capital expenditure

                                                Revenue expenditure

Capital expenditure:

             The amount spent for the acquisition of fixed asset which have long life and which are useful for the long term benefit of the business is known as capital expenditure.

                          Eg: Machinery, furniture, fixtures, land, building

Revenue Expenditure:

                 All expenses incurred for running the business for the current year is known as “Revenue Expenditure”

        Eg: Salaries, Rent, Interest, Manufacturing and selling goods etc..,

Income:

              The amount earned by a firm out of its business transaction during a period is called income. Particular Income is of two types. Capital gains, Revenue Income.

Capital gains:

               Capital gains are the excess amount received over the book value of the asset owned by the firm.

                          Eg: Profit earned over sale of building.

Revenue Income:

                Revenue income is the income received during business transactions or sale and purchase of goods or on services rendered to outsider.

                          Eg: Interest and commission received

Journal Entry:

                The process of recording the business transaction in the journal is known as journalizing. To divide business a transaction into two aspects and recording in the journal is called “journal entry” the first one is debt aspect and the second one is credit aspect.

Cheque:

               A cheque is an instrument, by means of which a depositor can order the bank to pay a certain sum of money only to the order of a person or to the bearer of the instrument.

Invoice:

               It is a statement sent by the seller to the purchaser which contains the details of the quantity of goods sold and price of the goods/product, terms and conditions of payment particulars.

Loss:

             Loss refers to money or money’s worth given up without any benefit in return. It is an expenditure in return for which no benefit is received. Loss of goods by fire, damages paid to others is examples of losses. Loss is different form an expense. An expense brings some benefit, a loss does not bring any benefit, Rent paid is an expense but a goods destroyed by fire is a loss. It is two types    1) Normal Loss

             2) Abnormal Loss

Normal Loss:

              Loss of stock is said to be normal loss when it is of unavoidable nature and due to inherent characteristics of commodity. Such loss may be arise due to loading and unloading of goods, cutting the bulk material into small parts evaporation, drying etc..,

Abnormal Loss:

             Abnormal Loss is that loss which is avoidable and which does not arise due to the nature of goods. Such loss is caused due to fire, theft, pilferage etc..,