ACC: Definitions / Terminology

Business Entity

A business entity is a business that exists independently and operates to provide goods or services.

Business Entity Rule

The owner’s personal transactions must be kept separate from the transactions of the business.

Asset

Property or resources owned by the business that have value.

Examples:
Vehicles, equipment, bank money, trading stock.

Fixed Asset

Assets with a long life (more than one year) that are used in the business and not bought to resell.

Examples:
Land, buildings, vehicles, equipment.

Financial Assets / Investments

Money invested at financial institutions or in shares.

Current Assets

Assets that are cash or will be converted into cash within one year.

Examples:
Trading stock, bank, debtors, cash float, petty cash.

Liability

An amount of money the business owes to another person or business.

Examples:
Loans, creditors, bank overdraft.

Long-Term Liability

A liability that is payable after more than one year.

Example:
Loans, mortgage.

Current Liability

A liability that must be paid within one year.

Examples:
Trading creditors, bank overdraft.

Capital

Money or assets invested by the owner into the business.

Drawings

Money or assets taken from the business by the owner for personal use.

Income

Money received by the business for providing services or selling goods.

Examples:
Service fees, rent income, commission, interest.

Expense

Payments made for services or goods needed to run the business, which decrease owner’s equity.

Examples:
Wages, electricity, advertising, insurance.

Transaction

A business activity involving money that must be recorded in the books.

Cash Receipt

A transaction where money is received by the business.

Payment

A transaction where money is paid out by the business.

Profit

Profit occurs when income is greater than expenses.

Loss

A loss occurs when expenses are greater than income.

Owner’s Equity

The total value of the owner’s investment in the business.

Owner’s equity =
Capital + Profit − Drawings.

Source Document

A document used to record details of a transaction, including date, amount, and reason.

Bank

The current bank account used by the business to deposit and pay money.

Cash Float

Cash kept in the cash register to give change to customers.

Petty Cash

A small amount of cash kept to pay small expenses.

Principle of Double Entry

Every transaction affects two accounts, and debit entries must equal credit entries.

Journal

A book where transactions of the same type are recorded from source documents.

Ledger

A book where journal entries are summarised to show the financial position of the business.

Income Statement

A financial statement used to calculate the profit or loss of a business.

Balance Sheet

A statement showing the financial position of a business on a specific date.

It includes:

• Assets

• Liabilities

• Owner’s Equity