Basic Terminology of Accounting

Accountants

Business Transaction

A business transaction is said to be as a transaction which changes the financial position of a business enterprise and which can be measured in terms of money.

Event

An event is said to be as result of a business transaction.

Voucher

A voucher is an original document on basis of which the business transactions are recorded initially in the books of accounts

Capital

The amount invested by the owner or the proprietor of a business organisation is known as capital. It can be in the form of cash, goods or some other assets. It is always treated as a liability for a business organisation towards its owner.

Assets

Anything which is under the position of a business enterprise or which is property of a business enterprise then it will be termed as an asset.

Non-current assets

The assets which remain in the business for a long time duration and which are not purchased for resale purpose but are purchased for increasing the productive capacity of the business by producing goods and services are known as non-current assets or fixed assets

Current Assets

The assets which can be converted into cash within a year or within operating cycle of the business and which are purchased for resale purposes are known as current assets.

Tangible assets

The assets which can be seen, touched and felt are known as tangible assets.

Intangible assets

The assets which cannot be seen or touched and felt are known as tangible assets.

Liquid Assets

The assets which are already in the form of cash or can be converted into cash quickly are known as liquid assets.

Wasting Assets

The assets which are consumed by its usage are known as wasting assets

Fictious/Nominal Assets

The assets cannot be or no further benefit can be derived from them are called nominal assets

Liability

The amount which the firm is liable to pay to the outsiders are known as liabilities.

Internal Liability

The amount which a business enterprise is liable to pay to the owners of the business are known as Internal liabilities.

External Liability

The amount for which a business enterprise is liable to pay to outsiders or third party is known as External liabilities.

Non-current liability

The amount which falls due for payment in a relatively longer time period are known as Non-current or long term liabilities.

Current liabilities

The liabilities which fall due for payment in future or within a year are known as Current liabilities.

Contigent liability

The liabilities which are not the actual liabilities of a business enterprise but may become or happening of a certain future event are known as Contingent liability.

Trade Receivables

Trade receivables refers to the amount receivable on account of sale of goods or services rendered by the company in the normal course of business

Trade Debtors

The term ‘Trade Debtors’ represents those persons or firms to whom goods have been sold or services rendered on credit and payment has not been received from them.

Bill Receivable

A bill of exchange becomes bill receivable for the person who draws it (drawer) and get it back, after its acceptance from the drawer.

Trade Payable

Trade payable is the amount payable on account of goods purchased or services taken in the normal course of business. Trade payable include both ‘Trade Creditors’ and ‘Bills Payable'.

Trade Creditors

They represent those person or firms from whom goods have been purchased or services procured on credits and payment has not been made to them.

Bill Payable

A bill of exchange becomes bill payable for the person who accepts it (drawer) and returns it to the drawer. Thus, bill payable is an accounting for bills of exchange accepted in favour of creditors.

Purchase

The term purchase is used for the purchase of 'goods' in which the business deals. It included both cash purchases and credit purchases.

Purchase Return

When purchased goods are returned to the suppliers these are known as purchase returns.

Sales

Sales means transfer of ownership of goods or services to customer for a price. The term sales include both Cash and Credti

Sales Return

Some customers might return the goods sold to them. These are termed as sales returns or ‘returns inwards’.

Goods

Goods include all those things which are purchase for resale or which are used for producing the finished products which are also meant to be mad.

Stock or Stock in trade

The term ‘stock’ includes the value of those goods which are purchased for reselling and which are lying unsold at the end of accounting period.

Profit

It is the excess of total revenue over. Total expenses of a business enterprise for an accounting period

Gain

It is a monetary benefit, profit or advantage resulting from events or transactions which are not the operating activities of a business but are incidental to business such as sale of fixed assets, winning a court case or appreciation in the value of an asset.

Loss

The result of the business for a period when total expenses exceed the total revenues or An activity against which firm receives no benefit.

Expenses

Expense is the cost incurred in producing and selling the goods and services.

Expenditure

Any disbursement of cash or transfer of property or incurring a liability for the purpose of acquiring assets, goods or services is called expenditure.

Capital Expenditure

Any expenditure which is incurred acquiring or increasing the value of a fixed asset is termed as capital expenditure.

Revenue Expenditure

Any expenditure, the full benefit of which is received during one accounting period is termed as revenue expenditure.

Revenue

Revenue in accounting means the income of a recurring (regular) nature from any source. It consist of the amount received from sale of goods and from service provided to customer.

Income

Income is different from ‘revenue’ amount received from sale of goods is called ‘expenses’. Surplus of revenue over expenses is called income.

Drawing

Any cash or value of goods withdrawn by the owner for personal use or any private payment made out of business funds are called drawing.

Proprietor

Proprietor is the person who owns the business and who invests capital in the business and bears all the risk related to the business.

Discount

Discount is either an allowance offered by the sellers of goods out of the selling price of goods or a deduction for making prompt payments.

Trade Discount

When discount is allowed by a seller to its customer at a fixed percentage on the list or catalogue price of the goods is called trade discount.

Cash Discount

When discount is allowed to the customer for making prompt discount is called cash discount.

Rebate

it is reduction in the value of goods sold, allowed by the seller after the goods have been sold.

Entry

When a transaction or event is recorded in the books of accounts, it is called ‘entry’.

Bad Debts

It is the amount that has become irrecoverable from a debtor.

Insolvent

A person or an enterprise which is not in a position to pay its debts is called insolvent

Solvent

A person or an enterprise which is in a position to pay its debts is called solvent

Stores

The term ‘stores’ is used to denote material held by an enterprise for the purpose of consumption in the business and not for resale.

Entity

An entry or business entity means an economic unit which is formed for earning income by providing service or selling goods.

Turnover

Turnover means total sale made in a particular year.

Livestock

Domestic animals, such as cattle or horses are known as livestock.

Investment

Investment refers to the deployment of funds in the stores or debentures of companies with the intention.

Book value

It is the value of an asset existing in the books of accounts.

GST

All indirect taxes like exice duty, sales tax, VAT, service tax etc have been merged into single tax known as GST.