BASIC

ACCOUNTING
TERMS
BY: SHIVANI CHANDEL
1. BUSINESS TRANSACTION

It means a financial transaction entered into

the business by two parties and recorded in the
books of accounts. It is expressed in terms of
money.
Until and unless a transaction is not expressed
in monetary form, it is not a business
transaction.
SOME BUSINESS TRANSACTIONS
Example (business transactions):
Purchased 2 chairs for Rs.500 and one table
for Rs.1000, sold goods costing Rs.2000 for
Rs.2500, etc.
 There are some transactions which may
affect any business or are very important
for business but are not business
transactions.
Example: quarrel between two managers,
strike by employees, appointment of new
2.EVENT
Result or consequences of so many
transactions is called an event.
EXAMPLE
 Transactions: 1. Investment of Rs.5,00,000.
2. Purchased goods for
Rs.4,00,000.
3. Cash Sales of Rs.3,80,000.
4. Payment of rent Rs.20,000.
 Event: 1. Profit of Rs.60,000.
2. stock of Rs.1,00,000.
3. Cash balance of Rs.4,60,000.
4. Capital of Rs.5,60,000.
3.GOODS
Goods are the physical items of trade. The
goods are purchased for resale purpose
always. Goods can be purchased or sold on
both cash or on credit.
Purchase: this term is used for purchase of
goods which are to be resold of for producing
finished products which are to be sold.
Sale: this term is used for the sale of goods
which are dealt by a firm with a purpose of
converting them into cash.
4.STOCK
It is a tangible asset held by the firm for the
purpose of production or for sale.

 Goods purchased-Goods sold = Stock

 It is calculated twice in a year:

1.Opening Stock
2.Closing Stock
 TYPES OF STOCK
 Stock of raw-material.
 Stock of semi-finished goods (work in
progress).
 Stock of finished goods.

Note: Closing stock of one year = Opening

stock
of next year.
5.PURCHASE RETURN AND SALES RETURN

 PURCHASE RETURN: It is also know as

return outwards. The goods purchased may be
returned for any reason like defect in quality,
etc. So, when goods are returned to the
suppliers, it is called purchase return.
 SALES RETURN: It is also called as return
inwards. The goods when are returned by the
customers, it’s called sales return.
6. TRADE RECEIVABLES

 DEBTORS: Debtor is person to whom the

firm has sold goods or services on credit in
an ordinary cause of business.
 BILLS RECEIVABLES OR B/R: It means
the bills of exchange which are accepted by
the debtors, the amount of which will be
received on a specified date.
 Trade receivables = Debtors + Bills
receivables
7. TRADE PAYABLES

 CREDITORS: Creditor is a person from

whom the business has purchased goods or
services on credit in an ordinary cause of
business.
 BILLS PAYABLES: It is a bill of exchange
accepted by the firm to pay a fixed amount
on a specific date to a creditor.
 Trade payables: Creditors + Bills payables
8.EXPENDITURE
The amount which is spent for running a
business i.e. for purchasing goods or services
or for purchasing anything for the benefit of the
business.
EXPENDITUR
E

Deferred
Revenue Capital
Revenue
Expenditure Expenditure
Expenditure
EXPENDITURE
8(a) REVENUE EXPENDITURE: It is the
expenditure incurred, the benefit of which will
be consumed within the current accounting
year.
Examples: Rent paid, Salary paid, purchase of
goods, loss by fire, loss by theft, etc.
8(b)CAPITAL EXPENDITURE: It is the
expenditure incurred the benefit of which will
be consumed in future. Such expenditure is
incurred to acquire assets or to increase the
efficiency of the assets.
8(C) DEFERRED REVENUE EXPENDITURE
These are those expenditures which are not
revenue in nature but the benefit of which is
likely to be derived over a period of years.

EXAMPLE: I commenced a business of selling bags.

Now, I wanted to increase the sale of bags so I went
for an advertisement. I hired a model for this advt.
and he charged Rs.2,00,00,000 for this. My business
is not very big yet and this amount is enough to take
my business to loss. So, I will show this expense as
assets and slowly by slowly I will reduce it to expense
every year. This expenditure is deferred revenue
expenditure.
9. ASSETS

Anything which is the property of the business

and enables business enterprise to get benefit
in future is called asset.

ASSETS

Non-current Current Fictitious

Assets Assets Assets
9(A) NON-CURRENT ASSETS
These are those assets which are held by the firm
From along term point of view (for more than one
year from the end of the accounting year).
Fixed assets are further classified into:
1.Tangible Assets
2. Intangible Assets
Tangible Assets: These are those assets which
can be seen or touched, they have their physical
existence. Eg: Furniture, Building, etc.
Intangible Assets: These are those assets which
can neither be seen or touched, they do not have
their physical existence. Eg: Goodwill, Trademark,
9(B) CURRENT ASSETS

These are those assets which are held by the

firm for converting them into cash or for using
them within a short period of time (within one
year from the end of the accounting or financial
year).
Example: Stock, Bills Receivable, Debtors,
etc.
9(C) FICTITIOUS ASSETS
These are those assets which can not be realized
into cash and no further benefit can be derived
from them. They are also known as nominal
assets.
Example: I commenced a business of selling
bags. Now, I wanted to increase the sale of bags
so I went for an advertisement. I hired a model for
this advt. and he charged Rs.2,00,00,000 for this.
My business is not very big yet and this amount is
enough to take my business to loss. So, I will
show this expense as assets and slowly by slowly
I will reduce it to expense every year. The assets
here I have shown is a fictitious asset.
10. CAPITAL

Capital is the amount invested by the owner

into the business. This amount may be in the
form of cash, goods or assets. It is the amount
with the help of which goods and assets are
purchased in the business. Capital is also
known as Owner’s Equity or Net Worth or Net
Assets.
CAPITAL = ASSETS - LIABILITIES
11.LIABILITY

The amount invested into the business by a

person other than the owner is called liability.
Liability is always payable on due date.

LIABILIT
Y

Current Non-
Liabilities Current
Liabilities
TYPES OF NON-CURRENT LIABILITIES:
1.Non-Current Liabilities: These are those
liabilities which are payable after a long period
of time (more than one year from the end of
accounting year). Example: Loan, etc.
2.Current Liabilities: These are those
liabilities which are payable after a short period
of time (within one year from the end of the
accounting year). Example: Creditors, Bank
overdraft, etc.
SOME OTHER TYPES OF LIABILITIES

1.Internal Liabilities: The liabilities of a

business which are the business has to pay to
its owner are called internal liabilities.
2.External Liabilities: The liabilities of a
business which the business has to pay to the
outsiders.
Example: Creditors, Loans, etc.
12. RECEIPT

RECEIPT

REVENUE CAPITAL
RECEIPT RECEIPT
TYPES OF RECEIPT:
1.Revenue Receipt: Amount received or
receivable from the sale of goods and services in
the normal course of business is called revenue
receipt.
Example: Sale of goods, Sale of scrap, etc.
2. Capital Receipt: Amount received or
receivable from the sources which are not
revenue ion nature is called capital receipt.
Example: Sale of furniture, etc.
# Profit = Revenue – Expense
# Expense > Revenue = Loss
13. DISCOUNT
Discount is the concession or rebate allowed
by the seller to the customers in the prices of
goods or services.

DISCOUNT

Trade Cash
Discount Discount
TYPES OF DISCOUNT:
1.Trade Discount: It is the concession allowed
by the seller to the customer on the basis of
either quantity or prices of the goods or
services. Trade discount is allowed to increase
the sale.
# We never record trade discount in the books
of accounts.
2. Cash Discount: It is the concession allowed
by the sellers to the customer for making timely
or early payment.
SOME OTHER IMPORTANT TERMS:

1. DRAWINGS: The amount withdrawn by the

owner from the business for his personal use is
called drawings.
2. BAD-DEBTS: The amount which become
irrecoverable from the debtors.
3. INSOLVENCY: It is condition of a person
who becomes unable to pay its debts and than
person is called insolvent.
SOME OTHER IMPORTANT TERMS:
4. OWNER: The person who commences the
business and bears all the risks associated
with business is called owner of the business.
5. ENTITY: It means an economic unit which
performs an economic activity.
# A business and a businessman are two
different things.
6. DEPRECIATION: It is fall ion value of a fixed
assets with either usage or affix of time.
# Depreciation = Cost of fixed asset / Estimated
SOME IMPORTANT NOTES:
NOTE 1: The value of benefit which business had
taken during the year is called an expense. It does
not matter whether the payment has been made or
not.
NOTE 2: The value of benefit which the business will
enjoy in future for more than one year from the end of
current accounting year is called an assets.
NOTE 3: Goods – Goods are sold
Services – Services are rendered
NOTE 4: Advance income : It means that revenue
has been received but the service has not been
rendered or the goods have not been sold. This kind
of advance will be treated as a liability for the firm.
Thank
you