GLOSSARY

ACCOUNTING TRANSACTION: All the transactions of business, which can be expressed in

terms of money and hence recordable in books of accounts, are accounting transactions.

ASSETS: Assets are the resources of the business, which helps in the smooth conduct of
business activity. Some assets help the business in day-to-day activity, while some other help the
business in long run by strengthening infrastructure. Assets can be broadly classified as Fixed
Assets and Current Assets. Examples of Fixed Assets are: Building, Machinery, Furniture, etc..
Examples of Current assets are Cash, Stock of Goods, etc..

BAD DEBTS: Bad Debts are those customers, who purchased goods from business for credit
and finally failed to pay money. The reason for non- payment is immaterial. Bad Debts are a loss
to business.

BILLS PAYABLE: Sometimes, a business has to execute a negotiable instrument called Bill in
favor of some of the suppliers promising to pay the due amount on presentation of bill at a
certain future point of time (normally after 30 days to 6 months). As the business has to pay
money against these bills, they are known as bills payable. Bills payable are current liabilities of
Business.

BILLS RECEIVABLE: Some of the customers execute a negotiable instrument called Bill in
favor of business, promising to pay the due amount on presentation of bill at a certain future
point of time (normally after 30 days to 6 months). As the business has to receive money against
these bills, they are known as bills receivable. Bills Receivables are current assets of Business.

BOOK-KEEPING: Initially, accounting function is performed by maintaining certain books of

accounts on regular basis and summarizing them. This phase is known as Book- keeping and
continues all the year round.
CAPITAL: Whenever a person starts a business, he invests some money from his sources. This
money belonging to the owner(s) of the business is known as capital.

DRAWINGS: “Drawings” refers to the amount etc. withdrawn by owner from business for his
personal purpose. Drawings may be in cash or kind.

FINANCIAL ACCOUNTING: A process of recording, summarizing, finalizing, reporting and

communicating business transaction of monetary nature in a systematic manner.

INVENTORY/ STOCK: Inventory at a given point of time, refers to the value of stock of
different items in raw, semi-finished and finished form, which are being traded by the business.
It is to remember that only those items which are merchandise of a business (goods and
commodities in which business is dealing) are considered in inventory. Inventory can be of three
types, Raw Material, Work-in-process, and Finished Goods.

LIABILITIES: Liabilities are the contribution made by outsiders to the business. They are the
obligations up on the business to be discharged in near or later future. Liabilities can be broadly
classified as Long-term Liabilities and Current Liabilities. Examples of Long Term Liabilities
are: Bank Loan, Debentures issued by a company, etc.. Examples of Short Term Liabilities are :
Dues of Suppliers (Creditors), Bank Overdraft, etc..

PURCHASE: It refers to the purchase of goods for the purpose of production of finished goods
or for direct sale (in case of purchase of finished goods by traders), whether for cash or for credit.
Purchase of merchandise (goods and commodities in which business is dealing) only is regarded
as purchases.

PURCHASE RETURN: When a business returns the goods earlier purchased by him (for what
so ever reason) back to the supplier, it is known as purchase return. It can be for cash or for
credit. Again, return of merchandise only back to the supplier is known as Purchase Return.
SALES: It refers to the sale of goods and merchandise in which business is dealing, whether for
cash or for credit. It is immaterial that the goods under sale are in raw- material, intermediary
products or goods required by ultimate consumers. , What is important is sale of merchandise
(goods and commodities in which business is dealing) only is regarded as sales.

SALES RETURN: When a business sale the goods to it’s customers (for cash or for credit),
some of the customers may return the goods back for what so ever reason. This amounts to sales
return for the business. It can be for cash or for credit. Again, return of merchandise only back
from customers is known as Sales Return.

SUNDRY CREDITORS: A businessman may purchase goods for immediate payment (cash) or
for deferred payment (credit). The suppliers selling the goods for credit are creditors of business,
till the time business settles their dues. As there can be a number of suppliers in this category,
they all are collectively known as Sundry Creditors.

SUNDRY DEBTORS: A businessman may sell goods for immediate payment (cash) or for
deferred payment (credit). The customers buying the goods for credit are debtors of business, till
the time they settle their dues. As there can be a number of customers in this category, they all
are collectively known as Sundry Debtors.

VOUCHER: Every transaction recorded in books of accounts of a business must be supported

by a documentary proof ( say, a bill, receipt or any other authorized piece of paper) justifying the
happening of that transaction. This documentary proof is known as voucher.