BASIC ACCOUNTING TERMS

1.Business transactions or financial transactions: Day to day activities in

business which involves flow of money, goods or services.
Example: January 1: purchase goods MVR.2000.
January 2: paid electricity bill MVR.1400
January 3: sold goods to Abu MVR.300
2.Capital: It refers to the amount invested by the owner in a business.
3.Drawings: Cash or other assets withdrawn by owner for his personal use, out of
business funds.
4.Liability: It refers to the amount which the firm owes to outsiders. (Need to pay
to outsiders)
Example: bank loan, trade payables.
5.Assets: Things which are owned by a business. It includes cash, furniture,
machinery, account receivables.
6.Expenses: The cost incurred in producing and selling the goods and services.
Example: Purchase raw materials, Labor charges, transportation, advertising etc.
7.Revenue: Amount received from sale of gods or services.
8.Income: Surplus of revenue over expenses.
Income = revenue – expenses
9.Profit: Excess of revenue over expenses.
Profit = revenue – expenses.
10. Loss: Excess of expenses over revenue.
Loss = expenses – revenue
11. Purchase: Buying an item to either use in production of goods and services or
to resale.
12. Sales: Transfer the ownership of a goods or service to a customer for a price.
13. Debtor or account receivables: A debtor is an individual or entity that owes
money to a business. it’s an asset.
14. Creditor or account payable: A creditor is an individual or entity to whom a
business owes money. It’s a liability.
15. ACCOUNTING EQUATION
ASSETS = LIABILITY + CAPITAL
LIABILITY= ASSETS – CAPITAL
CAPITAL= ASSETS- LIABLITY