ACCOUNTING TERMS

ACCOUNTINGTERMS

Chapter 2

 DEFEINING ACCOUNTING TERMS

Accounting teams are classified under the following categories:

Ø  Business

Ø  Goods

Ø  Purchase

Ø  Sales

Ø  Expenditure

Ø  Income

Ø  Debtors

Ø  Creditors

Ø  Capital

Ø  Assets

Ø  Liabilities

Ø  Stock

BUSINESS

Business is an economic activity which is performed on regular basis for motive.

GOODS

Physical things which is bought/ manufactured for sale purpose is called goods. Goods are the things in which basically business is dealing.

PURCHASES

The term purchase refers to purchase of only goods by the business concern. When goods are purchased for cash, it is called purchase and when goods are purchase on credit, it is called credit purchase. The term purchase include both cash and credit purchase.

SALES

When only goods are sold out it is referred as sales. When goods are sold for cash, it is called cash sales and when goods are sold on credit, it is called credit sales. The term sales includes both cash and credit sales.

INCOME

Income is money due either received or receivable, by a person or organization because of effort or work done by the person. It is recurring in nature. In other words, it is return on work done or returns on investments. For example, rent received, interest on fixed deposits, income from investments, and so on. For professional such as a doctor the fees that he receives from his patients will be his income. Thus, the fees or commission earned from providing services in included in income.

TYPES OF INCOME:

 Direct income:

Any amount which is due as consideration of sales or rendering services in money wroth is called direct income or revenue income.

Indirect income

Any amount which is due other than revenue income, in money wroth is called indirect income.

EXPENDITURE 

Cost paid or payable by business during on accounting year either of small or big amount.

REVENUE EXPENDITURE

Those expenditure which are recurring in nature and benefits of which will expired within one year. These must for smooth running and maintenance of business. Normally these are also known as expense.

TYPES OF EXPENSE:

Ø  DIRECT EXPENSE: direct expense refer to those expense that are incurred on the goods purchased till they are brought to the place of business for sale. Some example of direct expenses are carriage or fright inward, manufacturing wages, power and fuel, factory lighting, and factory rent and rates and so on. These are also known as manufacturing expenses.

Ø  INDIRECT EXPENSES: indirect expense are those expense that are incurred for carrying on the day-to-day business. Some examples are office rent, salaries, and so on.

CAPITAL EXPENDITURE: Those expenditure which are non-recurring in nature and benefits of which will expired after one year. These must cause for increase in permanent efficiency of business.

DEFERRED REVENUE EXPENDITURE: Those expenditure which are recurring in nature but benefits of which will expired after one year. For example advertisement of nirma surfr; boro plus.

DEBTOR: A debtor is a person or business concern that takes on credit. Example. ABC & co. sells garments wroth rs5,000 to a customer on credit , payment for the sale will be received on a future date. Thus the customer becomes a debtors for ABC & CO.

 CREDITOR: a creditor is a person or business concern who gives on credit. Example ABC & CO. buys raw material wroth rs. 10000 from its supplier on credit i.e. payment for the purchase will be made on a future date. Thus the supplier becomes a creditor for ABC & CO.

 CAPITAL: Everything which is invested by only businessman in business either cash or kind and he can claim for it. Thus, for the business it is a liability towards the owner since the owner is a separate entity from the business. It can also be defined as the positive difference of assets over liabilities. This can be depicted as:

           CAPITAL=ASSSETS-LIABILITIES=NET ASSETS

DRAWING

Anything which is taken by business man for personal use either cash or kinds.

ASSETS

Assets are resources owned by a business. It can be anything that enable a business to get benefit. For example, land, building, stock of goods and cash.

LIABILITIES

A liabilities can be defined as something that a business owns to a other in the form of an obligation to pay. For example, when a loan is taken from a bank or financial instruction it raise a liabilities for the business. Similarly, all the creditors are a liabilities for the businessman.  

STOCK

Stock refers to the lying unsold on a particular date. The stock can be either be opening stock or closing stock. Opening stock is the stock is lying unsold at the beginning of the accounting period while closing stock refers to the stock lying unsold at the end of the accounting period.

PROFIT

Excess of income over expenses. Again it is recurring nature.

GAIN

Excess of income generate over cost of assets. It is non-recurring in nature. Example profit on sale of fixed assets.

TRANSACTION

Any happening or non-happening that has impact on business is called transaction.

·         Qualitative transaction: which involve quality of anything like beauty, honesty etc.

·         Quantitative transaction: Which involve quantity of anything and can be expressed in terms of money. Only those transaction can be recorded in book of accounts which are expressible in money only.

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