Basic accounting terms to remember

1. Account: - A statement which shows all the transactions relating to a

particular item during a period of time.
2. Accounting Equation : Assts = Liabilities + Capital ( Resources = sources of
resources)
3. Assets: The resources of an enterprise. I.e. things, properties and rights
owned.
4. Balance Sheet: A statement of assets and liabilities as on a particular date.
5. Books of Account: Books wherein transactions and events are recorded and
summarized.
6. Business: Any activity carried on with profit motive.
7. Capital: Money or money’s worth invested by the proprietor in the business.
8. Cost: price paid to acquire an asset.
9. Cheque: A bill of Exchange drawn on a specified banker and payable on
demand.
10.Credit: Right side of an account.
11.Current assets are those that will be converted to cash within one year.
Typically, this could be cash, inventory or accounts receivable. Fixed
assets are long-term and will likely provide benefits to a company for more
than one year, such as a real estate, land or major machinery.
12.Asset classes: An asset class is a group of securities that behaves similarly in
the marketplace. The three main asset classes are equities or stocks, fixed
income or bonds, and cash equivalents or money market instruments.
13.Cash flow (CF): The revenue or expense expected to be generated through
business activities (sales, manufacturing, etc.) over a period of time.
14. Credit (CR): An accounting entry that may either decrease assets
or increase liabilities and equity on the company's balance sheet, depending
on the transaction. When using the double-entry accounting method there will
be two recorded entries for every transaction: A credit and a debit.
15. Credit Transactions: The purchase and sale transactions without immediate
payment against it.
16. Creditors: The suppliers of goods and services on credit.
17.Debit: Left side of an account.
18.Debtors : Persons who have purchased goods on credit or persons who owe
money to the business.
19. Double entry system: A system of recording business transaction s where
the two aspects of each transaction are recorded.
20.Entity: An economic / business unit that performs economic activities. For
exam. Bajaj Auto, Reliance Industries, NALCO etc.
21.Event: A happening as a consequence of transactions or a result.
22. Expenditure: Out flow of economic resources for the purpose of generating
long term benefits. In other words, it is the amount sacrificed for the purpose
of acquiring an asset or service.
23.Expense: That part of expenditure which has been consumed during the
current accounting period. It is the amount incurred for earning revenues
during the current accounting year.
24. Gains: A monetary benefit, profit or advantage resulting from a transaction
or group of transactions. i.e. profit on sale of fixed assets.
25.Income: Amount earned through business operations.
26.Liabilities: the amount owed by the business to the outsiders.
27.Loss: the excess of expenses over revenue or the result of a transaction or
event which fail to earn revenue.
28.Transaction: involves performance of an economic activity which is
financial in nature,
29.Goods/Services: These are tangible article or commodity in which a business
deals. These articles or commodities are either bought and sold or produced
and sold. At times, what may be classified as ‘goods’ to one business firm
may not be ‘goods’ to the other firm. e.g. for a machine manufacturing
company, the machines are ‘goods’ as they are frequently made and sold. But
for the buying firm, it is not ‘goods’ as the intention is to use it as a long term
resource and not sell it. Services are intangible in nature which is rendered
with or without the object of earning profits.
30.Profit: The excess of Revenue Income over expense is called profit. It could
be calculated for each transaction or for business as a whole.
31.Internal Liability: These represent proprietor’s equity, i.e. all those amount
which are entitled to the proprietor, e.g., Capital, Reserves, Undistributed
Profits, etc.
32.Working Capital: In order to maintain flows of revenue from operation,
every firm needs certain amount of current assets. For example, cash is
required either to pay for expenses or to meet obligation for service received
or goods purchased, etc. by a firm. On identical reason, inventories are
required to provide the link between production and sale. Similarly,
Accounts Receivable generate when goods are sold on credit. Cash, Bank,
Debtors, Bills Receivable, Closing Stock, and Prepayments etc. represent
current assets of firm. The whole of these current assets form the working
capital of a firm which is termed as Gross Working Capital.
33.Drawings: It represents an amount of cash, goods or any other assets which
the owner withdraws from business for his or her personal use. e.g. if the life
insurance premium of proprietor or a partner of business is paid from the
business cash, it is called drawings. Drawings will result in reduction in the
owners’ capital. The concept of drawing is not applicable to the corporate
bodies like limited companies.
34.Non-current Investments: Non-current Investments are investments which
are held beyond the current period as to sale or disposal. e. g. Fixed Deposit
for 5 years.
35.Payable: include both the trade creditors and bills payable.. Thus, it refers to
the total amount payable to the suppliers of goods on account of goods
purchased from them and bills of exchange issued in their favour.
36.Purchase : Total amount of goods purchased by an enterprise for resal;e or
for use in the production of goods or rendering of services. It includes both
cash and credit purchase of goods.
37.Receivables: Include both the trade debtors and bills receivable. Thus , it
refers to the amount receivable from customers on account of goods/ services
sold to them on credit and bills of exchange accepted by them.
38.Sales: Total amount of goods sold or services rendered.it may be cash or
credit.
39.Stock: It refers to the tangible property held for sale in the ordinary course of
business or for consumption in the production of goods or services. It
includes