2. Basic Terminologies
Transaction:
Capital:
It is transfer of money, goods, or service from one
person or account to another person or account.
There are cash transactions, credit transactions, and
paper transactions. In all cash transactions, cash is paid
or received immediately. In credit transactions, there
is a promise to pay or receive cash at a future date. In
paper transactions, there is no cash inflow or outflow,
but adjustment is made only in the records
Funds brought in to start a business, by the owner or
owners. In the case of a company, capital is collected
by issue of shares.
Cont…..
3. Assets:
Fixed assets:
An asset is a resource legally owned by the enterprise
as a result of past events and from which future
economic benefits are expected to flow to the
enterprise. For example, land and buildings, plant
and machinery, furniture and fixtures, cash in hand
and at bank, debtors and stock, etc. are regarded as
assets.
those which are held for use in the production or
supply of goods and services and not for resale in the
normal course of business. For example, land, plant
and machinery are fixed assets. An exception to this
is, for a land developer, land is considered as current
asset because the developer is involved in buying and
selling of land.
4. Current assets:
Liquid assets
Liability:
which are held or receivable within a year or
within the operating cycle of the business.
They are intended to be converted into cash
within a short period of time. For example,
stock in trade, debtors, bills receivable, cash
at bank, etc.
which can be easily converted into cash. For
example, cash in hand, cash at bank,
marketable investments, etc.
It is a financial obligation of an enterprise
that arises from a past event, the settlement
of which is expected to result in an outflow
of resources embodying economic benefit.
For example, loans payable, salaries payable,
term loans.
5. Current liability:
Equity:
Entity
It is an obligation which has to be satisfied
within a year. For example, payment to be
made to sundry creditors for the goods
supplied by them on credit; bills payable
accepted by the businessman; overdraft
raised by the businessman in a bank, etc.
Equity is the residual interest in the asset of
the enterprise after deducting all its
liabilities. The equity of a company is called
shareholders’ equity. Its components include
share capital, share premium, and retained
earnings.
It is an economic unit that performs
economic activities.
6. Sole trader:
Partnership:
Joint stock
Company:
A single individual carrying on business with or
without the help of kith and kin is called a sole
trader.
It is a relationship between partners to contribute
capital to start a business with an agreement to
distribute profits and losses in an agreed
proportion. Partnership is a business being carried
on by all or any one partner acting for all.
Partnership firm refers to business whereas the
partnership refers to relationship caused by the
agreement.
It is an organisation, for which the capital is
contributed by shareholders to carry on business. It
is registered under Companies Act and has a legal
entity, having perpetual existence and a common
seal.
7. Goods:
Sales:
Inventory:
Drawings:
Goods refer to merchandise, commodities, products,
articles, or things in which a trader deals. It represents
commodities or things meant for resale. Goods account is
divided into the following six types.
Goods sold by a business are called sales.
Inventory refers to goods held by a business for sale in the
ordinary course of business or for consumption in the
production of goods or service for sale. It includes stock of
raw materials, stock of work in progress and stock of
finished goods.
cash, goods, or any other asset withdrawn by the
proprietor from his or her business for his or her personal
or domestic use. In short, amount the owner withdraws
from his or her business for living and personal expenses.
8. Debtor:
Debt:
Creditor:
Loss:
Profit:
A debtor is a person who owes money to the business.
A debtor may be of four types.
The amount due from a debtor to the business is called
a “Debt”. Debt may be of three types:
A creditor is a person to whom the business owes
money. A creditor may also be of four types.
It refers to money or the worth of money given up
without any benefit in return. For example, loss of cash
by theft, loss of goods by fire, etc. It is a situation
where in the expenses of the business exceeds
revenues. An expense brings some benefits, but loss
does not bring any benefit.
It is a situation where the revenue of a business exceeds
its expenses. In other words, the amount earned is
greater than the expenses.
9. Journal:
Ledger:
Entry:
Narration:
A journal is a daily record of business transactions. It is a book
of original, prime, or first entry in which all the business
transactions are first entered in the specified manner in the
order of dates. A preliminary record where business
transaction is first entered into the accounting system.
A ledger is an account book in which all the accounts are
maintained. It is the books of final entry as well as principal
book of accounts.
It is the record of a transaction made in any book of account,
either in the book of original entry or in the books of final
entry.
It is a brief explanation of a journal entry. It is given below the
journal entry, within brackets. It gives the explanation for that
particular journal entry.
10. Posting:
Voucher:
Trial balance:
Balance sheet:
Carried Forward
Posting is the process of entering the information
already recorded in the journal or in any of the
subsidiary books in the ledger.
Voucher is a document which serves as an
evidence for transactions.
A list of all ledger account balances on a given
day.
It is the financial statement, which shows the
amount and nature of business assets, liabilities,
and owner's equity at a specific point in time. It
is also known as a Statement of Financial Position
or a Statement of Financial Condition.
It is used to transfer a total or a balance figure
from one period to the next or from one page to
the next.
11. Brought Forward:
Bill of exchange:
Bills payable:
Bills receivable:
It is used to bring an amount (balance or total)
from a previous period to the current period or
from a previous page to the current page.
It is a written documentary evidence that
contains an unconditional order signed by the
maker, directing a certain person to pay a
certain sum of money only to, or to the order
of, a certain person or the bearer of the
instrument.
It is a bill of exchange stating an obligation to
pay a certain sum of money at a specified date.
It is a bill of exchange containing an acceptance
from the drawee (or payee) for a certain sum of
money at a specified date