2. Accounting terms
Assets: Assets are the properties
or resources which are owned
by the business entity. In general
these are the things which are
used to facilitate business and
not to sell them.
Assets may be further classified
as Tangible assets and
intangible assets.
3. Accounting terms (Cont...)
Tangible assets: are those assets which
have physical existence, i.e., we can
touch, see these assets. Examples are
land and building, plant, machinery, cash
etc.
Intangible assets: cannot be seen or
touched.
4. Accounting terms (Cont...)
Liabilities: Liabilities are the debts owed
by the business entity to outsiders.
Capital: Capital represents the owner’s
claim or share in the assets of the business.
In common sense, capital is the amount
invested by the proprietor in his business.
In Accountancy, capital is defined as the
excess of the value of assets over the
liabilities. It can be shown with the
equation.
Capital = Assets - Liabilities
5. Accounting terms (Cont...)
Drawings: Drawings means the amount
of cash or any asset withdrawn by the
owner of the business for his personal or
domestic use.
Debtor: Debtor is a person who owes any
amount to another person. In case of a
business, debtor is a person who has
purchased some goods on credit. Until he
pays the due amount he remains as a
debtor in the books of the business.
6. Accounting terms (Cont...)
Creditor: Creditor is a person to whom any
sum is owed i.e. payable by the business.
Solvent: Solvent is a person whose assets
are equal to or more than that of his
liabilities. It means, he is capable of
paying all his dues/debts in full.
7. Accounting terms (Cont...)
Net Worth: Net Worth of a business means
the aggregate amount of proprietor’s
capital, reserves and accumulated
profits. The equation is,
Net Worth = Capital +Reserves +Profits (or –
losses)
In simple words: Net Worth = Total Assets –
Outside liabilities
8. Accounting terms (Cont...)
Goods: The term “Goods” includes all
commodities, articles or products which are
purchased for the purpose of resale. Goods
refer to any type of merchandise in which a
trader deals in.
Purchases: Purchases means goods
purchased for resale. Such purchases may be
for cash or on credit. But any materials
purchased for use in the office are not termed
as purchases. Purchases are the goods clearly
meant for resale by the businessman.
9. Accounting terms (Cont...)
Sales: The term “Sales” means goods sold
for cash or on credit. But it does not
include sale of any asset. Sales constitute
the revenue of the business.
Purchases Returns (or Returns Outwards):
Means the goods which are purchased
are returned to the supplier for reasons
such as damages, poor
quality, overcharging, not as per order
etc.
10. Accounting terms (Cont...)
Sales Returns (or Returns Inwards): Means
the goods which were sold to customers
are now returned for the reasons
mentioned above.
Stock: On any given date, there will be
some goods which remains unsold. Thus
stock is the value of such unsold goods.
11. For Sole Proprietorship
Profit and Loss Account (P&L Account)
Particulars Rs
.
Particulars Rs.
To Profit and Loss A/c(loss
transferred from Profit & Loss A/c)
To Salary
To Commission
To Interest on Capital
To Reserve A/c
To Profit transferred to current
account
By Profit and Loss
account(Profit transferred
from P & L account)
By Interest on Drawings
By Loss transferred
to current accounts
12. Profit and Loss Appropriation
Account
Particulars Total
Add
Less
Net profit
Interest on drawings
Interest on capital
Commission
Salary
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
13. For Partnership Firm
Partners' Current Account
Particulars Partner
A
Partner
B
Particulars Partner
A
Partner
B
Balance b/d
Drawings
Interest on
drawings
Balance c/d
Balance b/d
XXX
XXX
XXX
XXX
XXX
XXX1
XXX3
XXX
XXX
XXX
XXX
XXX
XXX2
XXX4
Balance b/d
Interest on
Capital
Salary
Commission
Share of Profits
Balance c/d
Balance b/d
XXX
XXX
XXX
XXX
XXX
XXX
XXX3
XXX
XXX1
XXX
XXX
XXX
XXX
XXX
XXX
XXX4
XXX
XXX2
14. Profit and Loss Appropriation
Account
Particulars Total
Add
Less
Net profit
Interest on drawings
Partner A (XXX)
Partner B (XXX)
Interest on capital
Partner A (XXX)
Partner B (XXX)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
CONT…
15. Profit and Loss Appropriation
Account (Cont…)
Particulars Total
Less
Less
Commission
Partner A (XXX)
Partner B (XXX)
Salary
Partner A (XXX)
Partner B (XXX)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXXX
CONT…
16. Consider Partner A’s and Partner B’s share
in business is in the ratio of 50:50
Then profit or loss for partners are as
bellow:
Partner A (1/2 * XXXX) = XXX
Partner B (1/2 * XXXX) = XXX
