This PPT Objective is Understand basic accounting Exploring the accounting terminology and its meaning

1. BASIC
ACCOUNTING
TERMINOLOGY

2. •PROGRAM OBJECTIVE
•Understand basic accounting
•Exploring the accounting terminology
and its meaning

3. Definition
In plain words accounting provides
you with information that will help
you in operating business make, right
decision ; it is the means by which
business information is communicated

4. •ACCOUTING CYCLE
1. Analyzing and recording
transaction in journal .
2. Posting transaction to ledger .
3. Preparing an adjusted trail balance

5. •Basic accounting terminology
•Assets: Any item of economic value
owned by an individual
or corporation, especially that which
could be converted to cash.
Examples :
cash, securities, accounts
receivable, inventory, office
equipment, real estate, a car, and
other property.

6. TYPES
Fixed Assets:A long-term, tangible
asset held for business use and not
expected to be converted to cash in the
current or upcoming fiscal year, such
as manufacturing equipment, real
estate, and furniture. also called plant.

7. Current Asset :
It is an asset which can be converted into
cash very easily within one year of time
Example
Cash, inventory, marketable
securities, prepaid expenses, and
other assets

8. • Liquid asset
For an asset to be liquid it needs an established
market with enough participants to absorb the
selling without materially impacting the price of the
asset. There also needs to be a relative ease in
the transfer of ownership and the movement of the
asset. Liquid assets include most stocks, money
market instruments and government bonds. The
foreign exchange market is deemed to be the most
liquid market in the world because trillions of dollars
exchange hands each day, making it impossible for
any one individual to influence the exchange rate.

9. •Fictitious Assets
Fictitious Assets are not assets which are tangible and
visible like buildings, machinery , computer but the
expenditure on some activity which is considered as a
Capital expenditure instead of Revenue expenditure.
When expenditure incurred amount is not debited to
Profit and Loss A/C but shown as Fictitious asset and
over a period the amount is written off or debited to
P and L account. For example Share issue expenses by
a Corporate, This is not debited to P& L A/c in the year
in which it is incurred but debited in instalments as
decided by Management over few years.

10. •Wasting asset :
An asset which has a limited life and
therefore decreases in value over
time, such as an option which is out of
the money.

11. •Liabilities : Expenses incurred by
the comp in a financial year
Types
1. Current liabilities:Obligation
whose LIQUIDATION is expected to
require the use of existing resources
classified as CURRENT ASSETS, or the
creation of other current liabilities

12. •Long term liabilities : A company's long-
term liabilities are accounted for by its debt
obligations to other parties that last longer
than one year.
Contingent asset :An asset in which
the possibility of an economic benefit depends
solely upon future events that can't be
controlled by the company., these assets are
not placed on the balance sheet. However, they
can be found in the company's financial
statement notes.

13. •Contingent liability : Expenses may
or may not occur in the company
Example :
Case filed against the company for a
compensation
•Goods :Products or more specifically,
products that economists feel satisfies
a market need.

14. • Capital:The money, property and
other valuables which collectively represent
the wealth of an individual or business
• Types
• Fixed capital :Assets or capital investments that
are needed to start up and conduct business, even at a
minimal stage. These assets are considered fixed in
that they are not used up in the actual production of a
good or service, but have a reusable value.
example: include factories, office buildings,
computer servers, insurance policies, legal contracts
and manufacturing equipment. Which are not
continuesly purchased in course of production

15. • Working capital :A measure of both
a company's efficiency and its short-term
financial health. The working capital ratio is
calculated as
WC = CURRENT ASSET –CURRENT LIABILITIES
DRAWINGS: using of companies goods and
services for personal use it may be in the form of
cash are the good
Transaction : Event that effects a change in
the asset, liability, or net worth account. Transactions are
recorded first in journal and then posted to a ledger

16. •Business transaction :
An economic event that initiates the
accounting process of recording it in a
companies accounting system
1. Cash transaction : where cash is paid
immediately when the goods and
service used
2. Credit transaction :where you are
allowed to pay for goods and services
several weeks are months after you
have received them

17. •Purchase :To obtain in exchange for
money or its equivalent; buy
1. Cash purchase :its nothing but cash
and carry transaction
2. Credit purchase : payments are made
after few days , months for the day
when the goods are received
3. Purchase return : goods purchase
from the seller are returned due to
damage ,excess i.e. Return outwards

18. •Sales : earning of revenue for the goods
and services rendered
1. cash sales : cash is received as soon
as the sales are made
2. Credit sales: cash is received in the
later stage of the financial year
3. Sales return : goods returned by the
purchaser to the business i.e. return
inwards

19. • Prepaid expenses :Due to the nature of certain
goods and services, they must be prepaid expenses.
• Example: insurance is a prepaid expense, because
the purpose of purchasing insurance is to
buy proactive protection in case something
unfortunate happens
Out standing expenses :expenses which are to be
made in future due to previous days expenses
Incomes received in advance: it’s a liability to the
organization example : cash received in advance
before the sale are made
Accrued income : income is accrued by the business
on level basis in the completion of the work
example: construction company

20. • Provision : it’s a liability its occurred in every
financial year a certain amount is kept aside in
profits where the liability varies
• Revenue ; The amount of money that a
company actually receives during a specific
period, including discounts and deductions
for returned merchandise
• Capital expenditure: expenses occurred
occasionally in the life time of the bussines
Example: purchase of machine, land

21. • Revenue expenditure :All the expenditures
which are incurred in the day to day conduct
and administration of a business and the
effect-of which is completely exhausted
within the current accounting year are
known as "revenue expenditures".
• Differed expenditure : is an expenditure for
which payment has been made or a liability
incurred but which is carried forward on the
presumption that it will be of benefit over a
subsequent period or periods. This is also
referred to as deferred revenue expenditure.

22. • Cash discount : An incentive that a seller
offers to a buyer in return for paying a bill
owed before the scheduled due date.
• Trade discount: is an allowance made from
the full invoice price to a customer who buys
goods in the ordinary course of trade. For
example: a whole seller nay invoice goods to a
retailer at the retail selling price less a discount
of 25%; which represents the retailer's gross
profit.

23. • Quantity Discount: An incentive offered to a buyer
that results in a decreased cost per unit of goods or
materials when purchased in greater numbers.
• Debtor: debtor has a debt or legal obligation to pay
an amount to another person or entity.
Example : if you borrow $10,000 from a bank, you are
the debtor and the bank is the creditor.
• Creditor: visa versa of debtor
• Accounts Receivables: Money which is owed to
a company by a customer for products and services
provided on credit. This is often treated as a
current asset on a balance sheet.
• Accounts Payable: money owned by the company to
a customer for the product and services purchased on
credit

24. • Debt: its nothing but customer owns money to
the company
• Good debt: theirs a guarantee of getting
repaid
• Doubtful debt: it may or may not be repaid
by the customer
• Bad debt: it will not be repaid by the
customer
• Bad debt recovered: customer is said to be a
bad debt but he repays his due later in the
financial year of the business

25. •Appreciation: increasing the value of the
asset
•Depreciation : decreasing the value of
the asset
•Solvent: business is able to meet its
financial obligations because is liability
is equal to income or income is more than
is liability
•Insolvent : business is not able to meet
its financial obligations because his
liabilities or more

26. THANK YOU
PRESENTED BY
HARISH .M.P.
PRAMOD .P