1. Key accounting terms are introduced including transactions, debtors, creditors, capital, assets, liabilities, purchases, sales, stock, drawings, losses, accounts, invoices, vouchers, proprietors, discounts, solvent, and insolvent. 2. Transactions refer to events that result in changes to accounting records and the balance sheet equation, such as purchases and sales. Debtors owe money to the firm for credit sales while creditors are owed money by the firm. 3. Capital refers to the amount invested in the firm by the proprietor and is equal to total assets minus total liabilities. Assets are items with monetary value owned by the business, while liabilities are debts owed by the firm

1. ACCOUNTING TERMINOLOGY
It isnecessarytounderstandsome basicaccountingtermswhichare dailyin
businessworld.Thesetermsare calledaccountingterminology.
1. Transaction
“An eventthe recognitionof whichgivesrise toanentryinaccounting
records.It isan eventwhichresultsinchange inthe balance sheetequation.Thatis,
whichchangesthe value of assetsandequity.Ina simple statement,transactionmeans
the exchange of moneyormoneysworthfromone account to anotheraccount Events
like purchase andsale of goods,receiptandpaymentof cash forservicesoron
personal accounts,lossorprofitindealingsetc.,are the transactions”.Cashtransaction
isone where cash receiptorpaymentisinvolvedinthe exchange.
Credittransaction,onthe otherhand,will nothave ‘
cash’ eitherreceivedor
paid,forsomethinggivenorreceivedrespectively,butgivesrise todebtorand
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creditorrelationship.Non-cashtransactionisone where the questionof receiptor
paymentof cash doesnotat all arise,e.g.Depreciation,returnof goodsetc.,
2. Debtor
A personwhoowesmoneytothe firmmostlyonaccount of creditsalesof
goodsis calledadebtor.For example,whengoodsare soldtoa persononcreditthat
personpaysthe price in future,he iscalledadebtorbecause he owesthe amountto
the firm.
3. Creditor
A persontowhommoneyisowingbythe firmiscalledcreditor.Forexample,
Madan is a creditorof the firmwhengoodsare purchasedoncreditfrom him
4 .Capital
It meansthe amount(intermsof moneyorassetshavingmoneyvalue) which

2. the proprietorhasinvestedinthe firmorcan claimfrom the firm.Itis alsoknownas
owner’sequityornetworth.Owner’sequitymeansowner’sclaimagainstthe assets.
It will alwaysbe equal toassetslessliabilities,say:
Capital = Assets - Liabilities.
5. Liability
It meansthe amountwhichthe firmowesto outsidersthatis,exceptingthe
proprietors.Inthe wordsof FinnyandMiller,“Liabilitiesare debts;theyare amounts
owedto creditors;thusthe claimsof those whoate not ownersare calledliabilities”.
In simple terms,debtsrepayabletooutsidersbythe businessare knownasliabilities.
6 .Asset
Anyphysical thingorright ownedthathas a moneyvalue isanasset.In other
words,an assetisthat expenditure whichresultsinacquiringof some propertyor
benefitsof alastingnature.
7. Goods
It isa general termusedforthe articlesinwhichthe businessdeals;thatis,
onlythose articleswhichare boughtforresale forprofitare knownas Goods.
8 .Revenue
It meansthe amountwhich,as a resultof operations,isaddedtothe capital.It
isdefinedasthe inflowof assetswhichresultinanincrease inthe owner’sequity.It
includesall incomeslike salesreceipts,interest,commission,brokerageetc.,
However,receiptsof capital nature likeadditional capital,sale of assetsetc.,are nota
pant of revenue.
9 .Expense
The terms ‘expense’referstothe amountincurredinthe processof earning
revenue.If the benefitof anexpenditureislimitedtoone year,itistreatedas an
expense (alsoknowisasrevenue expenditure)suchaspaymentof salariesandrent.

3. 10. Expenditure
Expenditure takesplace whenanassetorservice isacquired.The purchase of
goodsis expenditure,whereascostof goodssoldisan expense.Similarly,if anasset
isacquiredduringthe year,it isexpenditure,if itisconsumedduringthe same year,it
isalso an expenseof the year.
11. Purchases
Buyingof goodsby the trader forsellingthemtohiscustomersisknownas
purchases.Asthe trade is buyingandsellingof commoditiespurchase isthe main
functionof a trade.Here,the trader getspossessionof the goodswhichare notfor
ownuse but for resale.Purchasescanbe of two types.viz,cashpurchasesandcredit
purchases.If cash ispaidimmediatelyforthe purchase,itiscash purchases,If the
paymentispostponed,itiscreditpurchases.
12. Sales
Whenthe goodspurchasedare soldout,it isknownas sales.Here,the
possessionandthe ownershiprightoverthe goodsare transferredtothe buyer.Itis
knownas.'BusinessTurnover’orsalesproceeds.Itcanbe of two types,viz.,,cash
salesandcreditsales.If the sale isfor immediate cashpayment,itiscashsales.If
paymentforsalesispostponed,itiscreditsales.
13. Stock
The goods purchasedare for selling,if the goodsare notsoldout fully,apart
of the total goodspurchasediskeptwiththe trader unlititissoldout,it issaidto be a
stock.If there isstockat the endof the accountingyear,itis saidto be a closingstock.
Thisclosingstockat the yearendwill be the openingstockforthe subsequentyear.
14. Drawings
It isthe amountof moneyor the value of goodswhichthe proprietortakesfor
hisdomesticorpersonal use.Itisusuallysubtractedfromcapital.
15. Losses

4. Loss reallymeanssomethingagainstwhichthe firmreceivesnobenefit.It
representsmoneygivenupwithoutanyreturn.Itmaybe notedthat expense leadsto
revenue butlossesdonot.(e.g.) lossdue tofire,theftanddamagespayabletoothers,
16. Account
It isa statementof the variousdealingswhichoccurbetweenacustomerand
the firm.It can alsobe expressedasa clearand concise recordof the transaction
relatingtoa personor a firmor a property(orassets) or a liabilityoran expenseoran
income.
17. Invoice
While makingasale,the sellerpreparesastatementgivingthe particularssuch
as the quantity,price perunit,the total amountpayable,anydeductionsmade and
showsthe netamountpayable bythe buyer.Such a statementiscalledaninvoice.
18. Voucher
A voucherisa writtendocumentinsupportof a transaction.Itis a proof that a
particulartransactionhastakenplace for the value stated inthe voucher.Voucheris
necessarytoauditthe accounts.
19. Proprietor
The personwhomakesthe investmentandbearsall the risksconnectedwith
the businessisknownasproprietor.
20. Discount
Whencustomersare allowedanytype of deduction inthe pricesof goodsby
the businessmanthatiscalleddiscount.Whensome discountisallowedinpricesof
goodson the basisof salesof the items,thatistermedas trade discount,butwhen
debtorsare allowedsome discountinpricesof the goodsforquickpayment,thatis
termedascash discount.
21 .Solvent

5. A personwhohasassetswithrealizable valueswhichexceedshisliabilitiesis
insolvent.
22. Insolvent
A personwhose liabilitiesare more thanthe realizable valuesof hisassetsis
calledaninsolvent.