Accounting Terminology

  1. Business Transactions. A business transaction is a financial activity that effects the financial position of a business enterprise. Such transactions are supported by documentary evidence and results in a change in the values of Assets, Liabilities, Capital Revenue and Expenses.
  2. Source Documents (Vouchers). Source documents are basically the written documents relating to external activities of a business in the form of receipts, bills, cash memos, invoices, debit and credit notes, pay–in–slip, cheque etc. These documents certify the actual happening of the transaction, its amount, parties involved, date and the nature of the transaction. On the basis of these source documents/vouchers, journal entries are passed in the books of accounts.
  3. Book Keeping. It is mainly concerned with the recording of financial data relating to business operations in an orderly and significant manner. It has a narrow scope as it is only a part of accounting. A major portion of book–keeping requires a lot of clerical work. It requires only an elementary knowledge of accounting to perform their duties.
  4. Accounting. It is the art and science of recording, classifying and summarizing financial transactions of a period for finding the results of the business and analyzing and interpreting the results for making decisions.
  5. Assets. These are economic resources expressed in monetary terms used for carrying on the business operations. Assets are of different types such as – Tangible, Intangible, Ficticious, Wasting Assets.
  6. Liabilities. These are the debts and other obligations expressed in money and are payable to outsiders in the future. For example creditors, outstanding expenses, bank overdraft.
  7. Capital. An initial amount invested by the owner himself for use in the business. It may be brought in the form of cash assets by the owner. For the business entity, capital is an obligation and a claim on the assets of a business. Therefore, it is shown on the liabilities side of the Balance sheet. It is equal to total assets minus total liabilities.
  8. Goods. These are the items or things in which the business entity deals, i.e., they are purchased by the firm with the aim of re–selling it a profit, e.g., a firm dealing in home appliances such as T.V., Fridge, A.C. etc., for them these items are goods.
  9. Events. Happening or occurrence of an incident is known as event, e.g., sale or purchase of goods to/from an outsider.
  10. Transaction. A transaction is any event which involves an exchange of goods or services between two or more persons.
  11. Purchase. It is the amount of goods procured by business on credit or cash for use or sale.
  12. Sales. It is the amount of goods sold by business on credit or cash to its customers.
  13. Stock. It is the amount of goods, spares and other items unsold or not produced fully goods at the end of a period.
  14. Debtors. These are those persons who owe money to the business on account of goods sold or services provided to them on credit.
  15. Creditors. These are those persons who have to be paid by the business for goods and service supplied by them on credit.
  16. Purchase Returns or Returns outwards or Returns (Cr.). When the purchased goods are returned to the suppliers it is known as purchase returns.
  17. Sales Returns or Returns Inward or Returns (Dr.). When some customers return the goods already sold to them, it is known as Sales Returns.
  18. Revenue. These are the amounts which a business earns by selling its product or providing service to customers.
  19. Expense. It is the amount spent by a business in the process of earning revenue. Expenses are of two types – (i) Capital Furniture (ii) Revenue Expense. An expense is a cost incurred in producing and selling the goods and services in a particular accounting period. Its benefit is consumed during that particular accounting period.
  20. Income (Profit). The excess of Revenue over Expenses is known as Income (Income = Revenue – Expenses). Income results in increase in the wealth of a business.
  21. Expenditure. The amount spent or a liability undertaken for acquiring an asset, goods or services, etc. is called expenditure. It is the amount spent in exchange of some benefit. An expenditure is just not confined to a particular accounting period but for a number of accounting periods.

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