“Accounting is the language of business.”
—Warren Buffett
1.Business Transactions
It means financial transactions entered into by two parties and recorded in books of accounts.
It is expressed in terms of money.
Eg: purchase of goods, sale of goods,etc.
2.Goods
Goods are the physical items of trade(making business).
Ways to purchase goods.
In Cash and In Credit.
Ways you sale goods.
In Cash and In Credit.
2.a Purchase Account
The term purchase is used for purchase of goods for resell or for producing finished product which are to be sold.
It includes both cash and credit purchase.
2.b Sale Account
The term sale is used for sale of good which are dealt by the firm.
The term sales include ls both cash and credit sales.
3.Stock/inventory
Stock is a tangible(physical) asset(property) held by the enterprise (firm) for the purpose of production or sale of goods.
Generally we calculate stock at the beginning of year and end of year.
3.a opening Stock - stock held at the beginning of year.
3.b Closing Stock- Stock held at the end of year.
3.c Stock maybe divided in three parts
c.1.Raw material.
C.2. work in progress ( WIP )
it is a stock that is in the process of being produced.They are partly finished goods.
C.3.Finished goods.
4.Purchase Return Account
It is also called Return outward Account.
Goods purchased maybe returned for any reason.
Eg : defect in quality,etc
Goods so returned are called purchase return(Return outward).
5.Sales Return Account
It is also called as Return Inward Account.
Goods sold, when returned by customer are termed as sales return (Return inward).
6.a.Debtor(s) Account
Debtor is a person to whom firm has sold goods or services on credit,in ordinary course of business.
6.b.BR(Bills Receivable)
It means a bill of exchange accepted by a debtor,the amount of which will be received on specify date.
6.c. Trade receivable - debtor + Bills Receivable
7. Creditors
If Goods have been purchased on credit from suppliers.
7.a. Creditor is a person (supplier) from whom an enterprise (firm) purchases goods or services.
7.b. Bills Payable - BP means a bill of exchange accepted by firm to pay fixed amount on specified date.
7.c. Trade Payable - Creditor + Bills Payable.
8. Expenditure(money going out from business)
8.1 Revenue Expenditure(Benefit already taken in current year)
It is an amount paid or payable(need to pay),The benefit of which is consumed within the current year accounting period.
Eg : Rent paid or payable,Salary Paid or payable, Interest Paid or payable,Wages paid or payable, Electricity Bill paid or payable,Telephone Bill paid or payable, Printing Charges paid or payable, etc.
Must be in current year.
*Important note : Revenue Expenditure is also called expense.
8.2 Capital Expenditure(Asset)
(Benefit going to be taken in upcoming year)It is an expenditure incurred,The benefit of which will be consumed in future.
Also called as Asset.
Such expenditure are incurred to acquire Asset or to increase the efficiency of the asset.
9.Assets
Assets can be divided into three parts.
9.1. Non-Current Assets
Those assets which are held by the business from a long term point of view (for more than one year)
Eg : Machine*, Building*, Furniture*, Goodwill*, long term investment*,etc.
*Fixed assets.
9.2. Current Assets
Those assets which are held by the firm with the purpose of converting them into cash or for using them within a short period (within one year).
Eg : Stock, Debtors, Bills Receivable,etc.
9.3. Fictitious (second hand) Assets
10.Fixed Assets
It is part of Non-Current Asset
10.1 Tangible fixed Assets
Those fixed assets which have their physical existence it means they can be seen ,touch.
Eg : Machine , Building, Furniture, Computer,etc.
10.2 Intangible fixed Assets
Those fixed assets which do not have their physical existence.They can not be touched or seen.
Eg : Goodwill, Trade mark, payment, brand, computer software,etc.
11. Capital
The amount invested by owner into the business.
12. Liability
The amount invested by persons other than owner into the business.
It is the claim of outsider into the business.
Liabilities are always payable on due date.
Eg : Bank loan, Creditor, Bills Payable, Mortgage loan,etc.
Liabilities can be divided in two parts
12.1. Non-Current Liabilities
Those liabilities which are payable after a period of more than one year.
From the end of accounting year.
Also called Long term Liability.
N also Fixed Liability.
Eg : Long term loan, Divergence, Mortgage loan,Bank loan,etc.
12.2. Current Liabilities
Those liabilities which are payable within period of one year.
From the end of current accounting year.
Eg : Creditors, Bills Payable, expenses payable, Bank overdraft(taking more than we have in our account),etc.
Difference between bank overdraft and bank loan.
Bank overdraft (Current liability)
Taking more than we have in our account for business use.
Kinda agreement.(between proprietor and bank)
Bank loan(Non-Current Liability)
Going to the bank and asking or applying for a loan.
13. Drawings
It is the amount withdrawn or goods taken by the proprietor(owner/partner) for personal use.
14. Recite (Income of Money into the business )
14.1. Revenue Recite
Amount received or receivable (to be receive) from sale of goods or services in normal course of business, Interest on Deposit, Sale of scrubs.
Note : Also called as Revenue (income)
14.2. Capital Recite (generally it will be in big amount)
amount received or receivable from sources which are not in revenue in nature.
Eg : Sale of Assets (Machine, Building),Bank loan,etc
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