Basic Terms in Accounting:-
1.Entity
Entity means a reality that has a definite in existence. Business entity means a specifically identifiable business enterprise like Super Bazaar, Hire Jewellers, ITC Limited, etc. An accounting system is always devised for a specific
business entity (also called accounting entity)
2.Transaction
A event involving some value between two or more entities. It can be a purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc. It can be a cash transaction or a credit transaction.
3.Assets
Assets are economic resources of an enterprise that can be usefully expressed
in monetary terms. Assets are items of value used by the business in its
operations. For example, Super Bazar owns a fleet of trucks, which is used by
it for delivering foodstuffs; the trucks, thus, provide economic benefit to the
enterprise. This item will be shown on the asset side of the balance sheet of
Super Bazaar. Assets can be broadly classified into two types: current asset and
Non-current asset.
4.Liabilities
Liabilities are obligations or debts that an enterprise has to pay at some time in
the future. They represent creditors’ claims on the firm’s assets. Both small and
big businesses find it necessary to borrow money at one time or the other, and
to purchase goods on credit. Super Bazar, for example, purchases goods for Rs.
10,000 on credit for a month from Fast Food Products on March 25, 2005. If
the balance sheet of Super Bazaar is prepared as at March 31, 2005, Fast Food
Products will be shown as creditors on the liabilities side of the balance sheet. If
Super Bazaar takes a loan for a period of three years from Delhi State Co-operative
Bank, this will also be shown as a liability in the balance sheet of Super Bazaar.
Liabilities are classified as current and non-current .
5.Capital
Amount invested by the owner in the firm is known as capital. It may be brought
in the form of cash or assets by the owner for the business entity capital is an
obligation and a claim on the assets of business. It is, therefore, shown as capital
on the liabilities side of the balance sheet.
6.Sales
Sales are total revenues from goods or services sold or provided to customers.
Sales may be cash sales or credit sales.
7.Revenues
These are the amounts of the business earned by selling its products or providing
services to customers, called sales revenue. Other items of revenue common to
many businesses are: commission, interest, dividends, royalities, rent received,
etc. Revenue is also called income.
8.Expenses
Costs incurred by a business in the process of earning revenue are known as
expenses. Generally, expenses are measured by the cost of assets consumed or
services used during an accounting period. The usual items of expenses are:
depreciation, rent, wages, salaries, interest, cost of heater, light and water,
telephone, etc.
9.Expenditure
Spending money or incurring a liability for some benefit, service or property
received is called expenditure. Purchase of goods, purchase of machinery,
purchase of furniture, etc. are examples of expenditure. If the benefit of
expenditure is exhausted within a year, it is treated as an expense (also called
revenue expenditure). On the other hand, the benefit of an expenditure lasts for
more than a year, it is treated as an asset (also called capital expenditure) such
as purchase of machinery, furniture, etc.
To know distinction between Capital expenditure and revenue expenditure read the article to know in detail.
10.Profit
The excess of revenues of a period over its related expenses during an accounting
year is profit. Profit increases the investment of the owners.
11.Gain
A profit that arises from events or transactions which are incidental to business
such as sale of fixed assets, winning a court case, appreciation in the value of
an asset.
12. Loss
The excess of expenses
1.Entity
Entity means a reality that has a definite in existence. Business entity means a specifically identifiable business enterprise like Super Bazaar, Hire Jewellers, ITC Limited, etc. An accounting system is always devised for a specific
business entity (also called accounting entity)
2.Transaction
A event involving some value between two or more entities. It can be a purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc. It can be a cash transaction or a credit transaction.
3.Assets
Assets are economic resources of an enterprise that can be usefully expressed
in monetary terms. Assets are items of value used by the business in its
operations. For example, Super Bazar owns a fleet of trucks, which is used by
it for delivering foodstuffs; the trucks, thus, provide economic benefit to the
enterprise. This item will be shown on the asset side of the balance sheet of
Super Bazaar. Assets can be broadly classified into two types: current asset and
Non-current asset.
4.Liabilities
Liabilities are obligations or debts that an enterprise has to pay at some time in
the future. They represent creditors’ claims on the firm’s assets. Both small and
big businesses find it necessary to borrow money at one time or the other, and
to purchase goods on credit. Super Bazar, for example, purchases goods for Rs.
10,000 on credit for a month from Fast Food Products on March 25, 2005. If
the balance sheet of Super Bazaar is prepared as at March 31, 2005, Fast Food
Products will be shown as creditors on the liabilities side of the balance sheet. If
Super Bazaar takes a loan for a period of three years from Delhi State Co-operative
Bank, this will also be shown as a liability in the balance sheet of Super Bazaar.
Liabilities are classified as current and non-current .
5.Capital
Amount invested by the owner in the firm is known as capital. It may be brought
in the form of cash or assets by the owner for the business entity capital is an
obligation and a claim on the assets of business. It is, therefore, shown as capital
on the liabilities side of the balance sheet.
6.Sales
Sales are total revenues from goods or services sold or provided to customers.
Sales may be cash sales or credit sales.
7.Revenues
These are the amounts of the business earned by selling its products or providing
services to customers, called sales revenue. Other items of revenue common to
many businesses are: commission, interest, dividends, royalities, rent received,
etc. Revenue is also called income.
8.Expenses
Costs incurred by a business in the process of earning revenue are known as
expenses. Generally, expenses are measured by the cost of assets consumed or
services used during an accounting period. The usual items of expenses are:
depreciation, rent, wages, salaries, interest, cost of heater, light and water,
telephone, etc.
9.Expenditure
Spending money or incurring a liability for some benefit, service or property
received is called expenditure. Purchase of goods, purchase of machinery,
purchase of furniture, etc. are examples of expenditure. If the benefit of
expenditure is exhausted within a year, it is treated as an expense (also called
revenue expenditure). On the other hand, the benefit of an expenditure lasts for
more than a year, it is treated as an asset (also called capital expenditure) such
as purchase of machinery, furniture, etc.
To know distinction between Capital expenditure and revenue expenditure read the article to know in detail.
10.Profit
The excess of revenues of a period over its related expenses during an accounting
year is profit. Profit increases the investment of the owners.
11.Gain
A profit that arises from events or transactions which are incidental to business
such as sale of fixed assets, winning a court case, appreciation in the value of
an asset.
12. Loss
The excess of expenses
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