Basic accounting terms, class xi, accountancy.

Introduction to some basic accounting terms to the beginners of accountancy in summarised and simple way.

1. BASIC ACCOUNTING TERMS CBSE Class-XI ACCOUNTANCY Pankaj Saikia. 2020

2. Business Transaction An event involving some exchange of something with monetary value between two or more entities. Such transaction is capable of change in the financial position of an enterprise. Pankaj Saikia. 2020

3. Features of Transaction Concerned with money or moneys worth. Arise out of the transfer of exchange of goods or services. Capable of change in the financial position. It has effect on accounting equation. All transactions has got duel aspects. Pankaj Saikia. 2020

4. Meaning of Capital It is the amount of money invested by the owner of a business in the firm. The capital is a part of liability of the business/firm towards its owner. Pankaj Saikia. 2020

5. Meaning of Drawing Any type of withdrawal i.e. in Cash or kind by the owner from the business for his or her personal use . Example:- School fees for the owner’s son paid from business account. Pankaj Saikia. 2020

6. Meaning of Liabilities Liabilities are the obligations or debts a business is obliged to pay in future. Example:- Bank loan, Creditor for purchase of goods on credit. Pankaj Saikia. 2020

7. Types of Liabilities On the basis of relation with business. Internal Liability (share of profit) External Liability (telephone bill) On the basis time of repayment. Current Liabilities (Wage payable) Non- current liabilities (Bank Loan) Pankaj Saikia. 2020

8. Meaning of Assets Assets are the resources owned by an enterprise having some economic value and measurable in terms of money. Example: Furniture, Stock of goods, Building, Deposit with Bank. Etc. Pankaj Saikia. 2020

9. Meaning of Assets Assets are the resources owned by an enterprise having some economic value and measurable in terms of money. Example: Furniture, Stock of goods, Building, Deposit with Bank. Etc. Pankaj Saikia. 2020

10. Types of Assets Non Current Asset. Current Asset. Tangible Asset. Intangible Asset. Pankaj Saikia. 2020

11. Non Current Asset It Includes the assets that have repeated use in production of goods or services Acquired not for the purpose of resale but to use by the business. Rest with the business for a period longer then one year. Example: Building, Furniture, Long term Investment, etc. Pankaj Saikia. 2020

12. Current Asset It Includes the assets that have one time use in production of goods or services Acquired for the purpose of resale or to convert in to cash in near future. Usually held for a period not longer then one year. Example: Debtor, Stock, Cash in hand, Bank Balanace , etc. Pankaj Saikia. 2020

13. Tangible Asset These are the asset that has real or physical existence and can be seen and touched. Example:- Machinery, Land, Motor vehicle, stock, furniture, etc. Pankaj Saikia. 2020

14. Intangible Asset The Asset which can not be seen or touched but there existence can be feel or realized and contributes to the business . Example:- Goodwill, Trademark, Patent, Copyright, etc. Pankaj Saikia. 2020

15. Meaning of Expenditure The money spent or liability incurred in purchasing goods or services for production or sell or in acquiring property. Example:- Payment wages, payment of telephone bill, purchase of Machinery etc. Pankaj Saikia. 2020

16. Types of Expenditure Capital Expenditure : Expenditure that are incurred for getting long term benefit or in acquiring fixed assets like Building, Machinery etc. Revenue Expenditure : Expenditure incurred during the current year and return from which is also expected within one financial year like payment for salary, raw-material etc. It is also known as Expenses . Pankaj Saikia. 2020

17. Gain The profit or income generated that are incidental for the business are called gain. Gains are not resulted by an intended action of a business. Such profit are non recurring in nature. Example: Gain on sale of old fixed asset, Winning a court case. Etc . Pankaj Saikia. 2020

18. Income The profit earned during a period of time is called income. It is the difference between the revenue generated and expanse incurred. (Income= Revenue- Expanses) Pankaj Saikia. 2020

19. Accrued Income The profit earned during a an accounting year but the amount of income (money) is yet to realised or received. Example; Commission received but not received. Pankaj Saikia. 2020

20. Income received in advance The amount of income (money ) realized or received as income but not earned till the end of an accounting year but is yet to Commission received in advance. Pankaj Saikia. 2020

21. Meaning of Profit Excess of revenue earned over related expenses incurred to earn the revenue over a period of time is called profit. It increases owners equity/ capital. It is calculated in two heads: Gross Profit Net Profit Pankaj Saikia. 2020

22. Types of profit Gross Profit: It is the excess of revenue after deducting all direct expenditure incurred to earn the revenue. (Gross Profit = Sales/revenue – Direct expense.) Net Profit:- It is the excess of revenue after deducting all expenditure incurred in generating such revenue. (Net Profit = Gross profit – Indirect expense.) (Net Profit = Total revenue – Total expense.) Pankaj Saikia. 2020

23. Cost It is the monetary value of resources used in producing or in acquiring some good or service. It include all the expenditure or expense incurred in producing or acquiring a good or services including cost of transportation and installation. Pankaj Saikia. 2020

24. LOSS It is the excess of expenses over the revenue generated by a business in a particular period. It reduces owners capital/ equity in the business. It includes incidental loss like loss by fire, theft, accident, etc. {Loss= (Expanses+ Incidental loss) – Revenue} Pankaj Saikia. 2020

25. PURCHASE Purchase refers to the value of goods purchased for resale or the raw materials purchased to produce goods for the purpose of sale. It does not include purchase of anything for the purpose of use by the business. For example- Stationary purchased by a stationary shop is purchase but furniture purchased by it is not purchase. Pankaj Saikia. 2020

26. Purchase Return/ Return outward It refers to the value of purchased goods or services returned due to different reason like substandard quality, damaged in transit, un-matching specification or information etc. Pankaj Saikia. 2020

27. Sales Sales refers to the value of goods or services sold as a part of regular course of business. It does not include sale of anything which are neither produced nor purchased for the purpose of sale. For example- Stationary sold by a stationary shop is sale but old furniture sold by it is not a sale. Pankaj Saikia. 2020

28. Sales Return / Return Inward It refers to the value of sold goods returned by the customer due to different reason like substandard quality, damaged in transit, un-matching specification or information etc. Pankaj Saikia. 2020

29. Goods Goods refers to the goods or services (products) in which a business is deal with in its regular course of business. For Example ; For a chemist shop the medicine are the goods but the computer they used is not good. Similarly, for a computer producer computers are goods but the machines they used to produce the computers are not good. Pankaj Saikia. 2020

30. Stock / Stock in Hand Stock refers to the value of goods that are bought or produced for sale but remains unsold at a particular point of time. It includes the stock of raw materials, semi-finished goods, work-in-progress, and finished goods ready to sale. Pankaj Saikia. 2020

31. Stock Valuation Stock is valued at the beginning of the accounting period (Opening Stock) and at the end of accounting period (Closing Stock). It is usually valued on the basis of Cost or market price whichever is lower. Pankaj Saikia. 2020

32. Debtors The person or institution who owes money to the firm generally on account of credit sales is called a Debtor. The total amount receivable by a firm from different parties on a certain date is termed as Sundry Debtors . It is an asset of a business. Pankaj Saikia. 2020

33. Creditors The person or institution to whom the firm owes money on account of credit purchase of goods or services is called a Creditor. The total amount payable by a firm to different parties on a certain date is termed as Sundry Creditors . It is a liability of a business. Pankaj Saikia. 2020

34. Voucher It refers to the documentary evidence of a transaction. It serves as a proof of a transaction. Pankaj Saikia. 2020

35. Discount It is the deduction on list price or written price. When any product is sold at price lower than the printed or list price the difference between the list price and the selling price is called discount. Discount = (List price – Selling price) Pankaj Saikia. 2020

36. Trade Discount Offering any deduction on the list price or printed price at the time of sale is called Trade discount. Pankaj Saikia. 2020

37. Cash Discount Discount which is allowed by a seller to induce early payment by the customers depending on the time of payment is called cash discount. Cash payment- 10% Within one month-5% Pankaj Saikia. 2020

38. Account (A/C) Account is summarised record of business transactions relating to a person or item. Example: Mr Sarma’s A/C Purchases A/C Machinary A/C Pankaj Saikia. 2020

39. Entry The process of recording a business transaction is called entry. Transactions are initially recorded in Journal, Cashbook, Sales Book, Purchase Book, Purchase Return Book and Sales Return Book, based on nature of transaction and policy of book keeping. These books are popularly known as books of primary entry. Pankaj Saikia. 2020

40. Credit (Cr.) The word Credit is derived from an Italian word ‘ Credito ’. It refers to one accounting aspect of a transaction as per rule of accounting and usually appeared in the right side of a ledger account. Pankaj Saikia. 2020

41. Proprietor / owner The person or group of person who invest in a business and bear the risk of loss and entitled to get the profit from it is called proprietor. Pankaj Saikia. 2020

42. Receivables Receivables refers to the amount due by others to the business at a certain points of time. It include trade debtors, bills receivable, etc. It is an asset of a business as it stands for the economic resources of the firm lies with others. Pankaj Saikia. 2020

43. Receipts The amount of money received or receivable for selling goods or assets or services is termed as receipt. Receipt may be of two types- Revenue Receipt- Ex-Proceed from sale. Capital receipt- Ex-Proceed from sale of old Asset. Pankaj Saikia. 2020

44. Outstanding Expanses It refers to those expanse incurred during the financial year but not paid till the end of the accounting year. Example:- Rent for the month of March become payable but not paid till 31 st March. Pankaj Saikia. 2020

45. Prepaid Expanses It refers to those expanse not incurred or not become due till the end of the accounting year but paid in advance. Example:- Rent paid in advance for the month of April and May on or before 31 st March of the year. Pankaj Saikia. 2020

46. Bad Debts The amount of money receivable from debtors which become irrecoverable is called Bad Debts. It may be because of Death, insanity or insolvency of the debtor. Sometimes it arises due to dishonesty or poor creditworthiness of the debtor also. It is a loss for business. Pankaj Saikia. 2020

47. Solvent and Insolvent The person or organization who is capable of payment of all his dues from his own financial resources is called solvent. (Asset > Liability). The person or organization who is incapable of payment of all his dues from his own financial resources is called insolvent. ( Asset < Liability). Pankaj Saikia. 2020

48. JOURNAL Journal are the first record of a business transaction in to the books of accounts. Here all types of accounts are recorded as and when they occurred. The recording a transaction in journal is called passing journal entry. It is one of the major book of primary entry. Pankaj Saikia. 2020

49. Ledger Date Particulars JF Debit (Rs) Date Particulars JF Credit (Rs It refers to a summary statement of all transactions relating to a particular account of a person or asset or expanse or income or liability. Pankaj Saikia. 2020

50. Trial Balance Particulars Debit (Rs) Particulars Credit (Rs This is a summarised list of debit and credit balance of different Accounts. It is prepared at the end of a financial year to prepare financial statements. Pankaj Saikia. 2020

51. Trading Account Particulars Debit (Rs) Particulars Credit (Rs This is a part of final account which is prepared to ascertain the gross profit. All direct income and expanses are recorded in this account. Pankaj Saikia. 2020

52. Profit and Loss Account Particulars Debit (Rs) Particulars Credit (Rs This is a part of final account which is prepared to ascertain the net profit or net losses. It is prepared after trading account including all indirect income and expanse. Pankaj Saikia. 2020

53. Balance Sheet Liabilities Amount (Rs) Assets Amount (Rs This is an important statement and a part of Final Account that express the financial position of a business on a certain date. Pankaj Saikia. 2020

54. WITH THANKS PANKAJ SAIKIA PGT. COMMERCE MODERN ENGLISH SCHOOL Pankaj Saikia. 2020