Important terms in accounting

What is Business Transaction

Transactions are the buying and selling of goods and services.It doesn’t require much much explanation.

Asset

Assets are economic resources which are owned by a business.or in other words Assets are things of value owned by a business.Asset may have definite physical character for example, building machinery etc or may not have physical character for example, amount due from creditors, patent right etc The first one is called tangible asset and the latter is intangible asset. Asset can be classified in to two.

• Fixed Asset :- These type asset are purchased for longer run of business for example : Land an building, Machinery, these assets are not for re-sale but for the purpose of smooth running of the business.
• Current Asset :-Assets That are held for a short period and are meant for converting in to cash. for example cash, stock, debtors etc.

Liabilities

Liabilities are debts.It is the amount which a business owes and has to be repaid.The liabilities are arising from purchase of goods or services on credit basis is called an Account payable, and the person to whom it is to be Paid is called creditor.

Capital

Capital refers to the amount invested by the owner of the business. it is also called Owner’s equity

Capital= Total Asset – Total Liabilities.

Capital is Liability to the business.Business owes money to the owner .Business has a seperate entity apart from its owner.As per accounting concept business and its ownership is distinct.

Debtors

Debtor is a person who owes money to the business. Debtor is the customer to whom the goods/services are sold on credit. A group of debtors is called Sundry Debtors.

Creditors

Creditor is a person to whom business owes money or creditor is any person who gives credit to the business.A group of creditors is called Sundry Creditors.

Expense

Expenses are cost incurred for generating revenue. examples of expenses are Transportation,salary to employee,Stationery Expense,Traveling. Expense are of two type direct expense and indirect expenses.

Revenue

It refers income of recurring nature from any source related to business.

Entry

Recording of Transaction in a books of accounts is called entry.

Purchase

Purchase is considered as the main expenses of a business. Purchase of goods for selling purposes to generate income is called purchase.Purchase of stationery, assets will not comes under the term “purchase”. Purchases may be cash purchase or credit purchases.

Purchase Return

Goods once purchased , returned to supplier due to damage, inferior quality etc. This is just opposite of Purchase ( for easy understanding purposes.Its almost similar to a sale, but not really.

Sales

Sales is the main income source of the business,a business generates income through sales. Goods sold for the purpose of making profit is called sales.

Sales Return

Goods once sold returned by customer due to damage, inferior quality etc. Sales return is just opposite of sale.

Accounts receivable

The amount of money owed by the debtors or the customers of the business as result of trading of goods of services.

Accounts Payable

The amount of money owed to a creditor or lender as result of buying of goods or services