At first you need to know about some terms which commonly used in the discussion on accounting, such as
Click on and Read them one by one.
- Employees are paid salaries in cash – there is an exchange of services and cash – both are values. This exchange is a “Cash Transaction”.
- Office equipment is purchased on credit – there is an exchange of office equipment and cash, (cash to be paid in future).This exchange is a “Credit Transaction”.
Example of events that are not accounting transactions,
- An applicant is interviewed for a post, and is selected – this is not an accounting transaction because the employee has not started working and not earning salary.
- A customer palace an order with a retail store, no accounting transaction occurs until the merchandise is delivered to the customer.Back to menu
2. Merchandise
In trading business, goods are bought and sold, know as “Merchandise”, for example, in case of a grocer, flour, rice, oil, ghee, salt, sugar and soap etc. are merchandise to him.Back to menu
3. Purchases
Merchandise purchased for being sold, is called “purchased”. If the purchaser immediately makes cash payment, they are call “Cash purchases”. If the payment is to be made at some future date, they are called “Credit purchases” or “Purchases on Account”.Back to menu
4. Purchase Returns
Some times, the merchandise purchased us found defective, damaged, or in excess of quantity ordered for, in which case they are returned to the supplier. They are called “Purchase Returns” or “Returns outwards”.Back to menu
5. Purchase Allowance:
When the purchaser informs the seller that some merchandise is defective or damaged the supplier may agree to reduce the price of those items. The purchaser retains the defective or damaged merchandise and gets some concession in price. This price concession is known as “Purchase Allowance”Back to menu
6. Sales
Merchandise sold or services rendered to customers are called “Sales”. It is also called “Sale Revenue” or “Revenue”. If cash is received immediately, they are “Cash Sales”, if it is a greed that the amount will collected at some future date, they are caked “Credit Sales” or “Sales on Account.Back to menu
7. Sales Returns
If the customer returns some merchandise it s called “Sales Returns”.Back to menu
8. Sales Allowance
The concession granted in price to customers for defective or damage merchandise is called “Sales Allowance”.Back to menu
9. Account Payable
(A/P) the total amount owed to suppliers on account of credit purchases is called “Accounts payable/Creditors /Sundry Creditors. Each supplier to whom money is owed is called a “creditor”.Back to menu
10. Account Receivable
(A/P) the total amount due from customer on account of credit sales is called account receivable/Debtor/Sundry Debtors. Each customer who own money to the firm is a “Debtor” of the firm.Back to menu
11. Bad Debt
Bad debt is a term commonly used for that portion of account receivable which is not likely be collected. It includes both the actual and estimated amount of un-collectible.Back to menu
12. Capitals
The value invested by the owner in the business is known as “Capital”. The amount of the claim or interest of the owner in the total assets is known as proprietorship/Capital/Owners’ Equity/Proprietary Equity.Back to menu
13. Drawing
In case of partnership organization, if a partner withdraws values in cash or commodities form the firm for his private use in anticipation of speculated profit, it is known as “Drawing”.Back to menu
14. Assets
Assets are that thins of value owned by business. Some resources are required to operate a business, such as cash, furniture, merchandise, and building etc. resources are technically called “Assets”. Assets are expressed in terms of money, i.e., For example,
Furniture – RS. 50,000.
The asset are obtained form different sources, such as
- The investment made by owner at the start of business or at some later date;
- Borrowing cash or purchasing asset on credit. Cash is borrowed and then assets are purchased, or the assets are acquired and payment is postponed till some future date.
The parties lending cash or supplying assets on credit are called creditors. They acquire a claim against the total assets. Their claim’ or interest is called liabilities/ Creditors’ Equity /Outsiders’ equity.Back to menu
15. Equities
Equities are the sources form which assets have been acquired. They are the total of liabilities plus proprietorship/capital.Back to menu
16. Entry
The recording of a business transaction in a book or in a set of books with sequence of date and with two kinds of financial changed is knows as an “Entry”Back to menu
17. Double Entry
The double effects of each transaction are recorded in the books of account, known as “double Entry system”.Back to menu
18. Single Entry
The recording of transactions which are only related with cash receipts and payments, bank receipts and payments, accounts receivable and payable are known as Single Entry System”. The debit and credit of all transactions are not recorded.Back to menu
