Basic Terms Used in Accounts

BASIC ACCOUNTING TERMS 

ASSE AS SETS TS:: The Valuable things owned by the business are known as assets. These are the properties owned by the  business. CLASSIFICATION CLASSIFICATION OF ASSETS: 1. Fixed Assets: -Acquire for long ter use !use till the life of asset." - #ot eant for sale. - $ncrease the profit earning capacity. - %.g. &and' (uilding' )lant * +achine' Furniture' Vehicles. ,. urrent Assets: - Acquired with the intension of conerting the into cash during noral business operations. - Valu Valuee chan change gess cons consta tant ntly ly.. - For exapl exaplee / (0' (0' 2ebtors' 2ebtors' 3tock' 3tock' ash in hand' hand' ash ash in in (ank' (ank' )repaid )repaid %xpenses %xpenses etc. etc. 4. Fictitious Assets: -2o not hae physical for. - 2o not not hae ae real real alue alue.. - all alled ed asse assets ts on on leg legal al * tech techni nica call grou ground nd.. - %.g. %.g. prel preli iin inary ary exp expen ense ses' s' egi egist strat ratio ion n %xp. %xp. 5. $ntangible Assets:- an6t touched and seen. - 2o not purcha purchased sed and sold in open open ark arket et nor norally ally.. - e.g e.g 7oodw 7oodwil ill' l' Trad Trade eark ark'' )aten )atents' ts' op opyr yrig ight htss 

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Capi Ca pita tall $t eans the aount inested by the proprietor !3hareholders" in the business enterprise. $t can be increased or decreased according to need. $t is also called owner6s equity or net worth. $t will always be equal to Assets less outside liabilities. )rofit of business increases the capital and loss of business decreases the capital. apital 8 Assets / %xternal &iabilities Classification of Capital Fixed capital- Assets are purchase without the intention of sale. Floating apital- assets are purchase with the intention of sale. 9orking capital- capital you require for day to day actiity. LIABIL LIA BILITY ITY:: bligation of an organi;ation to its arious proiders. $t is the proprietor and creditors clai against the assets of the business.

Classification of liability:   Fixed or long ter liability: )ayable after a long period usually after a period of one year. For exaple apital' &ong ter loans' 2ebentures etc.  urrent or short ter liability: ) ayable with in a period of one year. for exaple reditors' (0)' outstanding expenses etc.   ontingent &iability: #ot real liability because of eleent of uncertainty treated as liability !ay or ay not be there".for exaple-guarntees undertaken' cases pending in court etc. ontingent liability are not shown in the balance sheet. +ention as a note inside or outside the balance sheet. 

Popi!to Pop i!to o O"n! O" n! An indiidual or group of persons who undertake the risk of the business for aking profit are known as  proprietor. The funds inested by proprietor proprietor in to the business is known as apital. 

Goo#s$M! Goo# s$M!c%an c%an#is! #is! Articles purchased for sale at profit or processing by the business or for use in the anufacture of certain other goods as raw aterial are known as goods. 7oods are the coodities' in which the business deals. •

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E&'ity  %quity eans owner6s clais against the assets of the business. $t is also known as proprietorship fund' shareholders fund etc.  %quity 8 apital < etained earning <)rofit <$nterest on capital / drawing. 

PURC(ASE: Aount of goods obtained for production. )urchase of assets is not purchase.   ash )urchase   redit )urchase )urchase eturn: That part of purchase which is return to seller.  #et )urchase8 )urchase / purchase return 

SALE Aount for which the finish goods are sold. 3elling of assets are not sales.   cash sales   redit sales 3ales eturn: that part of sales with is actually returned by custoers.  #et sales8 3ales / sales eturn 

)!btos o R!c!i*abl!s )ersons or parties who hae purchased goods on credit fro us and hae not paid for the goods sold to the. 2ebtors are the assets for the business' because business will get oney fro debtors after a tie. •

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C!#itos o Payabl!s  9ho proide goods or cash to business on credit is called the creditors for the business. reditors are the liabilities for the business' because business will pay oney to creditors after definite tie.  Stoc+ : = The goods aailable with the business for sale on a particular date are tered as stock. = 3tock is always alued at cost price or arket price' whicheer is lower. = losing 3tock and pening 3tock. lassification of 3tock   3tock of aw +aterial    3tock of work in progress   3tock of finished goods •

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R!*!n'! Aount reali;ed or receiable fro the sale of goods or serices. eenue is an inflow of assets which result in an increase in owner6s equity.

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E,p!ns!  %xpenses are cost incurred by the business in the process of earning reenues 

Pofit o Inco-! %xcess of reenue oer expense is tered as profit. )rofit 8 #et 3ales / ost of goods sold or  )rofit 8 eenues / %xpenses for earning reenues  Loss The ter loss is the opposite of incoe i.e.' excess of expenses oer reenue is called &oss. &oss 8 %xpenses - eenues 

)a"in. Aount or goods withdrawn by the proprietor fro the business for his priate or personal use is tered as drawing •