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basic cost accounting notes terms
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This notes is prepared for the use of O'Level Commerce students of Cambridge University and London University.If you would like to get a copy of this document Please feel free to write to me at emm...
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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 conerting the into cash during noral business operations. - Valu Valuee chan change gess cons consta tant ntly ly.. - For exapl exaplee / (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 hae physical for. - 2o not not hae ae 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 iin 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 norally ally.. - e.g e.g 7oodw 7oodwil ill' l' Trad Trade eark ark'' )aten )atents' ts' op opyr yrig ight htss
Capi Ca pita tall $t eans the aount inested 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 actiity. LIABIL LIA BILITY ITY:: bligation of an organi;ation to its arious proiders. $t is the proprietor and creditors clai against the assets of the business.
Classification of liability: Fixed or long ter liability: )ayable after a long period usually after a period of one year. For exaple apital' &ong ter loans' 2ebentures etc. urrent or short ter liability: ) ayable with in a period of one year. for exaple reditors' (0)' outstanding expenses etc. ontingent &iability: #ot real liability because of eleent of uncertainty treated as liability !ay or ay not be there".for exaple-guarntees undertaken' cases pending in court etc. ontingent liability are not shown in the balance sheet. +ention as a note inside or outside the balance sheet.
Popi!to Pop i!to o O"n! O" n! An indiidual or group of persons who undertake the risk of the business for aking profit are known as proprietor. The funds inested by proprietor proprietor in to the business is known as apital.
Goo#s$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 coodities' in which the business deals. •
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E&'ity %quity eans owner6s clais 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: Aount 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 Aount 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 custoers. #et sales8 3ales / sales eturn
)!btos o R!c!i*abl!s )ersons or parties who hae purchased goods on credit fro us and hae not paid for the goods sold to the. 2ebtors are the assets for the business' because business will get oney fro debtors after a tie. •
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C!#itos o Payabl!s 9ho proide 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 tie. Stoc+ : = The goods aailable with the business for sale on a particular date are tered as stock. = 3tock is always alued at cost price or arket price' whicheer 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'! Aount reali;ed or receiable fro the sale of goods or serices. eenue is an inflow of assets which result in an increase in owner6s equity.
E,p!ns! %xpenses are cost incurred by the business in the process of earning reenues
Pofit o Inco-! %xcess of reenue oer expense is tered as profit. )rofit 8 #et 3ales / ost of goods sold or )rofit 8 eenues / %xpenses for earning reenues Loss The ter loss is the opposite of incoe i.e.' excess of expenses oer reenue is called &oss. &oss 8 %xpenses - eenues
)a"in. Aount or goods withdrawn by the proprietor fro the business for his priate or personal use is tered as drawing •