Accounting Terms - I.Com Part I - B.Com Part I - Part 2

Here is Second Part of Accounting Terms, Hopefully, you will like it.

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Accounting Terms - I.Com Part I - B.Com Part I - Part 1

13. Transaction

Any dealing between two persons and things is called transaction. For example, Mr. X sells goods to Mr. Y for Rs. 10000, then there is dealing between two parties, so it is called transaction. You can study the article about Business Transactions to enhance your knowledge about this term.

14. Accounts Receivable / Debtors

Accounts Receivable or debtors are our customers. We receive the payments from our customers at some future date for the goods sold to them. For Example, On 1st June, 2015, we sold goods to our customer, Mr. Y for Rs.60,000 on credit, then, Mr. Y becomes our debtor and we receive Rs.60,000 from him / her after one month (let say) i.e., 30th June, 2015.

15. Accounts Payable / Creditors

Accounts Payable or Creditors are our suppliers or the persons from whom we purchase the goods on credit. For Example, when we purchase goods for Rs.30,000 from our creditor, Mr. A on credit. Then Mr. A is our Creditor or Account Payable and we make payments of Rs.30,000 to Mr. A for goods purchased.

16. Cash Discount

Cash discount is given by the creditors to the debtors to encourage them to pay their debts before due date. Due to Cash Discount, there is a reduction in the amount due to debtors. It is an expense for the creditors and revenue for the debtors. Cash Discount is given at a certain percentage of the amount due. For Example, when we sold goods to our customers for Rs.40,000 on 1st June, 2015 and the due date is 30th June, 2015, and we make our credit terms with our customers that if they make payments within 10 days, we give them 2% Cash Discount of the amount due. So, here Cash Discount is 800 (2/100 X 40,000).

17. Capital or Owner's Equity

The amount invested by the owner in the business to start or operate the business is called Capital or owner's Equity. For Example, if Mr. X invested Rs. 20,000 in the business to start business, then capital is Rs.20,000.

18. Drawings

Cash or goods taken away by the proprietor from the business for his / her personal use is called drawings. For Example, Mr. X withdrew cash for Rs.6000 and goods worth Rs.5000. from the business for personal use, then the total drawings are Rs. 11,000.

19. Assets

Assets are the resources of the business and from which we expect that they will provide probable future economic benefits to the business. Assets are current and fixed in relating to period of time.

Examples of Current Assets are:

ü  Account Receivable / Debtors

ü  Cash

ü  Closing Stock / Closing Inventory

Examples of Fixed Assets are:

ü  Land

ü  Buildings

ü  Plant & Machinery

ü  Furniture

20. Liabilities

Liabilities are the debts payable by the business to outsiders. These outsiders are account payable, Banks and other financial institutions. For Example, Mr. X get credit from creditor, Mr. Y for the smooth running of the business, then Mr. Y is the creditor of the business to whom the business make payments in future.

There are current and long-term Liabilities

Current Liabilities are:

Ø  Account Payables

Ø  Bills Payables

Long-term Liabilities

Ø  Bank Loans

Ø  Bonds

21. Accounting Period

Accounting Period means the period of time during which the business prepares its financial statements (Income Statement, Balance Sheet, Cash Flow Statements and Statement in changes in Equity). Many businesses prepare financial statements on annual basis, some on semi-annually, some on quarterly and some on monthly basis. For Example, Mr. A is sole proprietor who prepares financial statements on annual basis. Let say he / she starts his accounting period on 1st January, 2015 and ends on 31st December, 2015, then number of accounting period is 1 for the year 2015 and so on.

22. Revenue

The price of goods sold or services rendered by the business to its customers. For Example, if Mr. X sold goods for Rs. 70,000 to Mr. B on cash basis or credit basis, then it is called the revenue for the business.

23. Expenses

Expenses are incurred for the purpose of getting revenue. Every business must incurred day to day expenses for smooth running of the business. Day to Day to expenses include Electricity Expenses, Telephone Expenses, Gas Expenses, Rent Expense and others.

24. Net Profit / Net Income

Revenues for particular accounting period - Expenses for particular accounting period is equal to Net Profit or Net Income for the particular accounting period.

For Example

Revenues for the Accounting Period (Annual Basis)                = 70,000

                                 __

Expenses for the Accounting Period (Annual Basis)                = 30,000

Net Profit / Net Income for the Accounting Period (Annual Basis) = 40,000

25. Commission

It is form of remuneration for services rendered by an agent to the business. For Example, Mr. X as an agent of the business sells goods to customers, then he / she gets a certain percentage of commission from sales.