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

Here we discuss different Accounting Terms in two parts.

1.   Business

Business means any legal activity undertaken for the sake of the legal profit. Accounting is the language of Business.

There are three forms of business

(i)   Sole Proprietorship (only one Owner)

(ii)   Partnership (two or more partners)

(iii) Company (2-50 for private and 7 to infinity for public company)

2.   Goods or Merchandise

In Accounting only those things or items are considered to be goods that are manufactured or purchased for resale purposes. For Example, Furniture like Office Chairs purchased for sale purposes are considered as purchases or goods. But, if the Office Chairs purchased for using in the business so that it provides probable future benefits, then it is to be considered as Asset in the books of accounts and not goods.

3.   Purchases  

        

Goods purchased are called purchases. Purchases may be made on cash basis or credit basis. When goods are purchased from our suppliers for the purpose of selling them, then it is said that the purchases have been made. For example Office Chairs purchased from the suppliers for the purpose of selling them to our customers is called purchases.

4.   Cash Purchases

Goods purchased for cash is called Cash Purchases. In cash purchases, the payment is made at time purchasing the goods from the suppliers. For example, Mr. A purchased furniture for Cash Rs. 50,000 on 1st June, 2015 is a Cash Purchases transaction, if whole payment is made at the same date.

5.   Credit Purchases or Purchases on Account

When the business purchased the goods from the supplier without paying full amount of goods or paid partly amount of goods purchased, then it is called credit purchases or purchases on account. For Example, if Mr. A purchased furniture from the supplier for Rs. 50,000 without making full or partly payment and agreed to make payment at some future date, i.e., 30th June, 2015, then it is called credit purchases or purchases on account.     

                      

6.   Purchases Returns / Returns to Suppliers / Returns Outward    
    

Goods purchased from our suppliers may be return to them due to the following reasons:

Ø Defective Products

Ø Products qualities are below standards or unsatisfactory

    For Example, we purchased 10 office chairs from our suppliers but out of 10, 3 office chairs are defective, so we return these 3  office chairs to our suppliers. Such return is called purchase return or return outward or return to supplier.

7.   Purchase Discount And Sales Discount

When the supplier to whom the business purchases the goods gives the discount then such discount is known as purchase discount to the business or buyer. At the same time, such discount is Sales Discount to the supplier or Seller.

8.   Allowances

Here, allowances mean reduction in the price of goods purchased. In case of goods that have minor defects or when the goods are old one like an old car, sometimes, allowances are given by the seller to buyer to induce him / her to retain the goods. Such allowances are purchase allowances to buyers and sales allowance to sellers.

9.   Sales

Goods sold are called sales. When goods are sold to our customers at a selling price, then it is called sales has been made. For Example, when we sold goods to our customers for Rs. 60,000, then it is called sales.

10.  Cash Sales

Goods sold for Cash is called Cash sales. when the businessman sold goods to its customers and receive the full amount of goods from the customers then it is called Cash Sales. For Example, When the Mr. X sold goods for Cash Rs. 90,000 to the customer, Mr. Y on 1st June, 2014 and Mr. X received the full amount of goods at the same date, then it is called Cash Sales.

11.   Credit Sales

Goods sold on credit on account is called Credit Sales. When the businessmen did not receive the full amount of goods on the same date, but they agree with the customers to receive the amount at some future date, then it is called Credit Sales. For Example, when we sold goods to our customers on credit or on account on the 1st June, 2015 and did not receive the full amount of goods at the same date, but agreed to receive payment from customers at some future date, i.e., 30th June, 2015, then such sales is called Credit Sales.

12. Sales Returns / Returns Inward / Returns From Customers

When Goods sold by the business are returned by our customers due to some reasons, like defective products, lower quality products, lower standard products or goods are not in a good position, then our customers are not satisfied with our products and usually, they return those defective or damaged goods to the businessman. Such return from our customer is called return from customer or sales return or return inward. For Example, when we sold 7 office chairs to our customers at the selling price of Rs. 7,000 but 2 office chairs are found defective by our customers and they returned the defective goods to us. Such return of goods to the businessman is called Sales return, Return inward or Return to Customer.

13. Trade Discount

Trade discount is granted at scheduled or listed price to the retailers by the manufactures or wholesalers. It is allowed at a specific percentage of listed price. For example, if the listed price of goods is Rs. 40,000 and the wholesaler allowed a 5% discount on the listed price, then the trade discount is 2,000 (5/100 X 40,000).  Trade Discount is not recorded in the books of accounts, because it is set between wholesaler and retailers to make the selling price for the the end consumers. That is why wholesaler or manufacturer shows the price of goods in books of accounts at 38,000 and not at 40,000.

Happy Reading!