Basic Accounting Terms

1. Assets :Assets are Valuable  Resources owned by a business which are acquired at a measurable money cost.

(i) Non-Current Assets:Those Assets which are held by a business not with the purpose to resell but are held either as investment or to facilitate business transactions.

(ii) Fixed Assets: Fixed Assets are those non-current assets of an enterprises which are held not to resell but with the purpose to increase its earning capacity.

a) Tangible Assets : Those assets which have Physical Existence ,they can be seen and touched . For Example: Land ,Plant , Building ,Machinery ,Furniture etc.

b) Intangible Assets :Those assets which donot have physical existence ,they cannot be seen and touched . For Example: goodwill ,copyright ,Trade mark ,Software , Cooking recepy etc.

(iii) Current Assets : Those assets which is held by the business with the purpose of converting them into cash within a short period ,one year. For example : Prepaid expenses ,Advance expenses etc.

(iv) Fictitious Assets :Those assets which are neither tangible assets nor intangible assets . They are losses not written off in the year in which they are incurred but in more than one accounting period. For Example : Deferred Revenue Expenditure ,Discount or loss on issue of Debentures etc.

2.Expenditure: It is the amount spent for acquiring assets ,goods or services. There are three types:

(i) Capital Expenditure :It is the Expenditure incurred to acquire assets or improving the existing assets which will increase the earning capacity of the Business.Ex: bought a furniture etc.

(ii) Revenue  Expenditure : It is the expenditure incurred ,to acquire current assets within the accounting period. Ex: salaries ,rent ,wages etc.

(iii) Deferred Revenue Expenditure : It is a Revenue Expenditure in nature but is written off in more than one accounting period. Ex: large advertisement expenditure.

3.Reciepts: It is the amount received or receivable for selling assets ,goods ,services. Two types of receipt are:

(i)Revenue Reciepts :It is the amount received or receivable in the normal course of business say against sale of goods  or rendering of services are the example of revenue receipt.

(ii)Capital Reciept : It is the amount received or receivable against transactions which are not revenue in nature. Ex: sale of land ,plant ,building ,furniture etc.

4.Liabilities: It means amount owed (payable ) by the business. Liability towards the owners of the business is termed as internal liability. On the other hand ,liability towards the outsiders , as external liability.

(i)Non-current Liability : It is that liability which is payable after a period of more than a year from the end of the accounting period. Ex: Debentures ,loans ,etc.

(ii) Current Liability : It is that liability which is payable within 12 months from the end of the accounting period .Ex: Creditors ,Bills payable etc.

5.Prepaid Expenses: It is an Expenses that has been paid in advance and the benefit of which wil be available in the following year or years. Ex: Insurance premium of Rs 20,000 has been paid for one year on 31/10/2017 and the financial year is 31/03/2018 and 6 months premium is advanced.

6. Outstanding Expenses: It ia an expense that has been incurred but has not been paid .Ex: an audit has been conducted by a chartered accountants firm against which audit  fee Rs 20,000 is to be paid .It means a liability of Rs 20,000 has been rise.

7. Bad Debts : Bad Debt is the amount owed to the business that is written off because it has become irrecoverable . It is a loss for the business and is ,thus ,debited to PL a/c.

8. Entity: An economic unit which performs economic activities. Ex: TISCO ,Maruti ,TATA etc.

9. Book value : This is the amount at which an item appears in the books of accounts .

10.Trade Payable : It is the amount payable for purchase of goods or services taken in the ordinary course of  business.Ex: Creditors, Bills Payables etc.

11 Trade Recievables : It is the amount receivable for sale of goods or services rendered in the ordinary course of business. Ex:   Debtor ,  Bills Recievables etc.

12. Voucher : It is an evidence of a business transactions . Ex : cash memo , invoice , Reciept etc.

13.Depreciation : It means fall in value of an Asset because of usage or with afflux of time or accident or obsolescence. Methods of Depreciation are Straight line Method , Written Down Value Method.

14. Drawings : It is the amount withdrawn or goods taken by the proprietor or partner for personal use .

15.Capital : It is the amount invested by the owner ( Proprietor ) at the time of started of Business Known as capital.

16.Worth : It means the value of a commodity.

17. Accrued Income : Accrued income is that income which is earned but it is not received. That is known as Accrued Income. It is an Asset.

18. Advance Income : Advance income is that which is received in advance but not earned, it is also known as Advance income.

Income = Revenue - Expenses