Accounting Terms | explanation

Basic terms of accounting

The basic term of accounting means common words. which is used again by again in accounting. Therefore, it needs to know about their Common words for accounting knowledge. By which someone doesn't have a problem creates of using accounting. For instance, purchase, capital, cost, expense, etc.

Trade

Purchase and sale of goods or services. The purpose of the earned profit is called trade.

Debit and credit

An account has two sides. The debit is on the left-hand side and the credit is on the right-hand side. It is shown in the accounting table as Dr. And Cr. standard. Debit means 'receiving' and credit means 'giving'.

Capital 

Whatever amount is invested by the proprietor or partner in the beginning business is called capital. Which is invested for the purpose of earning the profit. This is a liability of the proprietor or partner from one side. which has to pay further into the business.

Drawing

The amount of cost or goods withdrawn by the proprietor from a business for its personal uses is called drawing. It reduces the capital of the business.

Sale

If we buy something, and then sell it for the purpose of earning a profit, it is called a sale. The sale is of two types first when goods are sold for cash. It is a cash sale. And second when goods are sold for credit. It is a credit sale.

Purchase 

When we purchase goods for resale. so then, it is called the purchase. For example a firm purchases raw materials for new production for sale. it is called a purchase. If the firm purchases assets. so, those assets are not called a purchase. Purchase is also two types when a good is purchased in cash. It is a cash purchase. And when a good is purchased on credit. It is a credit purchase.

Bad debts

The amount which couldn't be recoverable from the debtor is called bad debt. In other words, we can say that the amount the debtor owed. but, they don't pay due to his insolvency. It is a loss for the business.

Sale return

If the seller, sells a good and those goods are returned by the customer due to any reason is called a sale return or return inward.

Purchase return

When the purchaser, purchases goods those goods are returned to the seller due to any reason. It is called the purchase return or return outward.

Cost

It is that amount. Which is incurred for all the finished goods. Such as articles, and activities.

Expenses

The amount is incurred in the businesses for producing goods and services or using a service. It is called expenses. Such as a payment mode, wages, salaries, rent, etc.

Expenditure

Expenditure is the amount in which those amounts are included. They spend incurred for the purpose of increasing the earning capacity necessary to run the business.

Book of account

The transaction has to be recorded in some books. That books are called books of account. Such example Journal books, cash books, ledgers, etc.

Entry

Any Transaction is recorded into the books of account. This procedure is called entry.

Voucher

The voucher is evidence of every business transaction. Examples of vouchers such as Cash Memo, Invoices, and Bill Receipt.

Commission

Which is the amount paid to the agent against his giving services and remuneration. This amount is called a commission. The commission is given to agents for the purpose of appreciated business. 

Insolvent

It is the position of an individual or enterprise. In which they are not capable of paying their debt.

Receivable

It is the amount to receive for the sale of goods and services in the ordinary business. Such as for example debtor and bill receivable.

Payable

Payable is an amount that is payable for the purchase of goods and services in ordinary business. Trade payable is the sum of total creditor and bills payable. Such as for example Creditor, Bill payable.

Debtor

A debtor is a person who sells his goods and services on credit. And his owes amount at the firm.

Creditor

A creditor is a person who purchases goods and services on credit. And he pays a credit amount to the firm.

Proprietor

The proprietor is which person who invests the capital and takes all risks into the business with the purpose of earning a profit.

Income

The difference between revenue and expense is called income. As a broader term, it is known at business.

Discount

When the seller rebates the goods sold price to the customer. That amount is called a discount.

Inventory

Inventory is tangible assets held by an enterprise for the purpose of sale in the ordinary course of business or for the purpose of using it in the production of goods meant for sale.

Liability? 

 Liability is the responsibility of the business. This means of liability that the amount we take for enhancement of our business scale. And we have to pay after some time. It is called liability. This amount has to be settled over a period of time.  The liability amount is payable by the business.

 Liability Are two types:-

• Non-current liability and

• Current Liability 

Examples of Liability

• Loan Payable

• Interest Payable

Assets

Assets are two types.

1. Fixed assets: Those assets which are used for a long period not for sale but rather for use in business.

Example:-

1. Machinery

1. Furniture

1. Land 

1. Building etc.

2. Current Assets: Those assets which are used for a short period and can be converted into cash.

Example:-

1. Cash

1. Bank

1. Stock etc.