Assignment 2

ACCOUNTING TERMINOLOGY

Meaning of accounting:-“The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.” (AAA-The American Accounting Associaton)

1. Proprietor/owner-The person who takes the initiative to start the business,invests his money or money’s worth and bears the risk of the business is called proprietor.

2. Capital-It the amount invested by the proprietor into business.It may be in cash or in kind. Capital is increased with the amount of profits is and is decreased with amount of losses and drawings.

3. Drawings-It is the amount or benefit withdrawn by the owner from the business for personal or domestic may use. It may be in the form of cash, goods or assets.

Example-Sukhmani started business with cash rs.50000 and own furniture rs.10000.After some she withdrew rs.30000 from business for her personal use.

4. Business transaction-Any exchange of goods or services for cash or on credit by the business with any other person is a business transaction. Transaction is an economic activity of the business that changes its financial position.

5. Debtor-The person from whom amounts are due for goods sold or service rendered or in respect of contractual obligation is called debtor.

6. Creditor-The person to whom the amount is owed by the enterprise on account of goods purchased or services rendered or in respect of contractual obligations is called creditor.

Example-reddy sold goods to chatterjee for rs. 40000 on two months credits.

7.Receviables-It means the amount which outsiders owe to the business on revenue accounts. When goods are sold in credit to customers, they may accepts bills drawn by the seller. These bills of exchange for a creditor is known as bills receivable.

8.Payables -It means the amount which business owe to outsiders on revenue accounts. When goods are purchased on credit from suppliers, the customer may accept bills drawn by seller .these bills of exchange for a customer, is known as bills payable.

9.Debit and credit -The left hand side of any account is arbitrarily called debit side, and the right hand side is called credit.

10.Goods -It implies all those articles which have been purchased by the enterprise for sale in the usual course of business. It also includes raw material purchased for further processing.

Example-furniture purchased is goods for furniture dealer ;cars purchased are goods for car dealer but furniture or cars purchased by cloth merchant or fan manufacturers are assets for them because these items are not meant for resale in ordinary course of business.

11.Purchases -The purchase of raw materials for production or purchase of goods for sale is called as purchases. The term purchase is used for the purchase of goods and for the purchase of assets. when asset is purchased, asset account is opened.

12. Sales -For the sale of finished of goods, the term sale is used. It may be cash sales or credit sales. When an assets is sold, the asset account is credited and not the sale account. When goods are sold at a discount, sales is credited with net amount i.e after deducting trade discount.

13. Stock-The goods left unsold at the end of the accounting period is called closing stock. The stock may be of raw material, work in progress or finished goods. The closing stock of one accounting period will become the opening stock of the next accounting period.

14. Asset - An asset is owned physical object (tangible) or right (intangible) having a money value. In other words, assets are economic resources which are owned by a business and from which are owned by a business and from which future economic benefits are expected to flow to the enterprise.

15. Liabilities - It refers to an amount owing by one person (a debtor) to another (a creditor) payable in money, goods or services. In general, liabilities are financial obligations to outside parties arising from events that have that have already happened.

16. Loss- is an unwanted burden on the business, which does not generate any revenue for the business. It may be classified as normal loss and abnormal loss. Normal loss arise due to inherent nature of the product, such as evaporation, leakage, shrinkage, loss of weight etc. on the other hand, abnormal loss is the result of some mishappening, such as fire, theft, earthquake, flood, storm etc. the excess of expenses or revenue is also termed as loss. Loss always decrease owners equity.

17. Profit-Excess of revenue over expenses is termed as profit .Profit always increases owners equity.

18. Revenue- It is a flow of benefits to the business generated out of resources controlled by it. It always make additions to the capital and assets of business. In the trading and manufacturing enterprises, it result from the sale of goods. In case of professionals like chartered accountants, lawyers of etc. revenue is generated in terms of fees .It may also be earned by way of interest on investment, dividend on share, royalty on mines, etc.

19. Income-Income is the increase in net worth of the enterprise from business or non- business activities.It is a wider term which includes profit also.

20. Account-Account is a date –wise summary of transactions relating to persons, property or expenses and incomes. It has two sides, left hand side of the account is called debit side and right hand side is called credit side.

Conclusion : With the help of accounting terminology, every individual can understand accounting very efficiently. The entire structure is based upon these terms. So accounting terminology is the base of the accountancy.

Submitted by: Submitted to:

MEENA SAINI GURDEEPAK SIR

MBA1(c)

NAMITA VERMA

MBA1 (b)