basic terms of accountancy explain briefly
Answers
Answer:
1. Business
Any legal action that is done in order to earn income or profit is called business. It includes the production of goods and services, purchase and sale of goods and services, banking, insurance, education transportation, and any other trading activity etc.
Capital= Assets – Liability
2. Trade
Purchase and sale of goods and services in order to earn profit is called trade.
3. Profession
Any work done in order to earn profit which necessarily requires prior training and education is called a profession. For example doctors, lawyers, engineers etc..
4. Proprietor
The person who invests capital in the business and entitled to have all profits and losses of the business is called proprietor or owner of the business. The nature of proprietor depends upon the type or nature of the business organization. In a sole trade business, sole trader is a proprietor, in a partnership firm, partners or proprietor and in company shareholders are proprietors.
5. Capital
The amount of cash, goods or assets which is initially invested by proprietor while commencing business is called capital. It is invested to earn profits. In other words, the excess of assets over liability is capital.
6. Assets
All the resources of business having economic value are called assets. These resources help the business to earn a profit and have future value. These are important for running a business and are in the possession of businessman. These are of two types: –
a. Fixed assets
The assets which are used by business for a long time are called fixed assets or non-current assets. These are continued to be used by the business for a period of more than one year. For example:- land ,building ,plant, machinery ,furniture ,vehicle etc.
b. Current assets
The assets which are used up in one year or easily get converted into cash in one year are called current assets. For example:- raw material, finished goods, debtors, cash balance and bank balance etc.
7. Liabilities
The amount which business owes to others is called its liabilities. There is a certain amount which business is under obligation to pay. There are two types of liabilities: –
a. Long-term liabilities
Those liabilities which are usually payable after a period of 1 year. Long-term loans from Financial Institutions, debentures issued by companies etc.
b. Short-term liabilities
These are those which are payable within one year. For example creditors, bank overdrafts etc.
8. Drawings
The amount of cash or goods which is withdrawn by proprietor from business for its private uses is called drawings. It reduces the capital of the business.
9. Goods
The things which are bought and sold by business are called goods. Goods maybe raw material work in progress of finished goods. In accounting, when goods are purchased it is written as purchases. When goods are sold it is written as sales. It is written as a stock if remain unsold at the end of the year.
10. Purchases
Goods bought for resale are called purchases. This may be in form of raw material or finished goods. Purchase of assets is not called purchases because assets are not purchased for resale.
11. Sales
When purchase goods are sold in order to earn a profit are called sales. When goods are sold for cash it is called cash sales and goods sold on credit are called credit sales.
12. Purchase return
Goods once purchased by the business, are returned back due to any reason is called purchase return or return outwards.
13. Sales return
Goods once sold to the customer when are returned back by them due to any reason then such goods are called as sales returns or return inwards.
14. Stock
These are those goods which are left unsold in the business at the end of the year. The goods unsold at the end of the accounting year are called closing stock. The same stock is called opening stock at the beginning of a new accounting year.
15. Revenue
These are the amount received by a business for selling goods or services. This amount is received from day to day business activity in the form of rent, interest, commission, discount, dividend etc.
16. Expenses
The cost which business incurs for producing goods and services or for using services is called expenses. These include payments made for wages, salaries, freight, advertisement, rent, insurance etc. In other words, we can say that the cost of earning revenue is an expense.
17. Expenditure
The amount which is paid for increasing profit earning capacity of business is called expenditure. It is of long period nature.