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Lecture 5- Basic Accounting Terms

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Lecture 5- Basic Accounting Terms

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tusharsharma25062002
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Basic Accounting Terms:

11. Stock:- The goods available with the business for sale on a particular date is termed as
stock. In accounting the stock is classified as under:
(a) Opening Stock: The value of goods on the opening date of the accounting year is
known as opening stock.
(b) Closing Stock: The value of goods on the closing day of the accounting year is known
as closing stock.
In case of manufacturing enterprises stock is classified as :-
(a) Stock of raw material:- Raw material required for manufacturing of the product in
which the business deals is known as stock of raw material.
Example:- Cotton in case of cotton mill is its example.
(b) Work in progress:- It is the stock of partly finished or partly manufactured goods just a
price of thread and unfinished cloth in case of cotton mill.
(c) Stock of finished goods:- Manufactured and finished goods ready for sale are known as
stock of finished goods. Example:- Finished cloth.

12. Revenue:- Revenue in accounting means the amount realized or receivable from the
sale of goods.

13. Expenses:- Expenses are amount incurred by the business in the process of earning
revenues.
Expense is the cost of use of things or services for the purpose of generating revenue.

14. Expenditure:- Expenditure is the amount of resources consumed. It is long term in


nature. It is the amount spent for the purchase of assets.

15. Losses:- Losses are unwanted burden which the business is forced to bear. Losses may
be classified as normal and abnormal. Normal loss is due to the inherent weakness in the
commodities i.e. coal, oil, ghee, petrol. There will be shortage in their weight due to
leakage, evaporation, spoilage and wastage during the journey. Abnormal loss on the other
hand, is an extra ordinary loss due to earthquake, fire, flood, storm, theft and accidents.

16. Profit:- Excess of revenue over expense is termed as profit.

17. Income:- Increase in the net worth of the enterprise either form business activities or
other activities is termed as income.

18. Gain:- Change in the net worth due to change in the form and place of goods and
holding of assets for a long period, whether realized or unrealized is termed as gain.
Example:- Profit on sale of asset.
19. Debtors:- the term ‘debtors’ represents the persons or parties who have purchased
goods on credit from us and have not paid for the goods sold to them.
Example:- goods wroth Rs. 20000 have been sold to Mahesh, he will continue to remain
the debtor so for the does not make the full payment.

20. Creditors:- The sellers of goods on credit to the firm are known as creditors for goods.

21. Receivable:- Receivable means, what business has to receive from outside parties on
revenue account. When we sell goods on credit, purchasers are known as debtors. Certain
debtors accept bills drawn by us and become part of bills receivable. The total of debtors
and bills receivable is known as receivables.

22. Payables:- Payables means, what the business has to pay to outside parties. When we
purchase goods on credit, sellers are known as creditors. We accept bills drawn by certain
creditors, which becomes a part of bills payable the total of creditors and bills payable is
termed as payables.

23. Proprietor:- An individual or group of persons who undertake the risk of the business
are known as proprietor. They invest their funds into the business as capital.

24. Drawings:- Amount or goods withdrawn by the proprietor for his private or personal
use is termed as ‘drawing’
Example:- (i) Amount withdrawn by proprietor for personal use.
(ii) Goods taken by the proprietor for domestic use.
(iii) Using business vehicle for domestic use.

25. Vouchers:- Accounting transactions must be supported by documents. These


documentary proofs in support of the transactions are termed as vouchers. It may be a
receipt, cash memo, invoice, wages bill, salaries bill etc.

26. Accounting year:- Books of accounts are closed annually it may be between January 1 st
to December 31st of the same year or 1st April to 31st March.
Financial Year- 1st April to 31st March. Calendar year 1st January to 31st December

27. Entry:- An entry is the systematic record of business transactions in the books of
accounts.

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