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Basic Terminologies of Accounting: 1. Assets

This document defines basic accounting terminologies: Assets are future economic benefits owned or controlled by a business like cash, inventory, property. Current assets can be converted to cash within a year while fixed assets are used long-term. Liabilities are amounts owed by a business like loans, accounts payable. Current liabilities are due within one year, long-term liabilities are owed after. Capital is the owner's equity in the business, calculated as total assets minus total liabilities. Other terms defined include purchases, sales, debtors, creditors, stock, revenue and expenses. Purchases and sales refer to goods, revenue is monetary value from sales/services, and expenses are costs

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Sophiya Prabin
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33 views

Basic Terminologies of Accounting: 1. Assets

This document defines basic accounting terminologies: Assets are future economic benefits owned or controlled by a business like cash, inventory, property. Current assets can be converted to cash within a year while fixed assets are used long-term. Liabilities are amounts owed by a business like loans, accounts payable. Current liabilities are due within one year, long-term liabilities are owed after. Capital is the owner's equity in the business, calculated as total assets minus total liabilities. Other terms defined include purchases, sales, debtors, creditors, stock, revenue and expenses. Purchases and sales refer to goods, revenue is monetary value from sales/services, and expenses are costs

Uploaded by

Sophiya Prabin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Basic Terminologies of Accounting

1. Assets:
Assets are future economic benefits, the rights which are owned or controlled by an
organization or individual. Money owing by debtors, stock of goods ,furniture, machinery,
building, investment, cash and bank balance, bills receivable, receivable amount, prepaid
expenses etc. are the examples of assets. Mainly we divide assets in to two parts.
i) Fixed Assets
Those assets which are purchased for the purpose of operating the business but not for
resale are called fixed assets. Business can not convert those assets in to the cash within a
year and those assets can be used two times or more than two times. Land and building,
furniture, good-will, patents, copyright, trade mark, are the example of fixed assets. Fixed
assets can classified into two types i.e. tangible and intangible assets. Those assets which
have physical existence, thy are tangible assets ( Plant, Machinery, Furniture etc.) and
those fixed assets which have no physical existence they are intangible assets (Good-will,
Patent, Copyright, Trade mark etc.)
ii) Current Assets:
Current assets are those assets of the business which are kept for short term for
converting in to cash or for resale. Current assets can not be used more than one time.
Cash, Bank balance, stock, Debtors, Bills receivable are the example of current assets.
2. Liabilities:
Liabilities means the amount which the firm owes to outsiders that is
excepting the proprietor. Liabilities are debts, thy are amounts owed to
creditors. Outstanding expenses, creditors, debentures, bank loan are
some examples of liabilities. Liabilities can be divided in to the following
two parts:
i) Long term liabilities:
Those liabilities which are payable after a long term, generally after
one year are know as long term liabilities. Such as debenture, secured
loan, bank loan etc.
ii) Current/ short term liabilities:
Those liabilities which are payable in near future, generally within one
year are called current liabilities. Creditors, bank overdraft, bills
payable are the example of current liabilities.
3.Capital:
• The amount of money invested at the
beginning or any period of time by the
investors is called capital or the excess assets
over liabilities of the enterprise is called
capital. It is the difference between the total
assets and total liabilities of the enterprise.
4. Purchase
• Buying raw-materials for producing articles or
acquiring of finished goods for re-sale is called
purchase but procurement of assets would
not be treated as purchase. The term
purchase includes both cash and credit
purchases of goods. The term purchase is used
only for purchase of goods. (goods means
trading goods )
5. Sales :
• Transfer of goods to other person adding
certain profit is called sales. Sales would only
mean sale of goods and not sale of assets. The
sale of a car by vehicles dealer would be
treated as sales but the same sale would be
considered as disposal of an assets for other
business.
6. Debtors:
• A person who owes money to the business
mainly on account of credit sales of goods or
rendering of services is called debtors. For
example when goods are sold to a person on
credit that person pays the price in future.
That person is a debtors.
7. Creditors
• A person to whom money is due to be paid by
the business is called a creditor. For example
Mohan is a creditors of the firm when goods
are purchased on credit from him.
8. Stock:
• The term stock includes goods laying unsold or unused
on a particular dat. To ascertain the value of the closing
stick, it is necessary to make a complete list of all the
items in the godown together with quantities. The stock
is valued on the basis of cost or market price whichever
is less principle. The stock may be opening and closing
stock. The terms opening stock means goods lying usold
in the begining of the accounting year where as the
term closing stick includes goods lying usold at the end
of the accounting periods.
9. Revenue:
• It is a a monetary value of the products or
services sold to the customers during the
period. It results from sales products, services
and sources like interest, dividend,
commission etc. We should be noted that
revenue is different from income .Income is
only a part of revenue. For finding income we
should deduct the expenses incurred for
earning that revenue.
10. Expenses
• It is the amount spent in order to produce and
sell the goods and services which produce the
revenue. In other word expenses is the cost of
the use of things or services for the purpose of
generating revenue. Such as payment of
salaries, wages, rent etc.

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