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Basic Accounting Terminologies

Chapter 1 introduces the fundamentals of accounting, defining it as the language of business aimed at protecting the interests of stakeholders. It covers basic accounting terminologies including assets, liabilities, capital, revenue, expenses, income, purchases, sales, drawings, discounts, debtors, and creditors, explaining their classifications and significance. The chapter emphasizes the distinction between current and fixed assets, as well as current and fixed liabilities, providing a foundational understanding of accounting principles.

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5 views

Basic Accounting Terminologies

Chapter 1 introduces the fundamentals of accounting, defining it as the language of business aimed at protecting the interests of stakeholders. It covers basic accounting terminologies including assets, liabilities, capital, revenue, expenses, income, purchases, sales, drawings, discounts, debtors, and creditors, explaining their classifications and significance. The chapter emphasizes the distinction between current and fixed assets, as well as current and fixed liabilities, providing a foundational understanding of accounting principles.

Uploaded by

fahadrehmann07
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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CHAPTER 1

INTRODUCTION TO
ACCOUNTING
Meaning and Scope of Accounting

Accounting is the language of business. The main


objectives of Accounting is to safeguard the interests of
the business, its proprietors and others connected with the
business transactions.
Basic Accounting Terminologies

 Assets
Assets are the properties of every description belonging to the business. Cash in hand, plant and machinery,
furniture and fittings, bank balance, debtors, bills receivable, stock of goods, investments, Goodwill are
examples for assets.
Assets can be classified into current assets, fixed (non current) assets, tangible and intangible assets.
 Current assets are
Those assets which are in the form of cash or readily convertible in to cash
Current assets are short-term assets that are typically used up in less than one year. Current assets are used
in the day-to-day operations of a business to keep it running.
 Fixed (non current) assets
Fixed assets are long-term, physical assets, such as property, plant, and equipment (PP&E). Fixed assets have
a useful life of more than one year.
 Tangible Assets:
These assets are those having physical existence. It can be seen and touched. For example, plant &
machinery, cash, etc
 Intangible Assets:
Intangible assets are those assets having no physical existence but their possession gives rise to some rights
and benefits to the owner. It cannot be seen and touched. Goodwill, trademarks are some of the examples.
Basic Accounting Terminologies

 Liabilities
Liabilities refer to the financial obligations of a business. These denote the amounts which
a business owes to others, e.g., loans from banks or other persons, creditors for goods
supplied, bills payable, outstanding expenses, bank overdraft etc.
Liabilities can be classified
as fixed and current liabilities.
Fixed Liabilities:
These liabilities are payable generally, after a long period. Capital, loans, debentures,
mortgage etc., are its examples.
Current Liabilities:
Liabilities payable with in a year are termed as current liabilities. The value of these
liabilities goes on changing. Creditors, bills payable, and
outstanding expenses etc., are current liabilities.
Basic Accounting Terminologies

Capital:
It is the part of wealth which is used for further production
and thus capital consists of all current assets and fixed
assets.
Basic Accounting Terminologies

Revenue
Revenue means the amount receivable or realized from sale
of goods and earnings from interest, dividend, commission,
etc.
 Expense
It is the amount spent in order to produce and sell the goods
and services. For example, purchase of raw materials,
payment of salaries, wages, etc.
 Income
Income is the difference between revenue and expense.
 Purchases
Buying of goods by the trader for selling them to his customers is known as purchases. As the trade is buying and
selling of commodities purchase is the main function of trade.
 Sales
When the goods purchased are sold out, it is known as sales. Here, the possession and the ownership right over the
goods are transferred to the buyer. It is known as. 'Business Turnover’ or sales proceeds. It can be of two types
Cash sales
If the sale is for immediate cash payment, it is cash sales.
Credit sales
if payment for sales is postponed, it is credit sales.
 Drawings
It is the amount of cash or value of goods withdrawn from the
business by the proprietor for his personal use. It is deducted from
the capital
 Discount
When customers are allowed any type of deduction in the prices of goods by the businessman that is called
discount. When some discount is allowed in prices of goods on the basis of sales of the items, that is termed as
trade discount, but when debtors are allowed some discount in prices of the goods for quick payment, that is termed
as cash discount.
Debtor
A person who owes money to the firm mostly on account of credit
sales of goods is called a debtor. For example, when goods are
sold to a person on credit that person pays the price in future, he
is called a debtor because he owes the amount to the firm.
Creditor
A person to whom money is owing by the firm is called creditor.
Goods or merchandize
It is a general term used for the articles in which the business
deals; that is, only those articles which are bought for resale for
profit are known as Goods.

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