Basic Terms of Accounting

Business : In general term any activity undertaken for purpose of earning profit

 

Capital : Capital represents cash and resources introduced by the owner(s) of the business to set up or to run the business

 

Drawing : Drawing represents cash and resources withdrawn by the owner of business for personal use

 

Owner : The person who starts a business by introducing capital

 

Assets : Assets are the tangible or intangible resources controlled or owned by the business to get future economic benefits

 

Liabilities : These are the obligations of business arisen by past transaction or event

 

Transaction : Any dealing between two persons that can be measured in money. For example sale of good by business is a transaction

 

Account : A record or log used to record the transactions of business

 

Voucher : Any written evidence of occurrence of a transaction like invoice for purchase of goods on credit

 

Trade discount : A discount given by seller to buyer on listed price of good

 

Cash discount : A discount for quick or prompt payment of credit. For example a company has purchased goods on credit and if it makes payment of credit within specific period time, the seller would give the company cash discount on quick payment

 

Stock : Goods or commodities remaining unsold at the end of accounting period (Generally 1 year)

 

Creditor or Account payable : A person, business or an organization from which the business has purchased goods or services on credit

 

Debtor or Account receivable : A person, business or an organization to which the business has sold goods or services on credit

Accounting heads or type of accounts

 

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