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The amount of cash or goods which is withdrawn by proprietor from business for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. It’s an exchange of money for a
particular good or services. Ex: purchase is to buy food at the grocery store.
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
17. Expenditure
The amount which is paid for increasing profit earning capacity of business is
called expenditure. It is of long period nature.
18. Income
That amount which increases the capital of the business is called income. The
excess of revenue over expenses is also called income.
Income= Revenue-
Expenses
19. Loss
When expenses incurred are more than revenue then this excess of expenses is
called loss. This reduces the capital of the business.
20. Gain
It is a monetary receipt as a result of business transaction. The excess of revenue
over the expenses is called gain.
21. Cost
Total of direct or indirect expenses which are incurred for the production of goods
and services is called cost. Like the cost of raw material cost of labour and cost of
other services used to make the article is called its total cost.
22. Discount
Concession a rebate allowed by a businessman 2 its customer is called a discount.
it may be of two types: –
a. Trade discount
When a trader allows a concession to its customers on the list price, it is known as
trade discount. It is not recorded in the books. It is stated in the invoice.
b. Cash discount
When a trader allows a concession to the customer to make payment in cash or by
cheque, it is known as cash discount. It is recorded in the books. When cash
discount is allowed customer is required to pay the less due amount, so it
encourages the customer to pay as early as possible.
23. Debtor
The person, firm or an organization who takes goods or services on credit from
the business are called debtors of the business. In other words, the person, firm or
an organization who owes money or Money’s worth to the business is called
debtor.
24. Creditors
The person, firm or an organization from whom goods or services are purchased
on credit by the business are called creditors of the business. The business owes
money to them. The amount payable to creditors is a liability of the business.
25. Receivables
The total amount which is to be received in business is called receivables.
26. Payables
The total amount which is to be paid by the business is called payables.
27. Entry
Recording of the transaction in account books is called making an entry or the
record of a transaction in books is called an entry.
28. Turnover
The total amount of cash and credit sales during a particular period is called
turnover. the total sale made by a business in a certain period.
29. Insolvent
A person is said to be insolvent when he or she is incapable to meet all his or her
liabilities. Such a person has more liability than assets.
30. Bad debts
The amount which could not be recovered from debtors due to his insolvency or
disability to pay is called bad debts.
31. Vouchers
The written document through which financial transactions are recorded in the
books is called voucher. Voucher is a piece of supporting evidence proof. Ex. Bill
invoice, salary and wages sheet, receipt.
32 Account
A list of all transactions relating to a person, property, income expenses is called
into account. It is a tabular statement containing all the transaction of same nature
at one place under a common heading in a systematic manner.
33 Debit and credit
Every account has two sides. Left side is called the debit side and the right side is
called the credit side. In short, it is Dr. and Cr.
34 Commission
In a business activity, a remuneration is paid to the agent for his services, is called
commission.
35 Bookkeeping is the recording of financial transactions, and is part of the
process of accounting in business. Transactions include purchases, sales,
receipts, and payments by an individual person or an organization/corporation.
