ACCOUNTING CONCEPTS
Concept Definition
1 Capital Money used to start a business, especially
to get production going; also one of the
factors of production, it includes such
things as buildings, machinery, computers,
transport, etc.
2 Drawings Out The money or goods taken out of the
business by the owner for his/ her personal
use
3 Land and Buildings Property owned by business to run
operations.
4 Vehicles Bought by the business for transport
purposes.
5 Equipment Consist of all the items used in the
business to operate effectively and are not
meant for resale. Examples include
computers, furniture, fridges, shop counter,
printers, etc.
6 Trading Stock Consist of item of goods/ merchandise
which were bought with the aim to sell it at
a profit.
7 Bank It represents the cash the business has
available in its bank account
8 Cash Float Money use as change on a daily basis in a
business.
9 Petty Cash An amount of money kept in a money box
to make small payments e.g. sugar,
stationery, biscuits and other small
amounts
Banking All the cash the business owner receives
should be deposited into the bank account
(current/ cheque account) of the business.
If the owner needs to with draw money
from the business’ bank account to make
payments. We refer to these actions as
banking
10 Income Money received by a business from its
operating activities e.g. for services
rendered or sale of goods.
11 Expenses Expenses is money used by the business
to pay for its operating activities e.g.
payment for water and electricity, licence,
wages of workers, stationery, etc.
12 Owner’s Equity Is the owner’s total interest in the business;
it consist of income and expenses
13 Assets Anything of value that is owned by a
business or in other words assets
represent what a business owns or is due.
Possessions of a business. Examples are
land and buildings, vehicles, furniture,
equipment, money in the bank, cash float,
petty cash and debtors.
14 Liabilities Items owed by the business. Long term
liabilities are long term borrowings which
do not have to be repaid within one year.
Current liabilities are amounts owed by the
business, which must be repaid within one
year. Examples are Creditors Control,
Bank Overdraft, Loan
15 Profit When the business gains money when its
income is more than its expenses
16 Losses When the business losses money as a
result of its expenses being more than its
income.
17 Sole Trader A business owned by one person who
invested his money in the business to
make a profit.
18 Trading Business A business where buying and selling
occurs.
Owner of the business buys from the
suppliers and sells to his customers.
The customer buys from the sole trader
and the trader sells to the customer
19 Service Business A business undertaking that renders a
service to the community e.g. Dry
Cleaners, Hair Salon etc.
20 Transaction Financial action between two parties
recorded in the books of accounts of a
business
An agreement between a buyer and a
seller to exchange goods for payment.
21 Cash Receipts A subsidiary journal (book of first entry)
Journal CRJ that summarises all money received from
receipts, cash invoices and the cash
register roll.
22 Cash Payments A subsidiary journal (book of first entry)
Journal CPJ that summaries all payments made from
cheque counterfoils.
25 General Ledger A book in which entries posted from the
journals are re-organised into accounts. In
effect, the ledger is a classification and
summarization of financial transactions and
the basis for the preparation of the balance
sheet and income statement.
26 Debit When an entry is made on the left hand
Dr Bank Cr side of a journal or ledger account
5 000
Dr
27 Credit When an entry is made on the right hand
Dr Bank Cr side of a journal or ledger account
5 000
Cr
28 Double Entry Rule This is the most basic Accounting rule: For
Dr Bank Cr each transaction there are TWO entries to
5 000 be made in the general ledger –n a debit
Dr and a credit
Therefore we say: For every debit entry
there is a corresponding credit entry.
Dr Rent Income Cr
5 000
Cr
29 Accounting Equation The Accounting equation for a small
business is:
Assets = Owner’s Equity + Liabilities
The most fundamental equation of double-
entry bookkeeping system, it expresses the
relationship between what is owned and
what is owed by a business.
L = R
Included is a small table below which can be used to help you remember the accounting equation
at a glance.
Assets Owner’s Equity
Increase Decreases Decreases Increase
Debits Credits Debits Credits
Liabilities
Decreases Increase
Debits Credits
Expenses Income
Increase Decreases Decreases Increase
Debits Credits Debits Credits
