Basic Concept of Accounting

Basic Concept of Accounting

1 Accounting : It is an art of recording, classifying and summarizing in significant manner and in terms of money, transactions and events which are of financial character and interpreting the results thereof.

2 Business Transaction : A business transaction is “The movement of money and money’s worth form two person or parties”. Or exchange of values between two parties is also known as “Business Transaction”.

3 Purchase : A purchase means goods purchased by a businessman from suppliers.

4 Sales : Sales is goods sold by a businessman to his customers.

5 Purchase Return or Rejection out or Outward Invoice : Purchase return means the return of the full or a part of goods purchased by the businessman to his suppliers.

6 Sales Return or Rejection in or Inward Invoice : Sales return means the return of the full or a part of the goods sold by the customer to the businessman.

7 Assets : Assets are the things and properties possessed by a businessman not for resale but for the use in the business.

8 Liabilities : All the amounts payable by a business concern to outsiders are called liabilities.

9 Capital : Capital is the amount invested for starting a business by a person.

10 Debtors : Debtor is the person who owes amounts to the businessman.

11 Creditor : Creditor is the person to whom amounts are owed by the businessman.

12 Debit : The receiving aspect of a transaction is called debit or Dr.

13 Credit : The giving aspect of a transaction is called credit or Cr.

14 Drawings : Drawings are the amounts withdrawn (taken back) by the businessman from his business for his personal, private and domestic purpose. Drawings may be made in the form cash, goods and assets of the business.

15 Receipts : It is a document issued by the receiver of cash to the giver of cash acknowledging the cash received voucher.

16 Account : Account is a summarized record of all the transactions relating to every person, every thing or property and every type of service.

17 Ledger : The book of final entry where accounts lie.

18 Journal entries : A daily record of transaction. Trail Balance : It is a statement of all the ledger account balances prepared at the end of particular period to verify the accuracy of the entries made in books of accounts.

19 Profit : Excess of credit side over debit side.

20 Profit and loss account : It is prepared to ascertain actual profit or loss of the business.

21 Balance Sheet : To ascertain the financial position of the business. It is a statement of assets and liabilities.

22 Current asset : It is converted into cash with in a year. Ex. Bills receivable

23 Direct expenses : These are the expenses which are directly related to manufacturing of goods. Ex. Wages, factory rent, heating, lighting etc

24 Indirect expense : These are the expenses which are indirectly related to manufacturing of goods. Ex. Salary, rent, stationery, advertisement, printing

25 Depreciation : Decrease value of the asset. - it is the reduction in the value of assets due to its usage over the period of time.

26 Sundry debtors : The person who is the receiver or customer

27 Sundry creditors : The person who gives or supplier.