SOME TERMS IN ACCOUNTING

2011

BOOK-KEEPING
Book-keeping is that branch of knowledge which tells us how to keep a record of financial transaction. Accounting to J.R.Batlioboi Book-keeping is the art of recording dealings in a set of books. Accounting Accounting is defined as the art of recording, classifying and summarizing in terms of money transaction and events of financial character and interpreting the result thereof. Assets Assets are properties or possessions owned by a business that have money value and are expected to benefit future operations, for example land and building, furniture and fixture, plant and machinery etc. Liability Amount payable by a business enterprise to the outsider is called liability. Examples are creditors, bank overdraft, bills payable, outstanding expenses, etc. Capital The contribution of the owner to the business is called capital. In other words, the money or moneys worth invested by the owner in the business is called capital but, in case of a running business capital is the difference between assets and liability. REVENUE Revenue is the price of goods and services rendered to the customers. When the business sells goods or renders service to customers it earns revenue. EXPENSES Expenditure incurred by the enterprise to earn revenue is called expenses.
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SOME TERMS IN ACCOUNTING

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Examples of expenses are wages, salaries, printing and stationery etc. Loss Expenses which fail to produce any revenue is called a loss Excess of expenses over revenue is called loss. Drawings Money or goods withdrawn by the owner from the business for personal case is called drawing. Goods Goods include all merchandise commodities which are punches by the business for selling. In other word the items which are parched for sell are called goods. Sundry debtor Debtors are the credit customers. They are the person form whom the business will receive money for the benefit given to them. Sundry creditors Sundry creditors are the credit suppliers of goods. They are the persons whom the firm will pay for the benefit received. Transaction Any exchange of goods or services for cash or on the credit by the business with any other business is called transaction. Branches of accounting There are the 3 branches of accounting. 1. Financial accounting 2. Cost accounting 3. Management accounting

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SOME TERMS IN ACCOUNTING Entry

2011

The record of a transaction or event in the books of accounts is known as entry. In other words, record of transactions in journal & posting into ledger is called entry. Business Carrying of any trade or commerce by investing capital with an objective to make profit is called a business It derives incomes by selling goods or services What is cash transaction? A transaction in which the value is settled in cash is called cash transaction. For examples goods sold for cash Rs.1000. What is credit transaction? A transaction in which the value remains unsettled or unpaid is called credit transaction. For example: purchase of goods from Mr. X on credit Rs.3000. What is cost? It represents that portion of the acquisition price of goods, property or services which have not yet expired or been utilized in connection with the realization of revenue. Cost is the measure of expenditure.

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SOME TERMS IN ACCOUNTING Show the accounting equation on the basis of the following transactions. I. II. III. IV. Transaction 1. Raghunath commenced Business with cash. 2. Purchased goods on Credit. 3. Withdrew cash for Private use. 4. Sold goods on credit. 5.Purchased furniture For cash. Raghunath commenced business with cash Rs.80,000. Purchased goods on credit Rs.20,000. Withdrew cash for private use Rs.2000. Sold goods on credit Rs.20,000(cost price Rs.15,000) Assets Rs=Liabilities + Capital Rs Cash Rs 80,000 Nil 80,000

2011

Cash 80,000+20,000=1,00,000 Cash 78,000+stock 20,000=98,000 Cash 78,000+stock 5,000+debtors 20,000=1,03,000 Cash 76,500+stock 5,000+debtors 20,000+furniture 1500=1,03,000

Creditor 80,000 Rs 20,000 Creditor Rs 20,000 78,000 Creditor Rs 20,000

83,000

83,000

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SOME TERMS IN ACCOUNTING

2011

Journal The first book in which the transactions of a business unit are recorded is called a journal. Here business transactions are recorded in a chronological order, i.e., in the order in which they occur. Each record in a journal is called an entry. Narration At the end of each journal entry, a brief description of the nature of transaction is given with in a parenthesis. It is called narration and is used for future reference. Prime entry Whenever a financial transaction takes place an entry is made in the journal. This entry is known as the prime entry. Journal Proper It is a subsidiary book maintained to record the transactions which cannot be recorded in their special subsidiary books like Cash Book, purches Book, sales Book, Bills Receivable Book and Bills Payable Book. Usually the transactions infrequent in character are recorded in the journal proper. Adjustment Entries At the end of the year some expenses are paid in advance, some are unpaid, some incomes are not received though due, some incomes are received in advance, and depreciation of fixed assets, provision for doubtful debts etc. entries passed in relation to those items are called adjustment entries and recorded in journal proper. Account A record used to summarises all increase and decrease in a particular asset liability, owner equity, revenue or expenses is known as account.

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SOME TERMS IN ACCOUNTING

2011

Opening Entries For a continuing business, when a new set of books is started in the beginning of the year, the balance of asset and liabilities of the previous year are to be recorded in the new books of account by passing a journal entry. This journal entry is called opening entry. Debit An entry in the left hand side of an account recording an increase on asset, increase in an expense and a loss, decrease in liability, decrease in capital and revenue is called debit. Credit An entry in the right hand side of an account recording an increase in liability or capital or revenue or a decrease in an asset an expense is called credit. Personal Account Account recording transactions relating to industrial firms or persons or company are known as personal account. Real account The account recording transaction relating to tangible things such as, goods, cash, buildings, machinery, furniture etc. and intangible things such as, goodwill, patents, copyright, trademarks etc. are called real account. In other word real, account deal with assets. Nominal account The account recording transaction relating to expenses, losses, income and gains, e.g., rent, salary wages, commission, interest, bad debt etc. are called nominal account. Journalizing The process of recording a transaction in the journal is called journalizing. Simple journal entry If in a journal entry, only one account is to be debited, and only one account credited, then such an entry is called simple journal entry.

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SOME TERMS IN ACCOUNTING

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Compound journal entry When more than one account is debited or credited in a journal entry, it is called compound journal entry. Here two or more simple journal entries are put together. Books of account Registers journal, ledger and any other books maintained in a business house to keep financial business transactions and events. Are known as Books of account. L.F. Ledger folio(l.f) is a column of the journal in which the page number of the relevant ledger account is entered. It is meant for cross-reference. Ledger Ledger is the principal book of accounts where all the accounts are kept together. It is a master record of all accounts of a business unit. Posting The process of transferring the debits and credits from the journal to the ledger accounts is called posting. Each amount entered in the debit side column of the journal is posted by entering it on the debit side of an account in the ledger and each amount entered in the credit column of the journal is posted by entering it on the credit side of an account in the ledger. Debit balance The excess of the debit side total of an account over its credit side total is called debit balance Credit balance The excess of the credit side total of an account over its debit side total is called credit balance.
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SOME TERMS IN ACCOUNTING

2011

General ledger It contains mainly nominal and real accounts. It is also known as Nominal Ledger.

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