Welcome to PAYELDILLIP Ltd.

Basic Accounting Terms

Proprietor :

1. —A person who owns a business is called its proprietor. 
   
2. —He contributes capital to the business with the intention of earning profit. 
   

Transactions :

1. —Transactions are those activities of a business, which involve transfer of money or goods or services between two persons or two accounts. 
2. —For example, purchase of goods, sale of goods, borrowing from bank, lending of money, salaries paid, rent paid, commission received and dividend received. 
3. —Transactions are of two types, namely, cash and credit transactions.   
   

Cash Transaction  :

1. —Cash Transaction is one where cash receipt or payment is involved in the transaction.  
   
2. —For example, When Raghu buys goods from Kishor paying the price of goods by cash immediately, it is a cash transaction. 
   

Credit Transaction :

1. —Credit Transaction is one where cash is not involved immediately but will be paid or received later.
   
2. In the above example, if Raghu, does not pay cash immediately but promises to pay later, it is credit transaction. 

Capital :

1. —It is the amount invested by the proprietor/s in the business.  —
   
2. This amount is increased by the amount of profits earned and the amount of additional capital introduced. 
   
3.  —It is decreased by the amount of losses incurred and the amounts withdrawn. 
   
4. —For example, if Mr. Dillip Kumar Guru starts business with Rs.2,00,000, his capital would be Rs.2,00,000. 
   

Assets :

1. —Assets are the properties owned by the business.  —
2. An asset may be defined as any property for use in future operations of the enterprise. —
3. Cash in hand, land, building, plant and machinery, furniture and fittings, bank balance, stock of goods, investments, Goodwill are examples for assets. 
4.  —Assets can be classified into tangible and intangible. 
   

Tangible Assets  & Intangible Assets :

Tangible Assets:  

These assets are those having physical existence. —It can be seen and touched. For example, plant & machinery, cash, etc.

Intangible assets are those assets having no physical existence but their possession gives rise to some rights and benefits to the owner. —It cannot be seen and touched. Goodwill, patents, trademarks are some of the examples. 

Liabilities :

—Liabilities refer to the amount owed by the enterprise to the outsiders. 

—Examples : loans from banks, creditors for goods supplied, bank overdraft etc. 

Drawings :

—It is the amount of cash or value of goods withdrawn from the business by the proprietor for his personal use. 

 —It is deducted from the capital. 

Debtors :

1. —A person (individual or firm) who receives a benefit without giving money or money's worth immediately, but liable to pay in future or in due course of time is a debtor.
   
2.  —The debtors are shown as an asset in the balance sheet. 
   
3.  —For example, Mr.Arun bought goods on credit from Mr.Babu for Rs.10,000. Mr.Arun is a debtor to Mr.Babu till he pays the value of the goods. 
   

Creditors :

1. —A person who gives a benefit without receiving money or money's worth immediately but to claim in future, is a creditor.  —
   
2. The creditors are shown as a liability in the balance sheet. —In the above example Mr.Babu is a creditor to Mr.Arun till he receive the value of the goods. 
   

Purchases :

1. —Purchases refers to the amount of goods bought by a business for resale or for use in the production. 
   
2.  —Goods purchased for cash are called cash purchases. 
   
3.  —If it is purchased on credit, it is called as credit purchases. 
   
4.  —Total purchases include both cash and credit purchases. 
   

Purchases Return or Returns Outward :

1. —When goods are returned to the suppliers due to defective quality or not as per the terms of purchase, it is called as purchases return. —
   
2. To find net purchases, purchases return is deducted from the total purchases. 
   

Sales :

1. —Sales refers to the amount of goods sold that are already bought or manufactured by the business.  —
   
2. When goods are sold for cash, they are cash sales but if goods are sold and payment is not received at the time of sale, it is credit sales.  —
   
3. Total sales includes both cash and credit sales. 
   

Sales Return or Returns Inward :

1. —When goods are returned from the customers due to defective quality or not as per the terms of sale, it is called sales return or returns inward.
   
2.  —To find out net sales, sales return is deducted from total sales. 
   

Goods : 

1. —It includes all merchandise commodities, which are purchased by the business for selling in the usual course of business. 
   
2. —For example in case a stationery business, stationery is termed as goods where as for other business stationery is an item of expenditure.  
   

—Stock :

1. —Stock includes goods unsold on a particular date. —
2. Stock may be opening and closing stock.  —
3. The term opening stock means goods unsold in the beginning of the accounting period.
4. —Whereas the term closing stock includes goods unsold at the end of the accounting period.  —
5. For example, if 4,000 units purchased @ Rs. 20 per unit remain unsold at the end of the accounting period, the closing stock is Rs.80,000.  —
6. This will be opening stock of the subsequent year. 
   

Revenue :

Expense  :

1. —It is the amount spent in order to produce and sell the goods and services.  —
   
2. For example, purchase of raw materials, payment of salaries, wages, etc. 
   

Income  :

—Income is the difference between revenue and expense. 

Invoice :

Voucher :

1. It is a written document in support of a transaction. 
2. —It is a proof that a particular transaction has taken place for the value stated in the voucher.
3. —It may be in the form of cash receipt, invoice, bank pay-in-slip etc.

Receipt :

1. —Receipt is an acknowledgement for cash received. 
   
2. It is issued to the party paying cash. 
   

Account :