To understand concepts relating to accounting we need to learn its basics first. So, here we will understand various accounting terms that we encounter almost daily in our studies as well as in our day to day life.
These accounting terms are listed as following.
- Assets : The valuable resources or properties owned by a business entity or businessman are called assets.
Assets are further of two types :
1. Tangible Asset : Assets which can be seen and touched. Like : Land, Building, Machines etc.
2. Intangible Asset : Assets which can’t be seen and touched. Like : Goodwill, Copyright etc. - Capital : The amount of money invested to start a business is called capital.
- Liability : The amount of money that a person needs to pay to another person for the services already brought or rendered, that is services or goods brought on credit.
Example : If ‘X’ buys a $100 item but pays only $50 at the time of purchase, then the remaining amount that ‘X’ needs to pay for the purchased item is the liability of ‘X’, that is $50. - Debtor : The person who needs to pay a certain amount of money to another person for the goods brought on credit.
Example : Taking the above example, ‘X’ is the debtor. - Creditor : The person who sells his/her product on credit is called a creditor.
- Drawing : The value of goods or amount of money withdrawn by the owner of the business from the business entity for his/her personal use is called drawing.
- Transactions : Any business event that can be recorded in terms of money and must be recorded in the books of accounting is called transaction.
In transaction, something having value is received or something having value goes out.
Example : Purchase of goods, payment of wages etc. - Sale : The number of goods sold in a given period of time is called sale.
- Purchase : Purchase generally means buying goods for resale or reuse.
- Revenue : The amount of money charged by the business entity for a particular item or service is called revenue.
In other words, the amount of money received by the business entity after selling the products is called revenue. - Account : An account is a summarized record of all the transactions relating to one particular person or specified thing.
Example : X‘s Account etc.
The Opus by Paras 