Accounting terms part-2

ACCOUNTING TERMINOLOGY CONTD.: 

ACCOUNTING TERMINOLOGY CONTD.

11. Purchases: 

11. Purchases The purchase of raw material for production or Purchase of finished goods for sale is called as “purchases”. The term purchase is used for the purchase of goods only and not for the purchase of assets.

12. Sales: 

12. Sales For the sale of finished goods the term “sales “ is used. It may be cash sales or credit sales. When an asset is sold, the asset account is credited and not the sales account. When goods are sold at a discount, sales is credited with net amount i.e. after deducting trade discount.

13. Purchases return or return outward: 

13. Purchases return or return outward It is that part of the goods purchased which is returned to the seller. The reason of return may be- supply of defective goods , goods not as per specifications or any other reason. In order to calculate net purchases of business, purchase return is deducted from purchases.

14. Sales Return or Return Inward: 

14. Sales Return or Return Inward It is that part of the goods sold, which is returned by the customer to us. The reason of return may be excessive, unspecified or supply of defective goods, etc. In order to calculate net sales of the business, sales return is deducted from sales.

Example: 

Example Malika sold goods to Aishwarya for Rs. 60,000, of which the latter returned goods to former for Rs. 8000. Net Sales ? Net Purchases ?

15. Stock: 

15. Stock The goods left unsold at the end of the accounting period is called Closing Stock . The stock may be of Raw-material, Work-in progress or finished goods. The closing stock of one accounting period will become the opening stock of the next accounting period.

16. Assets: 

16. Assets Assets are the economic resources which are owned by a business and from which future economic benefits are expected to flow to the enterprise. Examples : Cash, Debtors, Plant & machinery, land & Building.

Types of Assets: 

Types of Assets 1. Fixed assets Tangible Fixed assets – Vehicles, Furniture etc. Intangible Fixed assets- Goodwill, patent, Copyright 2. Current Assets- Cash in hand, cash at bank etc. 3. Fictitious Assets- Preliminary expenses, expenses on the issue of shares or debentures.

17. Liabilities: 

17. Liabilities It refers to an amount owing by one person to another payable in money, goods or services.

Types of Liabilities: 

Types of Liabilities Current Liabilities- Creditors, short term loans Fixed Liabilities – Long term loans, debentures Contingent Liabilities – Financial cases pending, Guarantees undertaken on behalf of others etc.(To be shown as footnote)

18. Equity : 

18. Equity It refers to all claims or rights against the assets of the enterprise. Two categories : Owner’s Equity (Capital) Outsider’s Equity (Liabilities) Capital + Liability = Assets

19. Expenditure: 

19. Expenditure It is the amount spent or liability incurred for value received. Types : Revenue Expenditure : This is the expense incurred for meeting day to day expenses (current period) and is recurring in nature. E.g – Salaries, rent, insurance Capital Expenditure : The payment made for the purchase of assets from which the benefit will be derived in future. It is non-recurring in nature. E.g – Land & Building. Machinery, Computers, etc.

20. Loss: 

20. Loss It is an unwanted burden on the business which does not generate any revenue for the business. Normal Loss – Leakage, Shrinkage Abnormal Loss – Fire , Theft

21. Profit : 

21. Profit Excess of revenue over expenses is termed as profit. It always increases Owner’s Equity (Capital)

22. Account: 

22. Account It is a date-wise summary of transactions related to persons, property or expenses and incomes. It has two sides: Left(Dr.) and right(Cr.)

23. Discount: 

23. Discount The reduction in the prices of goods allowed by an enterprise to its customers. Trade discount : As per sale quantity Cash discount : As per quick payment of cash

Identify the Assets & Liabilities: 

Identify the Assets & Liabilities Plant & Machinery Goodwill Salary due Loan Taken from bank Creditors Loan given to a friend Debtors Computer Cash in hand Bank overdraft