| Basic Accounting Terms |
| Transaction |
Example:- Rohan went to a bookstore and bought a book for ₹10. He paid for it using his debit card. This is a transaction because it involves the exchange of money |
| Event |
Example:- The company received a shipment of inventory worth ₹5,000. This event involves an increase in the company's assets (inventory) and can affect its financial position. |
| Goods/Services |
Example:- A bakery sells tangible goods like bread and cakes to customers. In contrast, a consulting firm provides intangible services, offering advice and guidance to clients. |
| Capital Expenditure |
Example:- A company buys a ₹30,000 delivery truck to expand its services. This is a capital expenditure since the truck, as a fixed asset, is meant for long-term use to boost business profits. |
| Revenue Expenditure |
Example:- A company spends ₹2,000 on machinery repairs for operational efficiency. This is a revenue expenditure as it's for maintaining machinery's current performance and benefits are expected within the same accounting period. |
| Profit and Loss Account or Income Statement |
Example:- At year-end, a company summarizes its revenue, expenses, and calculates net profit or loss. For instance, it might report a ₹50,000 net profit after deducting all expenses from revenue. |
| Profit |
Example:- A lemonade stand earns ₹100 from selling lemonade during the summer. After subtracting expenses such as the cost of lemons, sugar, and cups, totalling ₹40, the lemonade stand has a profit of ₹60 (₹100 - ₹40). |
| Loss |
Example:- A small business spends ₹500 on advertising but only generates ₹300 in revenue from sales. In this case, the business has incurred a loss of ₹200 (₹300 - ₹500). |
| Trade Discount |
Example:- A retailer buys 20 pairs of shoes at ₹100 each from a wholesaler, who offers a 10% trade discount. Instead of ₹2,000, the retailer records the transaction at ₹1,800 after the discount. They pay ₹1,800 to the wholesaler. |
| Cash Discount |
Example:- A customer buys ₹1,000 worth of goods with a 10% trade discount, reducing it to ₹900. If paid within 10 days, they get an extra 5% cash discount, saving ₹45 (5% of ₹900). Thus, they pay a net amount of ₹855 after both discounts. |
| Balance Sheet |
Example:- At year-end, a company's balance sheet summarizes its financialstatus. It lists assets like cash, liabilities such as loans, and owner's equity. For instance, assets total ₹100,000, liabilities ₹60,000, and owner's equity ₹40,000, showing the company's financial position. |
| Asset |
Example:- A company's fleet of delivery trucks is a tangible asset used for transporting goods to customers, contributing to future profits through delivery services. |
| Tangible Assets |
Example:- A manufacturing company owns a factory building where production takes place, machinery used for manufacturing, and vehicles for transporting goods. These assets have physical existence and can be seen, touched, and felt. |
| Intangible Assets |
Example:- A software company owns patents and trademarks, intangible assets with no physical form. These assets grant exclusive rights and benefits, aiding future revenue generation. |
| Current Assets |
Example:- A retail company's inventory, including clothing and electronics, is intended for sale within 12 months after the reporting date. These items are current assets on the balance sheet. |
| Non-Current Assets |
Example:- A construction company owns heavy machinery like excavators and bulldozers for long-term projects, not for near-future sale. These assets are classified as non-current assets on the balance sheet. |
| Current Investments |
Example:- A company purchases shares of a mutual fund for short-term gains, intending to sell them within a year. These are current investments, easily sellable within a year. |
| Non-Current Investments: |
Example:- A company invests in 10-year treasury bonds, planning to hold them for over a year. These are non-current investments, kept for potential future sale. |
| Debtor |
Example:- A furniture store sells ₹1,000 worth of furniture to a customer on credit. The amount owed by the customer to the store becomes a debtor. |
| Fictitious Assets |
Example:- A company records a provision for discounts to be given to creditors. This entry represents an expected future expense rather than a tangible asset. Since it's not a real asset but only an accounting entry, it's classified as a fictitious asset. |
| Wasting Assets |
Example:- A mining company owns a coal mine. Over time, as coal is extracted, the mine's value decreases until it's exhausted. The coal mine is a wasting asset as its value diminishes with extraction. |
| Liability |
Example:- A company buys goods worth ₹5,000 on credit. This creates an obligation to pay the supplier ₹5,000 in the future, making it a liability. |
| Current Liabilities |
Example:- A company owes ₹10,000 to suppliersfor inventory purchased on credit, due for payment within the next month. This is a current liability as it needs to be settled within 12 months after the reporting date. |
| Non-Current Liabilities |
Example:- A company takes out a loan with a repayment period of 5 years. This loan is classified as a non-current liability because it's not due for settlement within the next 12 months after the reporting date. |
| Contingent Liability |
Example:- If a supplier files a legalsuit against a business, the potential obligation to pay damages would be considered a contingent liability until the outcome of the lawsuit is determined. |
| Capital |
Example:- John invests ₹50,000 of his own savings into starting a new bakery business. This ₹50,000 represents John's capital in the business. |
| Drawings |
Example:- Sarah withdraws ₹500 from the cash register of her business to pay her personal bills. This withdrawal is her drawings, reducing her capital in the business. |
| Net worth |
Example:- A company's net worth is ₹100,000, derived from subtracting itstotal liabilities (₹50,000) from its total assets (₹150,000). |
| Creditor |
Example:- A company owes ₹10,000 to a supplier for goods bought on credit. The supplier is a creditor, listed as a current liability on the balance sheet. |
