ACCOUNTING
TERMINOLOGY
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Business Entity Forms
Sole Partnership Corporation
Proprietorship
Accounting Activities
Identifying Recording
Business Business
Activities Activities Communicating
Business
Activities
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Common Accounting Terminology
Book keeping
• recording, on a day-day basis of the
financial transactions and
information pertaining to a business.
Accounting
• “Language of business“.
• It is recording, analysis & reporting
of financial transactions.
Common Accounting Terminology
Account :
• A record which is used to collect and store similar
information.
A/c
An abbreviation for the word account.
Business Transaction :
• any event that affects the financial position of an
organization and requires recording
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Common Accounting Terminology
Accountant :.
• a person concerned with the maintenance of books of
accounts.
Accountancy :
• Profession or practice of an accountant
• Accountancy is the process of managing the income and
expenses of a business .
Capital
• the amount of cash and other assets invested by the owner.
• Cash or goods used to generate income either by investing in
a business or net worth of a business.
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❖ Assets : These are resources owned by a business which
benefit its future operations and are convertible to cash.
Land &
Cash Investment
Building
Goodwill &
Inventories
Patent
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❖ Liabilities :Obligations of a company or organization.
Any type of borrowing from persons or banks .
Bank Bank
Creditors
loans overdraft
Dividends Income tax
payable payables
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❖ Fiscal year : is also called the financial/accounting year.
It vary between businesses and countries. It may also
refer to the year used for income tax reporting.
•In India 1st April ends 31st March
•In USA 1st Oct ends 30th Sept.
•In UAE 1st Jan ends 31st Dec.
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❖ Revenue :or Turnover is income that a company receives
from its normal business activities.
Examples :
o Sale of goods
o Rent received
o Commission received
❖ Expense: the money spent or cost incurred in an entity's
efforts to generate revenue
Examples :
O Wages & Salaries
O Rent paid
O Interest paid
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❖ Capital account : is the amount of cash and other assets
invested by the owner.
❖ Drawings account :is an accounting record maintained
to track money withdrawn from a business by its owners.
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❖ Debtor : an entity, a company or a person of a legal
nature that owes money to the business.
❖ It can be customer, person who borrowed from
business.
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❖ Creditors :is an entity, a company or a person of a legal
nature that has provided goods, services or a monetary loan
to our company.
O Business owes to them.
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❖ Purchase :Purchase is the cost of buying inventory
during a period for the purpose of sale in the ordinary
course of the business.
❖ A purchase may be made on Cash or on Credit.
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❖ Sales: when the produced goods are sold out in the
market.
❖ Here possession & ownership transferred from seller to
buyer.
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❖ Stock :refer to finished goods inventory.
❖ Inventory :the raw materials, work-in-process, and
finished goods that a company has on hand for its own
production processes or for sale to customers.
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❖ Insolvent: an entity is considered
to be insolvent when the amount
of its liabilities exceeds the
market value of its assets.
❖ It is also considered to have
occurred when a person or
business is unable to pay
obligations when due.
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❖ Invoice :a commercial document will usually include the quantity
of purchase, price of goods and/or services, date, parties
involved, unique invoice number, and tax information.
❖ Voucher: is an internal document describing and authorizing the
payment of a liability to a supplier. It includes identification
number of the vendor, amount to be paid, date on which payment
should be made, accounts to be charged to record the liability and
an approval signature or stamp.
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Invoice
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Voucher
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❖ Profit : is realized when the amount of revenue gained
from a business activity exceeds the expenses, costs and
taxes needed to sustain the activity.
Profit = Revenue – Expenses
❖ Loss :An excess of expenses over revenues, either for a
single business transaction or in reference to the sum of
all transactions for an accounting period.
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❖ Financial Statements: or financial report is a formal
record of the financial activities and position of a business,
person, or other entity.
O Managers and investors can learn about the financial position
and prospects of an organization from its financial
statements
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Types of financial statement
i. Income statement /Profit and Loss report. It is a summary
of firm’s revenue and expense over a period of time ending
with Net Income/Loss.
ii. Position Statement / Balance sheet on a company's assets,
liabilities, and ownership equity at a given point in time.
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iii. Statement of changes in Equity :Equity statement or
statement of retained earnings, reports on the
changes in retained earnings of the company during the
stated period.
iv. Statement of Cash flows : reports on a company's cash
flow activities, particularly its operating, investing and
financing activities.
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