Basic Accounting Terminologies

Accounting refers to the entire body of the theory and the process of accounting. It is the process of Practice of recording, classifying and reporting of business transactions for a Business. For better understanding of accounting, it is necessary to learn meaning of certain basic terms used in accounting. 

Accounting is very vast system which we all use in our Daily life. Let take an example for better understand. We all go to Malls, Supermarkets, Big Bazar, etc. There we purchase vegetable, clothes and any other thing which we required. The time we purchase the thing that time seller give an Invoice also know as Bill. That is a proof that we buy a goods from the seller but, for the seller the invoice is a entry of Sale of goods. Now, we move to see the Accounting Terms. 

Basic Accounting Terminologies.

1. Transactions.

As we Buy a goods from the seller. We did the exchange of goods or Service between two persons or parties for money or money`s worth is know as Transactions. 

Types of Transactions

a) Monetary Transactions 

    The Transaction which involves money or money`s worth directly or indirectly for exchange is called monetary transactions. The most important thing you should know that monetary transactions are only recorded in the books of accounts. 

Two aspects of Monetary Transactions

 Cash transactions And Credit Transactions.

Cash Transactions ： Cash transactions in which the money is paid or received immediately on time.

Example： ⅰ] Purchased Sport Bike ₹5,00,000 and paid Cash.

ⅱ] Purchased goods for cash at ₹20,000

Credit Transactions：  Credit Transactions is a transaction which cash is not paid or received immediately at the time but, it is paid or received later of date.

Example： ⅰ] Purchased Sport Bike on credit from Super Bike Showroom at ₹5,00,000.

ⅱ] Sold goods to Mr. Vikash on credit at ₹2,000

b) Non-Monetary Transactions

The Transactions which does not involves an exchange of money worth directly or indirectly are called  Non-Monetary Transactions. In earlier we use this Transactions has Barter system.

2. Assets and Liabilities

a) Assets is a physical thing owned that has a monetary value is called as an asset. Assets are of various types Fixed Assets, Current Assets, Fictitious Assets. e.g Land, Building, Machinery, Goodwill, Trade Mark, Debtors, Furniture, Cash, Bank, Stocks, Advertisement for 5 yrs.

b) Liabilities Amount payable by the business to others is known as Liabilities. It is a debt or amount due from the business to others for the benefits received by the business unit. e.g Loan taken, Bills payable, Creditors, Bank overdraft, Outstanding expense, etc.....

3. Capital and Drawings

a) Capital： The amount invested in the Business by the owner is called Capital. 

Example：  Mr. Anand Stated business with Cash ₹50,00,000

b) Drawings The amount of cash or goods, assets, etc. withdrawn by owner of the business for his/her personal use is called Drawings.

Example：  A proprietor withdrawn cash from the business for personal use.

4. Debtors and Creditors

a) Debtors A person who is liable to pay to the business is called debtors. In simple Goods Sold on credit that the buyer is a debtor for the business as he/she is liable to pay. If in case, A person is not able to pay then that amount is a Bad Debt for the business because that money is irrecoverable by business.

b) Creditors  A person to whom the business has to pay for getting goods or service on credit is know as creditors. Suppose purchased goods from Mr. Mitesh on credit at ₹ 5,000. Here business has to pay ₹5,000 to Mr. Mitesh So, Mr. Mitesh is a Creditor for the Business.

5. Income and Expenditure

a) Income It is a revenue arising as a result of business transactions. It is the amount receivable or realised from service provided and earnings from interest, dividend, commission, etc..

b) Expenditure An amount spend by the business for any consideration received by the business is called expenditure. Rent paid, Salary paid, Wages, Carriage inward, advertisement, general expenses, etc...