Capital – An Amount by the owner (proprietor) in business is known as capital. It may be in the form of cash, goods or assets.

Drawings – An Amount (cash or value of goods) withdrawn by the owner for its personal use is called drawings.

Liability – It refers to the amount which firm owes to the outsider.

Assets – Anything which is in the possession or is the property of the business including amount due to it from others is called assets. It is classified into 2 types:-

Tangible asset – Those assets which can be seen touch or have any physical existence is called a tangible asset. For e.g. Machinery, Building, Plant, etc.

Intangible asset – Those assets which can’t be seen touch or have any physical existence is called an intangible asset. For e.g. Goodwill, Patent, Trademark, etc.

Debtors – The term Debtor represents those people of the firm to whom goods have been sold and amount yet to be received. It is the part of assets.

Creditors – The term Creditor represents those people of the firm from whom goods have been purchased and amount yet to be paid. It is the part of the liability.

Bad debts – It is the amount that has become Ir-recoverable from a debtor is called bad debts. It is debited in profit & loss account.

Turnover – Total Sale made in a particular period is called turnover.

Expenses – It is the cost which is incurred for producing and selling the goods & services.

Income – An Amount received from the sale of goods is called Revenue. And the cost incurred for goods sold is called Expenses. The surplus of revenue over expenses is called Income. [INCOME = REVENUE – EXPENSES]

Capital expenditure – Any expenditure which incurred in increasing the value of assets is termed as capital expenditure.

Revenue expenditure – Any expenditure which full benefit received in particular accounting period is termed as revenue expenditure. This kind of expenditure only help in maintains the existing earning capacity.

Business Transaction – A business transaction is an economic activity of the business that helps to change its financial position (Not including social activity). Due to the transaction, as a result changing the value of some of the assets, liability & capital. The change must be capable of being in the term of the money.

Profit – It is the excess of total Revenue over total Expenses of a business for an accounting period.

Loss – When total Expenses is over total Revenue then loss may arise. Some losses differ from expenses. Such are loss by fire, loss by expenditure, etc.

Gain – It is the monetary benefit, profits or advantages arising from events and transactions such as a sale of fixed assets, etc.

Live-stock – Domestic animal Such as cattle or Horse is known as livestock.

Voucher – A Voucher is a document or evidence which provides authority to pay on the basis of business transactions. A separate voucher is prepared for each and every transactions.

Discount – It is a kind of rebate or allowance given by the seller to the buyer. It is divided into two parts one is TRADE DISCOUNT & another one is CASH DISCOUNT.

Trade discount – when the discount is allowed by the seller to its customer at a fixed % on a list price of goods is called Trade discount. It never is shown in a journal entry.

Cash discount – when Discount is allowed to the customer for making the prompt payment is called Cash Discount. It is always recorded in a journal entry.

Entry – When a transaction or event records in a book of accounts is called Entry.

Insolvent – When a person or firm which is not in a position to pay its debts (liability loan) is called Insolvent.

Solvent – When a person or firm in the position to pay its debts is called solvent.

Goods – It includes all those things which are purchased for resale or which are used for producing the finished goods (which are also meant to be sold) is known as goods.



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