Basic Accounting Terms

Assets: These are the properties owned by the business which are used to carry out the business operations and earn operating revenue for the business. Current Asset: These are those assets which are held on short term basis for the purpose of converting them into cash within a year such as debtors, stocks, etc. Fixed Assets: These are those assets which are not held in the business for reselling but are held for a long term to increase the

earning capacity of the business. Tangible: Assets which have physical existence, It includes land, building, furniture, etc. Intangible: Assets which do not have physical existence, It includes patents, goodwill,. Liabilities: It refers to the financial obligations or debt which a business owes to others, i.e. amount business is liable to pay others such as loans from banks, other persons or creditors for goods supplied.

Current or Short term Liabilities: These are the obligations which are payable within a period of 12 months from the end of the accounting period. Examples include, bills payable, short-term loans, etc. Non-Current or Long term Liabilities: These are the loans which are payable after a period of more than a year from the end of the accounting period. Examples include, long-term loans, debentures, etc. Expenditure It is the amount spent for acquiring assets, goods or services.

Revenue Expenditure: It is that expenditure the benefit of which is consumed or exhausted within the accounting period. like cost of goods sold, salary, rent, electricity, etc. Capital Expenditure: It is the amount incurred to acquire tangible or intangible assets or the amount spent on improving the existing assets which increase the earning capacity of the business. Income: Money coming in (sales, services). Profit: When income exceeds expenses.

Loss: When expenses exceed income. Accrual: Recording transactions when they occur, not when money changes hands. Cash: Actual physical currency. Bank: Money in your business account. Capital: Owner’s investment in the business. Drawings:Money withdrawn by the owner.

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