Debit: Incoming benefits or receiving benefits called debit.
Credit: Outgoing benefits or giving benefits called credit.
Debtor: A person who owing money to the business firm is called debtor. In other words a debtor one who received benefit from the firm and yet to repay it or purchased goods on credit basis.
Creditor: A person who lent money or sell goods on credit to the firm. In other words creditor means who gave benefit to the firm and yet to receive the equaling benefit from the firm.
Account: Account is a summarized statement of Debit and credit.
Accounting: The method of identifying, analysing, and passing on the required financial information to the decision-makers in the business.
Goods: Those with which the business concern does business. If a commodity is produced or purchased for the purpose of sale. It is called goods.
Capital: The amount invested by the 0wner for running the business is called capital. This can be in the form of goods / cash.
Asset: Asset means conglomeration of benefits. Assets are which essential and beneficial for running the business operations.
Fixed Assets: Those which provides long-term benefits for the running the business.
Floating Asset: Which dedicate their benefits for running the business and which change in value with in a short span of time is called Floating Asset Ex: Goods, debtors, cash and investments etc,.
Intangible assets: those having no physical existence and can not touch. Ex: goodwill, trademarks, etc..
Liabilities: The debts owned by the firm to outsiders and also to the investors’ i.e. owners are called liabilities. Ex: creditors, bank overdraft, bills payable and loan taken from others.
Contingent Liabilities: These are not the real liabilities. They are not actual liabilities at present. They might become a liability in future on condition that the contemplated even occurs. Ex: liability in respect of pending. This is not shown in balance sheet that may be shown as not under it.
Drawings: cash, goods or services drawn by the owner / investors for self-consumption are called drawings.
Expenditure: Account spent for acquiring goods / services for running business is known as expenditure. It may be capital / revenue expenditure.
Capital Expenditure: Spent for the acquisition of fixed assets which have long life and which are useful for the long-term benefit of the business.
Revenue Expenditure: All expenditure incurred for running the business for the current year is known as revenue expenditure. Ex: salaries, rent, interest etc.
Income: The amount earned by a firm out of its business transaction during a period is called income.
Capital Gain: Is the excess amount received over the book value of the asset owned by the firm ex: profit earned over sale of building.
Revenue Income: Revenue income is the income received during business transactions or sale and purchase of goods or on services render to outsiders.
Journal: This is called the book of prime entry. The word journal is derived from the Latin word Journ that means a day. Hence, journal is also termed, as a daybook where in the day to day transactions is recorded in chronological order.
Journal entry: The process of recording the business transactions in the journal is known as journalising.
Ledger: ledger means a set of accounts. This is also called a book of final entry. All the transactions from the journal entries are recorded in the ledger by opening separate accounts and their balances are found.
Cheque: Is an instrument, by means of which a depositor can order the bank to pay certain sum of money only to the order of a or to the bearer of the instrument.
Invoice: Is a statement by the seller to the purchaser which contains the details of the quantity of goods sold and price of the goods, terms and conditions of payment particulars.
Balance sheet: It is a statement prepared on a particular date to reflect the financial position of the firm with all assets and liabilities of the firm. This is prepared based on Accounting period concept.
P&L a/c: Has to be prepared to ascertain the net profit or gross profit or net loss of the firm for the accounting period. This is prepared based on Accounting period concept.
Trail balance: It is a statement prepared by putting all debts one side and all credits on the other side to check arithmetical accuracy of the ledger balance.
Cash: The purchasing power in hand is called cash.
Cash expenses: cash is paid for expenses incurred.
Non- cash expenses: It is a expenditure, there is no cash involvement. Expenses are incurred but cash is not paid (that cash is not going out of the business). Ex. Depreciation.
Prepaid expenditure: The amount paid for the expenditure. Relation to the future years.
O/S expenses: Expenditure incurred but the payment for which is not yet paid and will be shown in the balance sheet liability side.
Recurring expenses: Items, which are repeated. Ex: sales and wages.
Non- Recurring expenses: which are not regular and repeated. Ex: buying of fixed assets, legal exp. Profit/ loss on sale of asset, insurance.
Promisory Note: Sec – 4 of the negotiable instrument act, 1881 defines promissory note as “ an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to the order of a certain person or to the bearer of the instrument”.
Bill of Exchange: Sec – 5 of the negotiable instrument act, 1881 defined a bill of exchange “ as an instrument in writing containing an unconditional undertaking signed by the maker the order of a certain person or to the bearer of the instrument”.
Parties: Drawer: He is the person who draws the bill. He is usually creditor or seller.
Drawee: He is the person on whom the bill is drawn, He is also known as acceptor as he accepts the bill.
Payee: He is the person who is entitled to receive payment.
Consignment: The dispatch of goods from one place to another place for the purpose of the sake through an agent is called consignment. The person who sends goods is called consignor, the person whom the goods sent is known as consignee.
Joint venture: A joint venture is practically partnerships between two are more persons confined to a particular venture or piece of business.
Bad debts: The businessmen may be tempted to sell goods on credit just to increase sales volume. But owing to variety of reasons the debtor may not be in a position to repay the debt. In this way, the debt or claim from debtors, which becomes unrealisable is called a bad debt.
Depreciation: nothing but a decreasing in value of an asset caused due to constant use of the asset, lapse of time and technical advancement. Depreciation charged based on Going concern concept.
Depletion: A measure if exhaustion of wasting asset represented by periodic write of cost another substituted value.
Amortisation: writing of intangible assets. Ex: patents, goodwill.
Preliminary Expenses: Expenditure relating to the formation of an enterprise. There include legal accounting and share issue expenses incurred for formation of the enterprise.
Operating Profit: The net profit arising from the normal operating of an enterprise without taking accounting of extraneous transactions and expenses of a purely financial nature.
Extra-ordinary items in the P & L a/c:
The transaction, which is not related to the business, is termed as ex-ordinary transactions or extra-ordinary items. It is as well as called exceptional items and prior period items. Ex: Loss due to earthquake, Profit or losses on the sale of fixed assets, interest received from other company investments, profit or loss on foreign exchange, unexpected dividend received.
Debenture: A formal document constituting acknowledgement of a debt by an enterprise. Debenture is a document bearing the common seal.
· Which creates or acknowledges a debt.
· It need not be secured (it may/may not).
· It does not carry any voting right, but it carries interest.
Convertible Debenture: A debenture, which gives the holder a right to conversion wholly or partly in shares in accordance with term of issue.
Debenture Redemption Reserve: A reserve creates for the purpose of redemption of debentures at a future date.
Redemption: Repayment as per given forms normally used in connections with preference share and debenture.
Redeemable Preference Share: The preference share that is repayable either after a fixed or determinable period or at any time dividend by the management. Under certain credit any prescribed by the instrument of incorporation on the terms of issues.
Cumulative Preference Shares: A class of preference shares entitled to payment of cumulative dividends. Preference shares are always deemed to be cumulative, unless they are expressly made non- cumulative preference shares.
Sweat Equity Shares: Equity shares issued by the company to employees or directors. Such issue should be authorized by a special resolution passed by the company in general meeting.
Dividend: Dividend is a return on the investment to the shareholders. It is paid out of the divisible profits of the company. Dividend is normally expressed in terms of percentage of the face value of the share.
Types: 1. Dividend on preference shares. 2. Dividend on equity shares 3. Interim-dividend.
Dividend Equalisation Reserve: A reserve created to maintain the rate of dividend in future years.
Unclaimed Dividend: Dividend, which has been declared by a corporate enterprise and a warrant or a cheque in respect where has been dispatched but has not been En- cashed by the shareholders connected.
Unpaid Dividend: Dividend, which has been declared by a corporate enterprise but has not been paid. In respect where has not been dispatched with in the prescribed period.
Scrip Dividend: A scrip dividend promises to pay the shareholders at a future specific date.
The objective of scrip dividend is to postpone the immediate payment of cash.
Stock Dividend: It means the issue of bonus shares to the existing shareholders.
Cash Dividend: The payment of dividend in cash to shareholders is called cash dividend. Payment of dividend in cash results in out flow of funds and reduces the company.
Annual Report: Annual Reports shows the financial position of the company and the performance of the company during the last year. It contains B/S, P&L a/c and notes to accounts.
Notes to Accounts: It gives the information about:
Fixed assets & dep., R&D expenditure, foreign exchange transactions, excise duty, interim dividend/ Proposed dividend, investments, miscellaneous expenditure inventories.
Bankrupt: A statement in which affirm is unable to meet its obligations and hence, it is assets are surrendered to court for administration.
Bridge Loan: Temporary finance provided to a project until long term arrangement are need.
Differed revenue expenses: The benefit of the expenditure will be differed to the future periods for which the expenditure is charged. Differed revenue expenditure known as asset in balance sheet. Ex: Preliminary expenses.
Sinking Fund: A fund created for the repayment of a liability or for the replacement of an asset.
Mortgage: A transfer of interest in specific Immovable property for the purpose of securing a loan advanced or to be advanced. An existing on future debt or the performance of an engagement which may give rise to a percipiency liability.
Differed Revenue income: which is a income differed to the future periods. That means it is not related to one period related to more than one period.
Called of share capital: That part of the subscribed share capital which shareholders has been required to pay.
Capital Assets: Assets, including investments not held for sale, conversion or redeemable preference share of a corporate enterprise out of its profits which could other wise gave been available for distribution as dividend.
Capital W.I.P.: Expenditure on capital assets, which are in the process of construction as completion.
Capital receipts: Amount received on capital items. Amount received by selling fixed assets. Show the balance sheet in liability side.
Revenue Receipts: Amount receives on revenue items. Amount received by sale of goods or services show the trading and p& l a/c credit side.
Capital profits: capital profits are, profits realised on sale of fixed assets or on disposal of investments. They may be distributed by a way of dividend.
Revenue Profits: revenue profits are, the profits earned by the company through its ordinary activities.
General Reserve: G.R. is a reserve, which is to meet any future unknown liability. It can be utilised as dividend.
Capital Reserve: profits in the nature of capital or profits in the form of capital nature ex: share premium, share forfeiture.
Reserve Capital: reserve capital is called up only at the time of liquidation. If assets held are not sufficient to meat the liabilities.
Subsidiary company: A company, which is selling more than 51% of shares to another company, is called subsidiary company.
Holding company: A company, which is buying more than 51% of shares from another company, is called holding company.
· A Company shall be deemed to be a subsidiary of another company.
· If that another company,
1. Controls the composition of its board of directors.
2. Holds more than 50% of the voting power or paid up capital in the other company.
3. Is the subsidiary of any other company, which is the subsidiary of holding company.
