Some Important Accounting Terms

1.  Business: It is an activity which is carried on with an intention to earn profit by exchange of goods/services.

2. Debit: It represents the Left Hand Side of an Account. It is also understood as the Receiving Aspect. It is abbreviated as “Dr.”

3. Credit: It represents the Right Hand Side of an Account. It is also understood as the Giving Aspect. It is abbreviated as “Cr.”

4. Accounting Policies: It refers to the specific accounting principles and the methods of applying those principles in preparation of financial statements.

5. Business Transactions: It refers to any business activity between the business and the outsider to the business and involves flow of cash either immediately or at a later date. Eg. Purchase of goods, sale of goods, Rent paid, Commission received, etc.

6.  Business Events: Events are the result of various transactions that take place in the business. Events do not involve any outsiders or flow of cash. Eg, Closing Stock, Profit, etc.

7. Cash Transaction: It refers to those transactions which result in flow of cash immediately.  For Eg. Cash purchases, salaries  paid, interest received, etc. Normally the transactions that uses the word - Paid, Received, Cheque or Cash are Cash Transactions. Any transaction without a Name of any person is also a Cash Transaction.

8.  Credit Transactions: Any transaction which is not a cash transaction in nature is a credit transaction. In simple words the transaction for which the cash would flow at a future date is called as a credit transaction. Normally in a Credit Transaction the Name of the Party involved will be stated without using the words -  Paid, Received, Cheque or Cash. 

9.     Deprecation: A gradual but constant fall in the Book Value of a Fixed Asset due to its use, wear and tear, obsolescence, passage of time, etc.

10.Proprietor: The owner of the business in accounting terminology is called as the proprietor.

11.  Capital: The amount invested by the proprietor in the business at the start of the business or at any point of time is called as the capital. Capital can be brought in cash or in the form of any other asset. Capital is also known as Equity or Owner's Equity.

12. Drawings: The value of the goods or cash withdrawn by the proprietor from business for his/her personal use is called as Drawings. 

13. Goods: It refers to any commodity in which the business deals, i.e. any commodity purchased by the business with an intention to resale and make profit from such sale are considered goods. For e.g. Table, Sofa, etc. purchased by a furniture dealer is goods for him.

14. Debtor: He is the person from whom Business has to receive money. Normally our customers, i.e. the people to whom we sell on credit are our Debtors.

15. Creditor: The person to whom Business has to pay is our creditor. Normally our suppliers, i.e. the people from whom we purchase on Credit are our Creditors.

16. Asset: Anything in which the business has the ownership including all the receivables of the business is what is called as asset. Assets can be of different types.

17. Current Assets: Any asset that can be converted into cash in less than one year is called as the current asset. Eg. Stock, cash, bank balance, bills receivable, debtors, etc.

18. Fixed Assets: Any asset which is expected to be in business for a longer period of time and it helps in production/ Revenue Generation directly or indirectly is called as fixed asset. These assets are not purchased with the intention to sell. Eg. Land & Building, Plant & Machinery, Furniture, Goodwill, Patents, etc.

19. Tangible Assets: The assets which has a physical appearance, i.e. they can be seen and touched are called as Tangible assets. Eg. Cash, Stock, Building, Machinery etc.

20.  Intangible Assets: The assets which do not have any physical appearance, i.e. they cannot be touched but only felt are called as intangible assets. Eg. Goodwill, Patent, Trademark, etc.

21.  Fictitious Assets: As the name says they are not real assets but only imaginary assets or are considered as assets but in reality they are the unwritten off expenses or losses of the business. Just because they have a debit balance and cannot be charged to current year’s profit they are posted on the asset side of the balance sheet. Eg. Preliminary Expenses, Discount of Issue of Shares/ Debentures, Etc. 

22.  Liability: The responsibility of the business to pay is called as a liability. It refers to any amount payable by the business. Liabilities also can be of two different types, viz. Current liability and Long term liability.

23. Current Liability: The liability which the firm has to pay within a period of 12 months is termed as current liability. Eg.– Bank overdraft, creditors, outstanding expenses, bills payable, etc.

24. Long Term Liability: The liability which is to be payable by business after a longer period of time, i.e. after more than 12 months is termed as long term liability. Eg. -Debentures, Loans taken, etc.

25. Bad Debts: The amount of money which is irrecoverable form the Debtors of the Business is called as bad debts.