TALLY - ACCOUNTING TERMINOLOGY

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 Welcome back... In this article you will learn about some important terms related to the accounting...

ACCOUNTING TERMINOLOGY

It is necessary to understand some basic accounting terms which are daily used in business world. These terms are called accounting terminology.

1. TRANSACTION

In a simple statement, transaction means the exchange of goods or services in terms of money or money‟s worth. Events like purchase and sale of goods, receipt and payment of cash for services or on personal accounts, loss or profit in dealings etc., are the transactions.
There are two types of transactions i.e. Cash Transaction & Credit Transaction. 

 a. Cash transaction is one where cash receipt or payment is involved in the exchange.

 b. Credit transaction, on the other hand, will not have CASH either received or paid, for something given or received respectively, but gives rise to Debtor and Creditor relationship.
Non-cash transaction is one where the question of receipt or payment of cash does not at all arise, 

e.g. Depreciation, return of goods etc.

        I. Debtor

A debtor is a person or enterprise that owes money to another party. (The party to whom the money is owed is often a supplier or bank that will be referred to as the creditor.).

In simple terms, Debtor is the person who purchases the goods on credit or owes money on credit. 

For example, If Company X borrowed money from its bank,Company X is the debtor.

     II Creditor

A creditor is a person, bank, or other enterprise that has lent money or extended credit to another party. (The party to whom the credit has been granted is often a customer that will now be referred to as a debtor.) 

For example, If Supplier A sold merchandise to Retailer B, and then Supplier A is the creditor. In simple terms, Creditor is the person who sold the goods on credit.

2. Proprietor

The person who makes the investment and bears all the risks connected with the business is known as proprietor.

3. Capital

The amount invested by the proprietor to the business is referred as Capital. It is also known as owner‟s equity or net worth. 

It will always be equal to assets less liabilities, say:

            Capital = Assets - Liabilities

4. Asset

Any physical thing or right owned that has a money value is an asset. In other words, an asset is that expenditure which results in acquiring of some property or benefits of a lasting nature.

In simple Term, Asset are those business properties which have money value. 

Asset = Business Property+ Money Value

5. Liability

It means the amount which the firm owes to outsiders that is, excepting the proprietors. 

In the words of Finny and Miller,“Liabilities are debts; they are amounts owed to creditors; thus the claims of those who ate not owners are called liabilities”. 

In simple terms, debts repayable to outsiders by the business are known as liabilities.

6. Financial Year / Accounting Period

 It is a period of 12 months. An accounting year begins on 1st of April of every calendar year and ends on 31st March of next calendar year.

For Example-  If the financial year begins on 1st April of 2020 , then it will end on 31st March 2021. 

7. Stock

The goods purchased are for selling, if the goods are not sold out fully, a part of the total goods purchased is kept with the trader unlit it is sold out, it is said to be a stock. If there is stock at the end of the accounting year, it is said to be a closing stock. This closing stock at the year-end will be the opening stock for the subsequent year.

8. Drawings

It is the amount of money or the value of goods which the proprietor takes for his domestic or personal use. It is usually deducted from  the capital.

9. Discount

When customers are allowed any type of deduction in the prices of goods by the businessman that is called discount. When some discount is allowed in prices of goods on the basis of sales of the items, that is termed as trade discount, but when debtors are allowed some discount in prices of the goods for quick payment, that is termed as cash discount.

10.Goods

It is a general term used for the articles in which the business deals; that is, only those articles which are bought for resale for profit are known as Goods.

11.Revenue

It means the amount which, as a result of operations, is added to the capital. It is defined as the inflow of assets which result in an increase in the owner‟s equity. It includes all incomes like sales receipts, interest, commission, brokerage etc.; However, receipts of capital nature like additional capital, sale of assets etc., are not a part of revenue.

12.Expense

The terms „expense‟ refers to the amount incurred in the process of earning revenue. If the benefit of an expenditure is limited to one year, it is treated as an expense (also know is as revenue expenditure) such as payment of salaries and rent.

13.Expenditure

Expenditure takes place when an asset or service is acquired. The purchase of goods is expenditure, whereas cost of goods sold is an expense. 

Similarly, if an asset is acquired during the year, it is expenditure, if it is consumed during the same year; it is also an expense of the year.

14.Purchases

Buying of goods by the trader for selling them to his customers is known as purchases. As the trade is buying and selling of commodities purchase is the main function of a trade. Here, the trader gets possession of the goods which are not for own use but for resale. Purchases can be of two types. viz, cash purchases and credit purchases. If cash is paid immediately for the purchase, it is cash purchases, If the payment is postponed, it is credit purchases.

15.Sales

When the goods purchased are sold out, it is known as sales. Here, the possession and the ownership right over the goods are transferred to the buyer. 

It is known as. 'Business Turnover‟ or sales proceeds. It can be of two types, viz., cash sales and credit sales. If the sale is for immediate cash payment, it is cash sales. If payment for sales is postponed, it is credit sales.

16.Losses

Loss really means something against which the firm receives no benefit. 

It represents money given up without any return. It may be noted that expense leads to revenue but losses do not. (e.g.) loss due to fire, theft and damages payable to others.