d Basic Financial Accounting Concept notes
  •  basic financial accounting concepts,
  •  basic financial accounting concepts,
  •  basic financial accounting concepts,

Basic Financial Accounting Concept notes

Basic Terms in Accounting

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

Capital

In accounting languate Capital means the amount (in terms of money or assets having money value) which the proprietor has invested in the firm. For the firm, it is a liability towards the owner. It is so because the owner is treated as separate entity from the business. Capital is also known as Owner’s Equity. It will always be equal to assets less liability. This can be expressed as:

Capital = Assets – Liabilities

Liabilities

In Accounting terms Liabilities mean the amount, which the firm owes to outsiders, except the proprietor.

Liabilities = Assets – capital

A liability arises because of credit transactions. Most goods and services may be purchased by a business on credit. Funds may be borrowed form commercial bank for working capital purposes.

Liabilities can be classified into following:

Long- Term Liabilities:- These are those liabilities which are payable after a long term, (generally more than one year). –Long Term Liabilities are Long- Term Loans, Debentures, etc.

Current Liabilities:- Those liabilities which are payable in near future like:- Balance payable to sundry creditors, bank overdrafts, bills payable, etc.

Assets

In Accounting Terms Assets are those resources that is owned by the business. In other words, anything, which will enable the firm to get Cash or a benefit in future. Like:- money owned by debtors, stock of goods, Cash, furniture, machines and building, etc.

Assets can be classified into:-

Fixed Assets

Accounting defines those assets which are purchased for operating the business and not for resale. Examples of these are land, building, machinery, furniture, etc.

Current Assets

Those assets of the business, which are kept for short term for converting into Cash or for resale debtors, bank balance, etc., are some of the examples of current assets.

Sundry Debtors

Accounting language defines A person who owes money to the firm because of credit sales of goods is called a debtor. For example, when goods are sold to a person on credit that person pays the price in future. He is called a debtor because he owes the amount to the firm, commonly customers of goods/ services are known as debtors.

Sundry Creditors

In accounting terms A person to whom the firm owes money is called a creditor, when goods are purchased on credit from supplier, commonly suppliers of goods/ services are known as creditors.

Proprietor

Accounts defines proprietor as person who owns the business by making investment and bears all the risks connected with the business is called the proprietor.

Drawings

It is the amount of money or the value of goods which the proprietor takes for his personal use.

Expense

Expense is the amount spent in order to produce and sale of goods and services. Expenses is the cost of the use of things or services for the purpose of generating revenue like:- purchase expense, printing & stationery expenses, conveyance expenses etc.

Income

Income is the profit earned during a period of time. In other words, the difference between revenue and expense is called income.

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