ACCOUNTING IS THE LANGIAGE OF BUSINESS-2

1. Account: It is a of relevant business transactions relating to a particular person, asset,

expense or revenue item under one heading during a period of time.
2. Accounting: It is a system of collecting, recording, summarising, analysing and reporting
information of the business in monetary terms.
3. Accountancy: It is a systematic and organised branch of knowledge which enables the
practice of accounting according to the established principles and standardise procedures.
4. Book-keeping: It is a process through which records of financial transactions are
recorded and maintained.
5. Accounting Cycle: It i a complete sequence of accounting process that begins with
record of the business transactions and ends with the preparation of final accounts.
6. Accounting Period: It is the year for which accounts are maintained to ascertain the
performance and status of the business.
7. Accounting Equation: It is a logical approach established through assets, liabilities and
capital in the form of an equation where, Assets- Liabilities=Capital
8. Financial Accounting: It is that branch of accounting which is concerned with recording
of transactions in financial books in order to find out the trading result in terms of profit
or loss and financial position of the business for a given period of time.
9. Cost Accounting: It is that branch of accounting which is concerned with recording,
classification and allocation of cost to find out the cost of goods produced or services
rendered by a business for controlling and reporting of cost.
10. Management Accounting: It is that branch of accounting which is concerned with
presentation of accounting information in such a way to assist the management in the
creation of policy and day t day operations of an undertaking.
11. Tax Accounting: It is that branch of accounting which is meant for tax purposes. It is
related to tax provisions such as income tax, Goods and Services Tax (GST), excise
duties, customs duties etc.
12. Social Responsibility Accounting: It is that part of accounting which is concerned with
identifying, measuring and communicating the contribution of a business enterprise to the
society.
13. Accounting Data: It consists of financial transactions and events relating to an entity for
the accounting period supported by documentary evidence (vouchers).
14. Accounting Information: It is based upon and derived from accounting data it e finished
form and is the output of accounting.
15. Reliability: It is the representational faithfulness, verifiability and neutrality, with an
overlay of completeness, freedom from bias, precision and uncertainty.
16. Relevance: It’s a quality emphasised in every accounting framework were the accounting
information must be capable of making a difference in decision.
17. Transaction: It is any exchange (dealing) of goods or services for cash or on credit by
the business with any other business or customer which brings a change in the value of
assets, liabilities or capital.
18. Events: It is the consequence of an occasion which brings only qualitative changes in the
business. Only monetary events are regarded as transactions.
19. Single Entry System: It is an incomplete system of recording business transactions
where only personal accounts and cash account are considered. Impersonal accounts are
ignored here.
20. Double-Entry System: A system of recording business transitions where two fold
aspects of each transaction (every debit has its corresponding credit) are recorded. Both
personal and impersonal accounts are considered.
21. Cash Basis of Accounting: Here recording of transactions are made only on actual
receipt and payment of cash.
22. Mercantile /Accrual basis of accounting: Here recording of transactions are made as
and when they are due.
23. Hybrid Basis of Accounting: Here recording of receipts are made on cash basis and
payments are on due basis.
24. Business: It is carrying ay trade or commerce by investing capital with a objective to
make profit.
25. Proprietor: The person, who takes the initiative to start the business, invests money and
bears the risks of the business and reaps all the fruits.
26. Capital: It is the amount of money or money’s worth invested in the business by the
proprietor/owner.
27. Net worth/Owner’s equity: It is the claim of the owner against the assets f the firm. It
constitutes capital, profits and reserves.
28. Total equity: It refers to the sum total of the owners’ claim and outsiders’ claim against
the assets of the firm. So, total equity= owners’ equity + outsiders’ equity = total assets
29. Drawings: It is the amount of money or benefits (cash, goods and assets) withdrawn
from the business by the proprietor/owner for personal use.
30. Debtors: The person from whom amounts are due for goods are sold on credit or services
rendered or in respect of contractual obligations is called debtor. The debtors are
collectively called as sundry debtors.
31. Creditors: The person to whom amount is owed by the enterprise for goods purchased
on credit or services availed or in respect of contractual obligations is called creditor. The
creditors are collectively called as sundry creditors.
32. Bill of exchange: It is a negotiable instrument where the creditor orders his debtors to
pay the amount of goods either to him or to his order or to the bearer of the instrument.
33. Receivables: The bill of exchange for a creditor (seller) is known as bills receivable. The
total of debtors and bills receivable is known as ‘Accounts Receivables’ or ‘Trade
Receivables’
34. Payables: The bill of exchange for a debtor (buyer) is known as bills payable. The total
of creators and bills payable is known as ‘Accounts Payables’/Trade Payables’.
35. Debit: The left hand side of any account is called debit.
36. Credit: The right hand side of any account is called credit.
37. Goods: It refers to all those articles which have been purchased by an enterprise for sale
in the normal course of business.
38. Assets: Assets are economic resources (tangible or intangible) which are owned by a
business and from which economic benefits (revenue) are expected to flow to the
enterprise.
39. Purchases: It refers to purchase of goods on cash or credit (raw materials for production
or finished goods for sale) and which is different from purchase of an asset.
40. Sales: It refers to sale of finished goods or services rendered on cash or credit and which
is different from sales of an asset.
41. Purchase Return/Return Outward: It is that part of goods purchases which is returned
to the seller for some reasons.
42. Sales Return/Return Inward: It is that part of goods sold which is returned by the
customer to us for some reasons.
43. Stock (Inventory): The goods (raw materials, work-in-progress and finished goods)
remain unsold at the end of the accounting period is called closing stock. The closing
stock of one accounting period will become the opening stock of the next accounting
period.
44. Fixed Assets: It refers to those assets which have been purchased by the enterprise for
long term use and not for sale in the ordinary course of business.
45. Tangible Fixed Assets: It refers to those fixed assets which can be seen and touched. It
may be movable fixed assets like machinery, immovable fixed assets like building and
wasting assets like mines.
46. Intangible Fixed Assets: It refers to those fixed assets which cannot be seen and
touched. These are usually the rights to use, produce or provide goods or services like
goodwill, patents right, copy right, franchises etc.
47. Current Assets: They are the assets which are held in the form of cash or realised into
cash or used in the production of goods and services within an accounting year.
48. Fictitious Assets: It refers to those assets which do not have any physical form and
cannot be converted into cash. All non-recurring payments like preliminary expenses,
underwriting commission, discount on issue of debentures etc. are included as fictitious
assets.
49. Equity: It refers to all claims or rights against assets of the enterprise. It is divided into
two categories. They are owner’s equity and creditor’s/outsider’s equity.
Owner’s equity + Creditor’s equity =Assets
50. Liabilities: It refers to the financial obligations to outside parties arising from events that
have already happened.
51. Current Liabilities/Short-Term Liabilities: It refers to those liabilities which fall due
for payment in a relatively short period(normally within one year)
52. Fixed Liabilities/Long-Term Liabilities: It refers to those liabilities which fall due for
payment after a period of one year.
53. Contingent Liabilities: It refers to the amounts which may or may not become payable
future due to their uncertainty. The expected value of contingent liabilities is either
shown as a foot note below the balance sheet or in the inner column only on the liability
side of the balance sheet.
54. Expenditure: It is the disbursement of cash or transfer of property or incurring a liability
for the benefits received (acquiring assets or goods or services).It may be capital, revenue
or deferred revenue expenditure.
55. Revenue Expenditure: It is the amount incurred for the purchase of goods or services
which are consumed during the current accounting period to earn revenue. It is recurring
in nature and hence called as revenue expenditure.
56. Capital Expenditure: It is a non-recurring payment made for the purpose of acquiring
fixed assets or increasing the value of fixed assets or increasing in the earning capacity of
the business for which the benefits is derived over a period of time.
57. Deferred Revenue Expenditure: Any expenditure which is basically in the nature of
revenue expenditure but whose benefits covers a period of years generally three to seven
years.
58. Cost: It is the money paid or foregone to acquire anything. In business, cost is the
cumulative monetary valuation of effort, material, resources, time and utilities, risk
incurred and opportunities foregone in production or delivery of goods or services or any
activity undertaken for business purposes.
59. Revenue: It is the amount charged for the sale of goods or services rendered or
permitting others to use the resources of the enterprise yielding interest, dividend,
commission, royalty etc.
60. Profit: It is the excess of total revenue over total expenses of an accounting period. Profit
always increases owner’s equity.
61. Loss: It is the excess of total expenses over total revenue of an accounting period. Loss
always decreases owner’s equity.
62. Gain: It is a profit of an irregular nature such as, profit on sale of machinery. It may be
short-term or long-term depending upon the period for which asset is held in the business.
63. Voucher: It is a written document in support of a transaction recorded in the books and is
necessary to audit the accounts.
64. Turnover: It is the total amount of goods sold (cash as well as credit) during a definite
time period.
65. Insolvent: A person who is not able to pay his liabilities in full (liabilities are more than
assets) and is declared as insolvent by the competent court.
66. Discount: It is the reduction in the price or in payment of goods sold allowed by a
business enterprise to its customers.
67. Trade Discount: It is allowed at a fixed percentage on the list price and deducted from
the invoice with an objective to increase sales.
68. Cash Discount: It is the discount allowed to customer for making prompt/quick payment
of the amount due which is recorded in the books of debtor and creditor.
69. Bad debt: It is the amount which is irrecoverable from the debtor.
70. GAAP: The principles which constitute the ground rule for financial reporting are termed
as Generally Accepted Accounting Principles(GAAP).They make the financial
statements more meaningful, acceptable, comparable, consistent, reliable and unbiased.
71. `Concept: It is defined as the basic assumptions or conditions upon which the accounting
is based.
72. Conventions: It consists of those customs and traditions which act as a guide to the
accountants in the preparation of financial statements.
73. Business Entity Concept: It treats business quite different and distinct from its owners.
74. Money Measurement Concept: It states that all business transactions are measured and
settled in terms of money.
75. Periodicity Concept: It states that all activities are measured in terms of a specified
period of time (usually one year) called accounting year. An accounting year may be a
financial year or a calendar year.
76. Cost Concept: It states that an asset is recorded at cost.
77. Dual Aspect Concept: It states that “for every debit, there is corresponding credit”.
78. Realisation Concept: It states that revenue is said to be raised when property in the
goods has been transferred to the buyer from the seller.
79. Matching Concept: It states that there has to be a precise matching between expenses
incurred and revenue earned during the relevant accounting year to ascertain profit and
loss.
80. Gong Concern Concept: It states that business will continue to operate for an indefinite
long period of time.
81. Consistency Concept: It states that an enterprise as to treat all similar events in the same
manner unless it has a valid reason to change the method of treatment.
82. Accrual Concept: It states that revenue is recognised when it is earned, whether received
or not. Similarly, expense is recognised when it is incurred, whether paid or not.
83. Dual Aspect Concept/Balance Sheet Concept: It states that, every transaction has twin
aspects, namely giving certain benefits and receiving certain benefits. The principle of
double entry system and accounting equation are based on the principle of duality.
84. Conservatism (Prudence) Concept: This principle states that all expected profits are
ignored but all probable losses are taken into consideration. It ensures that the risk and
uncertainty inherent in the business events are adequately considered.
85. Objective Evidence Concept: It states that accounting transactions should be supported
by objective evidences which can be verified so that errors and frauds can be minimised
and authenticity can be ensured through audit.
86. Revenue Recognition Concept: It states that revenue is deemed to be
recognised/realised when the goods have been transferred or services have been rendered
to a customer.
87. Materiality Concept: It states that events of relatively small importance need not be
given a detailed or theoretically correct treatment. Information is material if its non-
disclosure could influence the economic decisions of users taken on the basis of financial
statements.
88. Full Disclosure Concept: It states that all significant information relating to the economic
affairs of the business organisation should be reported fully on the financial statements. It
helps the users of accounting information to take their decisions correctly.
89. Accounting Standards (AS): They are the policy documents issued by the recognised
accounting bodies relating to various aspects of measurement, treatment and disclosure
of accounting information. Accounting Standards are recommended by the Institute of
Chartered Accountants of India (ICAI) s may be prescribed by the Central Government.
90. International Financial Reporting Standards(IFRS):The International Accounting
Standard Board(IASB) has issued a set of accounting standards known as International
Financial Reporting Standards(IFRS).IFRS covers a wide range of International
Accounting Standards (IAS) which are issued by International Accounting Standards
Committee(IASC)