13 Basic Terms of Accounting.

13 Basic Terms of Accounting| Receipt| Expenditure| Expenses| Income| Profit| Gain| Loss| Purchase| Purchase Return| Sales| Sales Return| Goods| Stock/Inventory.

Hello Everyone,

In previous blog we have discussed 6 basic term of Accounting. Now in this blog we will know 13 more terms.

13 basic Terms of Accounting.

1. Receipts: Receipt is the amount received or receivable for selling assets, goods or services. Receipts are further categorised into revenue receipts and capital receipts. Revenue Receipts: It is the amount received or receivable in the normal course of business say against sale of goods or rendering of services or investment of business resources say in fixed deposit. Examples of revenue receipts are: amount received or receivable against sale of goods or rendering of services, interest on fixed deposits or investments, etc.

Capital Receipts: It is the amount received or receivable against transactions which are not revenue in nature. For example, amount received or receivable for sale of machinery, building, furniture, investment, loan, etc.

2. Expenditure: Expenditure is the amount spent or liability incurred for acquiring assets, goods or services. Expenditure may be categorised into:

(1) Capital Expenditure: It is an expenditure incurred to acquire assets or improving the existing assets which will increase the earning capacity of the business, i.e...will give benefit of enduring nature to the business. It may be incurred to acquire tangible asset or intangible asset. 

Examples of capital expenditure are purchase of machinery to manufacture goods, purchase of furniture or computers to carry on business. Capital Expenditure is shown on the assets side of the Balance Sheet. 

(i). Revenue Expenditure: Revenue Expenditure is the expenditure incurred, the benefit of which is consumed or exhausted within the accounting period. It has direct relationship with revenue or with the accounting period, e.g., cost of goods sold salaries, rent, electricity expenses, etc.

Revenue Expenditure is shown on the debit side of the Trading Account or Profit and Loss Account, in the case of firms and in the Expenses part of the Statement of Profit and Loss, in the case of companies. 

(iii). Deferred Revenue Expenditure: Deferred Revenue Expenditure is a revenue expenditure in nature but is written off (charged) in more than one accounting period. For example, large advertising expenditure that will give benefit for more than one accounting period is a Deferred Revenue Expenditure.

3. Expenses : Expense is the cost incurred for generating revenue. According to I.N. Anthony. "Expense is a monetary measure of inputs or resources consumed." It is a value which has expired during the accounting period. It may be

(1) cash payment such as salaries, wages, rent, etc. 

4. Income: Income is the profit earned during a period. In other words, the difference between revenue and expense is termed as Income. It is a broader term than the term 'profit' and includes profit from activities other than its Operating Activities. 

For example, goods coating 15,000 are sold for 21,000, the cost of goods sold, Le.. 15,000 is expense, the sale of goods, Le, 21.000 is revenue and the difference, 6,000 is income. It can, therefore, he expressed as:

5. Profit: Profit means income earned by the business from its Operating Activities, ie, the activities carried out by the enterprise to earn profit. Profit is further divided into gross profit and net profit.

Gross Profit: Gross Profit is the difference between revenue from sales and/or services rendered over its direct cost.

Net Profit: Net Profit is the profit earned after allowing for all expenses. In case expenses are more than the revenue, it is Net Loss. 

6. Gain: Gain is a profit of irregular or non-recurrent nature. It is a profit that arises from transactions which are the Operating Activities of the business but are incidental. such as gain on sale of fixed asset or investments.

7. Loss: Loss is excess of expenses of a period over its revenues. It decreases the owner's equity. It is a broad term and includes loss incurred in its operating (business) activities, money or money's worth lost against which the firm receives no cash or goods lost in theft and loss arising from events of non-recurring nature, e.g. loss on sale of fixed assets.

8. Purchases: The term 'Purchases' is used for purchases of goods for resale or for producing the finished products which are also to be sold. The term 'purchases includes both cash and credit purchases of goods. Goods purchased for cash are termed as Cash Purchases and goods purchased on credit are termed as Credit Purchases.

9. Purchases Return: Goods purchased may be returned to the seller for any ,reason say, they are defective. Goods so returned are known as Purchases Return or Returns Outward.

10. Sales: The term 'Sales' is associated with or used for sale of goods that are dealt with by the firm. The term 'Sales' includes both cash and credit sales. When goods are sold for cash, they are termed as Cash Sales and when sold on credit, they are termed as Credit Sales.

11. Sales Return: Goods sold when returned by the purchaser are termed as Sales Return or Returns Inward.

12. Goods: Goods are the physical items of trade. It is a term that applies to all the items making up the sales or purchases of a business. They are thus Stock-in-Trade of an enterprise, which are purchased or manufactured with a purpose of selling. For an enterprise dealing in home appliances such as T.V., fridge, A.C., etc., are goods. Similarly, for a stationer, stationery is goods.

13. Stock/Inventory: Stock (Inventory) is a tangible asset held by an enterprise for the purpose of sale in the ordinary course of business or for the purpose of using it in the production of goods meant for sale. Stock (Inventory) may be: Opening Stock (Inventory) or (ii) Closing Stock (Inventory).