ACCOUNTANCY NOTES CLASS XI

Ts grewal's chapter 2 Notes: Basic Accounting Terms.

 Accounting Terms are:

1. BBusiness Trationnsaction: The term ‘Business Transaction’ means a financial ,

transaction or economic event entered into by two parties that initiates the accounting process of recording it in the books of account of an enterprise.

 It is an agreement between two parties involving transfer or exchange of goods or services.

 Examples of business transactions are sales of goods, purchases of goods, receipt from debtors, payment to creditors,  payment of interest, payment of dividend, etc. 

Characteristics of a Business Transaction 

👉 It is concerned with money or money’s worth of goods or services. 

👉It arises out of the transfer or exchange of goods or services.

👉It brings about a change in the financial position (i.e., in Assets and Liabilities). 

👉It has dual aspects or two sides—‘Receiving’ (Debit) and ‘Giving’ (Credit) of the benefit. In other words, every transaction has two sides—one is ‘Receiving’ the benefit and the other is ‘Giving’ the benefit. 

2. Account: 

 It is a record of transactions (cash and credit) under a particular head or account (say Salaries, Telephone Expenses, Electricity Expenses, etc.) or a particular head (say asset, liability, etc.). It not only shows the amounts of transactions but also shows their effect and direction.

3. Capital: Capital is the amount invested in an enterprise by the proprietor (n case ot Proprietorship) or by partners (in partnership business).

Capital= Assets -Liabilities

4. Drawings: It is the amount withdrawn or goods taken by the proprietor or partner for personal use. 

5. Liabilities: Liabilities mean amount owed (payable) by the business. Liability

towards the owners (proprietor or partners) of the business is termed as internal

liability. On the other hand, liability towards the outsiders, i.e., other than the owners

(proprietor or partners) is termed as external liability.

Liability is further classified into:

Non-current Liability: Non-current Liability is that liability which is payable after a period of more than a year from the end of the accounting period. 

Examples of Non-current Liability are long-term loans, debentures, etc.

(i)Current Liability: Current Liability 1s that liability which is payable within 12 months from the end of the accounting period.

 Examples of Current Liability

are creditors, bills payable, short-term loans, 

6. Assets: Assets are the properties (tangible assets and intangible assets) owned by an entity or enterprise. They are the economic resources of the business. In other words anything which will enable the firm to get economic benefit in the future, is an asset

 Examples of assets are land, building, machinery, furniture, stock, debtors, cash and bank balances, trademarks, copyrights, goodwill, etc.

characteristics:

1. It should be owned (i.e., property) by the business.

2. It may be in tangible (physical) form or intangible form.

3. It should have some value attached to it.

4 It should be capable of being measured in money terms.

Assets can be classified into (i) Non-current Assets, (ii) Current Assets, and(iii) Fictitious Assets:

👉 Non-current Assets: Non-current Assets are those assets which are held by an entity not with the purpose of the resell but are held either as investment or to facilitate business operation.

 Examples  Fixed asset, Non current asset

Fixed Assets: Fixed assets are those non-current assets of an enterprise which are held not to resell but with the purnose to increase its earning capacity

 Fixed assets are further classified into:

Tangible Assets: Tangible Assets are those assets which have physical existence, i.e., they can be seen and touched. 

Examples of tangible assets are land, building, machinery, computer, furniture, ete.

Intangible Assets: Intangible Assets are those assets which do not have physical existence, i.e., they cannot be seen and touched but can be felt

Examples are patents, goodwill, trademarks, Computer Software, etc.

(ii)Current Assets: Current Assets are those assets which are held by an entity or enterprise with the purpose of converting them into cash within a short period, i.e, One year. 

Fictitious Assets: Fictitious Assets are those assets which are neither tangible assets nor intangible assets. They are losses not written off in the year in which they are incurred but in more than one accounting period.

In the case of firms, an example of fictitious asset is Deferred Revenue Expenditure such as Advertisement Expenditure. Discount or Loss on Issue of Debentures is an example of fictitious asset in the case of companies.

(8) Expenditure

It is the amount spent on liability in card for acquiring asset goods or services

 expenditure are divided into three categories capital expenditure and revenue expenditure deferred revenue expenditure

 capital expenditure:

👉it is an expenditure incurred to acquire asset 

revenue expenditure

👉 it is the expenditure enquiry the benefit of which is consumed within the accounting period 

deferred revenue expenditure is a revenue expenditure in nature but is charged in more than one accounting period

(9)Expense is the cost incurred for generating revenue

(10) income is a profit earned during an accounting period the difference between revenue and expense is term us income.

 for example ,good costing 15000 are sold for 21000 the cost of goods sold 15,000 is expense the sale of good 21000 is revenue and the difference is 6000 is income

(11)Profit means income earned by the business from its operational activities or profit earned from the sale of goods or providing services

(12) Gain is the increase in owner's equity resulting from something other than the day to day earning from irregular or non recurring nature

(13) loss is excess of expenses of a period over its revenue it decreases the owners equity

(14) the term purchase is used for an account to record purchase of goods or raw materials for resale or for producing products which are also to be sold

Good purchased for cash are termed as cash purchases and good purchased on credit are termed as credit purchase

(15)The term sales is associated with or used for sale of goods this sale may be purchased for resale or manufactured by the enterprise the term cells include both cash and credit sales when goods are sold for cash they are termed as Cash sale and when sold on credit they are termed as credit sale.

(19) goods are the physical items of trade that are purchased to be sold example TV, AC 

(20)stock: stock is 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 

(21)stock may be opening stock or closing stock

(22) discount is a reduction in the price of goods or from the amount to be paid to a customer by the enterprise discount allowed maybe trade discount and cash discount

(23) cost is the amount of Expenditure charged on or attributable to a specified article product or activity

(24) bad debt is the amount owed to the business that is written off because it has become irrecoverable it is a lost for the business and is thus debited to to profit and loss account

(25) balance sheet is a statement of the financial position of an individual or enterprise at a given debt which exhibits is asset ,liability ,capital.

(26) depreciation is a fall in the value of fixed asset due to efflux of time or accident

(27) rebate it is the reduction in price allowed by the seller of goods after the goods have been sold

(28) proprietor :the business who makes the investment and bears all the risk associated with the business

(29) debit and credit :a account has two parts the the left side is known as debit side and right side is known as credit side

(30)Solvent and insolvent solvent is a person which is in a position to pay its debts insolvent is a person which is not in a position to pay its debts

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