Basic Accounting Terms:-Capital, Assets, Liabilities, Expense, Revenue, Income, Expenditure, Drawings

 There are several of terms used in accounting or accountancy but I am going to list the most basic terms which are very helpful in accountancy. So, without wasting your time let's get started.

1.CAPITAL:

It is the money or money's worth invested by the proprietor in the business. It may be brought in the form of cash or assets by the owner of the business. From the point of view of business, capital is a liability towards the owner. Capital is shown in the Liabilities side of the Balance Sheet. It is also known as owner's equity or net worth. In any business, capital is required to start, to purchase the goods, and to acquire the assets of the business. 

Fixed Capital: Amount spent to acquire the fixed assets.

Floating Capital: Purchase of goods\services\investments etc. with intention of sales.

Working Capital: Amount required for day-to-day activities of the activities.

2. ASSETS

Material things owned by the business are called assets. In other words, any material thing which can be used for future activities of the business is known as its asset. Assets may be tangible or intangible.

Non-Current Assets: These are those assets that are held on a long-term basis. Long-term is referred to as more than one accounting period(1 Year).

Types of Non-Current Assets are:

(a)Tangible Assets: Has physical existence. Example: Furniture, Land, Building, etc.

(b)Intangible Assets: Does not has physical existence. Example: Goodwill, Patent, Copyright, etc.

Current Assets: These are those assets that are held on a short-term basis. Short term is referred to as not more than 12 months or one accounting period.

Fictitious Assets:

These are those assets that do not have a physical form and do not have real value but they are called assets. In the actual cases, these are the legal and technical expenditures that are incurred at the beginning before starting an enterprise.

Example: The firm has spent 1,50,000 Rupees as Advt. Exp. before starting its business. It was decided to write off these expenses in next five years i.e. 30,000 rupees year from the profit. The main purpose was to avoid extra burden on profit. If the entire amount is written off in the current year, it will adversely affect the profit, which is not favorable for a new firm. These expenses are written off in next 3-5 years.

3. LIABILITIES:

The amount that a business owes to persons other than the proprietor is called its liability.

Non-current Liabilities: These are the debts which are payable in long period or after one year.

Current Liability: these are the debts which are payable within short period or within one year.

Contingents Liabilities: they are not actual liabilities when they are noticed. But in future these liabilities may become actual. Future events will decide whether it will be paid or not, that's why they are known as contingent liabilities.

4. EXPENSE:

The money spent by the business to earn revenue is called an expense. 'Expense' is the cost of the things and services used for the purpose of earning revenue. The benefit of expense is expired during the accounting period. It means benefit of expense can be enjoyed within one accounting period only.

examples: Salaries, wages, rent, electricity bill.

5. REVENUE:

The inflow of assets due to exchange of goods and services is called revenue. It is the amount which as a result of business operations is added to the capital. Revenue is a receipt from sales, services and sources like rent, interest, commission, etc.

6. INCOME:

'INCOME' is the profit earned in an accounting period. It is the difference of revenue and expense. A Revenue should not be treated as an income unless it is compared with expenses incurred to generate such revenue.

INCOME = REVENUE- EXPENSE

7.EXPENDITURE:

As we know that benefit of expense is enjoyable only for one year but benefit of expenditure is enjoyable for long period.

Example: Purchase of machinery, Purchase of furniture etc.

Revenue Expenditure: It is enjoyable mostly within the current year.

Deferred Revenue: It is enjoyable mostly for a longer period if time. 

8. DRAWINGS:

Money or money's worth withdrawn by the proprietor from the business for his personal or domestic use is known as 'Drawings'.

So here we come to the end. Never stop learning.

Comment down your suggestions, Till then Bye Bye