30 Most Important Basic Terminologies of Accounting

Here is the list of the most important basic terms related to accounting which should be known by each and every account reader. 

1.  Assets:- The things or properties owned by the Business organization are called Assets. For example, cash, Furniture, stock of goods, machinery, bank balance, Goodwill, trademark, copyright, land and building etc.

              Types of Assets :

a.  Current Assets:- The type of assets which can be converted into cash within one year. It is also called the gross working capital as it is required to operate other fixed assets. Ex, Cash, stock of goods, bank balance, debtor, bills receivable, outstanding income etc.

b. 
Fixed Assets:- The type of assets which takes more than one year to be converted into cash are called fixed assets. Such type of assets are used for operating of the business and are not for resale purpose in the Business.

     Fixed assets are also classified into two types,

                       I.  Tangible fixed assets:- The type of fixed assets which can be seen and touch and has its physical construction are called tangible fixed assets. Ex, Furniture and fixture, land and building, Plant and machinery, vehicles, freehold property, horse and cart, long term investment etc.

                     II. Intangible Fixed assets:- Those type of fixed assets which can’t be seen and touch also having no physical construction are called intangible fixed assets .Ex ,Goodwill, copyright, patent right, trademark etc.

·        Goodwill:- The reputation or name or fame of any company in the market

·        Copyright:- The special right due to which No one can copy your product, goods or service.

·        Patent Right:- The special right from which the product and service are reserved to the inventor.

·        Trade mark:- The style, design, logo of the business organization .

	Assets
Current Assets		Fixed Assets
		Tangible Fixed Assets Intangible fixed Assets

2.  Capital:- The claim owner on business property is called capital. In other words, the obligations payable to owner by business organization is called capital.  It is invested by owner for commencement of business.

3.  Labilities:- The claim of owner outside on business property is called labilities. In other word the obligation of business organization payable to outsiders are called liabilities

It is also classified into two types:

a.     Long term liabilities: Those type of liabilities which are payable for more than one year. It is create for acquiring or purchasing fixed assets. Ex- Bank loan, unsecured loan etc.                                                                                     

b.     Short term liabilities: Those type of labilities which are payable within one year. It is created for acquiring or purchasing current assets.

For Ex- outstanding, overdraft, expenses due, expenses payable income receive.

4. Drawing:- When any cash amount or business goods is extracted out from the business by the owner for his/her personal use self-use, domestic use, household use, private use, own use, the term is treated as Drawing.

     (Example, Goods of Rs. 4000 of cash Rs. 20000 taken out by Mr. Jaynath for personal use. )

5. Business:- Business is the process of buying and selling of goods for the satisfaction of human wants and for the earning profit.

6. Financial Transaction:- The transaction related to money or money worth is called financial transaction.

7.  Credit Transaction:- The transaction in which the payment will be made in future is called credit transaction.

8.  Debtor:- The person or organization which purchase goods and service on credit from owner is called debtor.

9. Creditor:- The person or organization who sold goods on credit is called creditor .

(Example, Ram sold goods to Shyam on credit. Then  in this case Ram is Creditor and Shyam is Debtor )

10. Overdraft:- The surplus amount withdrawn from bank even there is lack of amount in the bank account as per as the goodwill of the business of the business organization is the overdraft.

11.  Purchase:- If the goods and service are bought for resale purpose then it is called purchase.

12.  Sales:- The sale of the current assets which was previously bought for resale purpose is comes under Sales.

13. Purchase Return:- The Return of goods by  the business organization to its  Creditor is called  Purchase return

14. Sales Return:- The return of goods by the debtor to the business organization is called sales return.

15. Depreciation:- The decrease in the value of fixed assets due to its regular use is called depreciation.

16.\Appreciation:- The increase in the value of fixed assets is called Appreciation. Normally there is only one fixed assets in which appreciation takes place that is land.

17. Opening Stock:- The amount of goods used in the beginning of the fiscal year is called opening stock.

18. Closing Stock:- The amount of goods remain unsold during the year is called closing stock.

19.Expenses:- Any amount which is spent on the day to day routine activities is called expenses.

20. Revenue:- Any amount which is collected from the sale of goods and service is called revenue.

21.Account receivable:- The amount to be received in future is called account receivable. It is assets for business organization.

22. Account payable:- The amount is to be paid in the future is called Account payable .It is liabilities for the business organization.

23. Profit:- The excess of revenue over expenses is called profit or gain.(Ex, profit=revenue-expenses)

24. Loss:- The excess of expenses over revenue is called loss.(Ex, Loss=Expenses-revenue)

25.Bad debt:- The amount which is unrecovered from debtor is called Bad debt.

26.Investment:- Any amount which is invested by the business to any other sources is called investment. Example: investment in debenture, share, bond etc.

27.  Interest on Capital:- The amount of interest paid by the business to the business on the behalf of the capital invested by them is called Interest on capital.

28. Interest on drawing:- The amount of interest received by the business from the owner on the behalf of the amount withdrawn for its private or personal use is called interest of drawing.

29. Outstanding Expenses:- The expenses which has been occurred and amount is unpaid is called outstanding expenses.

30. Advance expenses:- The amount of expenses is paid but the expenses has not been occurred is called advance expenses.

31. Outstanding Income:- The income which has been earned but not received yet is called outstanding income.

32. Advance income:- The amount of income received even it is not occurred is called Advance income.

33. Discount:- A kind of rebate which is given or received on the purchase or sale of goods is called Discount.

There are two types of Discount:-

a.     Cash Discount:- The types of discount which is allowed or received during cash transaction is called Cash discount.

b.     Trade Discount:- The type of discount which is allowed or received during credit transaction is called Trade discount.