Important Bookkeeping Terms:
Before attempting to learn the
art or science of bookkeeping it will be better to clarify some of the terms
that will have to be used again and again.
Transaction:
Any dealing between two
persons or things in a transaction. It may relate to purchase and sale of
goods, receipt and payment of cash and rendering of services by one party to
another. Transaction is of two kinds - cash transaction and credit
transaction. When cash is paid or received as a result of an exchange, the
transaction is said to be a cash transaction. When the payment or receipt of
cash is postponed for future date, this transaction is said to be credit
transaction.
Business:
It includes any activity
undertaken for the purpose of earning profit e.g., banking business, and
insurance business, a merchant business etc., etc.
Proprietor:
He is the owner of a business.
He invests capital in it, gives his time and attention to it. He is entitled
to receive the profit or bear loss arising out of it.
Drawings:
The cash or goods taken away
by the proprietor from the business for his personal use are called has
drawings.
Purchases:
Goods purchased are called
purchases. When the goods purchased for cash they are called cash purchases
but if they are purchased for which payment will have to be made at some
future date it is known as credit purchases.
Purchases Returns:
If goods purchased are found
defective or unsatisfactory, they are sometimes returned to the persons from
whom they were purchased or to suppliers are called purchases returns or
returns outwards.
Sales:
Goods sold are called sales.
When goods are sold for cash they are called cash sales, but when they are
sold without having received payment, they are credit sales.
Sales Returns:
If a person to whom goods have
been sold finds that they are defective or unsatisfactory and returns them,
are called sales returns or returns inwards.
Trade Discount:
It is rebate or allowance from
the scheduled price granted by the seller to the buyer. Trade discount is
usually granted in the following circumstances:
(a) When selling to a fellow trader.
(b) When the buyer is an old customer.
(c) When sales are made in bulk.
(d) As a custom of trade.
Cash Discount:
It is deduction or allowance
allowed by creditor to a debtor. If a person pays his debit before the due
date of payment the recipient may grant him an allowance for doing so. This
allowance is known as cash discount
Commission:
It is a form of remuneration
for services rendered by one person to another.
Expenditure:
An expenditure takes place
when assets or service is acquired.
Expense:
It means an expenditure whose
benefit is finished or enjoyed immediately such as salaries, rent etc.
Difference between expense and expenditure is that the benefit of the former
is consumed by the business in present whereas in latter case benefit will
be available for future activities of the business.
Account:
A summarized record of
transactions relating to person or thing is called an account.
Debtor (Account Receivable):
A person who owes money to
another is a debtor. When we say that we owe Mr. Rahim $200, we mean that we
have received from Mr. Rahim $200 which we have to repay. We stand as debtor
to Mr. Rahim for $200. It is also termed as accounts receivable.
Creditor (Accounts Payable):
A person who pays out
something or to whom money is owing is a creditor. It is also termed as
accounts payable.
Assets:
These are the things of value
possessed by a trader such as building, land, machinery, furniture, etc.
Liabilities:
They are the debt due by a
business to its proprietor and others.
Voucher:
Any written evidence in
support of a business transaction is called a voucher. When a ream of paper
is bought from a stationer, he gives a cash memo. The cash memo is a voucher
for the payment. When wages for the month are paid to the peon, receipt is
taken from him. The receipt serves as a voucher for the payment.
Goods (Merchandise):
It includes all merchandise
commodities which are purchased by the business for selling.
Stock (Inventory):
Goods or merchandise on hand,
that is goods remaining unsold, is called stock, stock in trade, or
inventory.
Equity:
A claim which can be enforced
against the assets of the firm is called equity. In other words, the rights
to properties are called equities. Equities are of two types: the right of
creditors and the right of owners. The equities of creditors represent debts
of the business and are called liabilities. The equities of the owner is
called capital, proprietorship or owner's equity.
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