Saturday 23 January 2021

CH 7 - Basic Accounting Terms


(24) Basic Accounting Terms


(1) Business Traisserion:

A business transaction in an economic activity of the business that changes, its financial position. Whenever any business transaction takes place, it result in a change in the value of the, liabilities or capital.


Features/Characteristics of a Business Transaction

1. It is concerned with money or money's worth of goods or services,

2. It arises out of the transfer or exchange assets of goods or services.

3. It brings about a change in the financial position.

4. It has an effect on accounting equitation.

5. It has dual aspect or two sides - 'receiving' (Debit) and 'giving' (Credit).


(2) Event

An event is the result of a transaction.

For example: Selling price of goods 4, 00,000

Cost price of goods is 3, 50,000

Profit = 4, 00,000 - 3, 50,000 = 50,000

Event is Profit of Rs. 50,000


(3) Account:

"An account is a ledger record in a summarised of all the transactions that have taken place with the particular person or things specified". Carter

Account is a summarised record of transactions relating to a particular person or item. It records not only the amount of transaction but also their effect and direction. The place where such a record is maintain is termed as an account


(4) Capital:

Capital is the amount invested by the proprietor in a business enterprise. Amount may be in the form of cash, goods or assets. It is a liability of the business towards the proprietor which increases with further investment made in the business and the amount of profit earned. Capital is also known as Owner's Equity or Net Worth. It is always equal to assets less liability. It can be expressed as:

Capital = Assets - Liability


(5) Drawings

Any cash or value of goods is run by the owner for personal use or any private payments made out of business funds are called Drawing.