Chapter 2 Basic Accounting Terms (Continued, Part 3)

April 20, 2020

Basic Accounting Terms

Learning Objectives

*Introduction

*Important Accounting Terms

# Receipts

# Deferred Revenue Expenditure

# Revenue

# Bills Receivables

# Bills Payable

# Cost

# Entry

# Debit and Credit

# Proprietor

# Bad Debts

# Insolvent

# Solvent

# Book Value

# Invoice

# Entity

Introduction

Please Note

1. Receipts; Receipts refer to the amount received or receivable by the business organisation from selling assets, goods or services. Receipts are of two kinds:

i. Revenue Receipts : Revenue receipt refers to the amount received or receivable in the normal course of business. Example, amount received from sale of goods or services. The revenue receipts are of recurring in nature.

ii.Capital Receipts: Capital Receipts refers to the amount received or receivable under transactions which are not revenue in nature. For example, amount received from sale of assets, like machinery, furniture, land, etc. capital receipts are non recurring in nature.

2. Deferred Revenue Expenditure: It refers to a revenue expenditure, the benefit of which is likely to accrue to a firm in more than one accounting period. For example, heavy advertising expenditure incurred in introducing a new market. Some more examples of deferred revenue expenditure for a company are, preliminary expenses, discount on issue of debentures, underwriting commission etc.

Receipts, Deferred Revenue Expenditure

3. Revenue: Revenue is total amount received or receivable from the sale of goods or services. For example amount received from sale of goods, rent received or commission received.

4. Bills receivable: A Bill of Exchange is drawn by the seller ( drawer) on the buyer (drawee), in which the seller direct the buyer to pay specified amount at a specific future date. Such bill becomes Bill receivable for the seller after getting the acceptance of the buyer.

5. Bills payable: It refers to a Bill of Exchange accepted by the person who has purchased goods on credit.

6. Cost: Cost is the total expenditure incurred or chargeable to a specified product or activity.

Revenue, Bills Receivable, Bills Payable, Cost

7. Entry: when a transaction or event is recorded in the books of accounts, it is known as Entry.

8. Debit and Credit: Under the Double Entry System, every business transaction is recorded in at least two accounts. One account will receive a Debit entry and another account will receive a Credit entry.

• Debit : The left hand side of an account is known as Debit. If an account is to be debited, then the entry is posted on the debit side.

• Credit: The right hand side of an account is known as Credit. If an account is to be credited, then the entry is posted on the credit side.

9. Proprietor: Proprietor is the person who makes investment in the business, manages it and bears all the risk involved in the business.

10. Bad debts : Bad Debt is the amount that has become irrecoverable from a debtor. It is a business loss and is debited to profit and loss account

Entry,Debit & Credit, Proprietor, Bad Debts

11. Insolvent : insolvent is a person or enterprise which is not in a position to pay its debts. A person becomes insolvent when his liabilities are more than his assets.

12. Solvent: Solvent is a person or an enterprise which is in a position to pay its debts in full.

13. Book Value: Book Value is the amount at which an item appears in the books of accounts.

14. Invoice: Invoice is a business document, which is prepared by the seller when the goods are sold on credit. It consists of details of the party to whom goods are sold, full description of goods with quantity and price.

15. Entity: An entity refers to an economic unit, which is engaged in performing economic activities. For example, Hero Industries, Tata Motors, etc.

Insolvent, Solvent, Book Value, Invoice, Entity

Concluding Notes (Assessment Tomorrow)