Assets are valuable and economic resources of an enterprise useful in its operations.
Assets can be broadly classified as:
1) Current Assets: Current Assets are those assets which are held for short period and can
be converted into cash within one year. For example: Debtors, stock etc.
2) Non-Current Assets: Non-Current Assets are those assets which are hold for long period
and used for normal business operation. For example: Land, Building, Machinery etc.
They are further classified into:
a) Tangible Assets: Tangible Assets are those assets which have physical existence
and can be seen and touched. For Example: Furniture, Machinery etc.
b) Intangible Assets: Intangible Assets are those assets which have no physical
existence and can be felt by operation. For example: Goodwill, Patent, Trade
Liabilities are obligations or debts that an enterprise has to pay after some time in the
future. Liabilities can be classified as:
1) Current Liabilities: Current Liabilities are obligations or debts that are payable within a
period of one year. For Example: Creditors, Bill Payable etc.
2) Non-Current Liabilities: Non-Current Liabilities are those obligations or debts that are
payable after a period of one year. Example: Bank Loan, Debentures etc.
A written acknowledgment of having received, or taken into one’s possession, a specified
amount of money, goods, etc. receipts, the amount or quantity received. the act of
receiving or the state of being received. Receipts can be classified as:
1) Revenue Receipts: Revenue Receipts are those receipts which are occurred by normal
operation of business like money received by sale of business products.
2) Capital Receipts: Capital Receipts are those receipts which are occurred by other than
business operations like money received by sale of fixed assets.
Costs incurred by a business for earning revenue are known as expenses. For example: Rent, Wages, Salaries, Interest etc.
Spending money or incurring a liability for acquiring assets, goods or services is called
expenditure. The expenditure is classified as:
1) Revenue Expenditure: It is the amount spent to purchase goods and services that are
used during an accounting period is called revenue expenditure. For Example: Rent,
2) Capital Expenditure: If benefit of expenditure is received for more than one year, it is
called capital expenditure. Example: Purchase of Machinery.
3) Deferred Revenue Expenditure: There are certain expenditures which are revenue in
nature but benefit of which is derived over number of years. For Example: Huge
➢ Business Transaction
An Economic activity that affects financial position of the business and can be measured
in terms of money e.g., expenses etc.
Account refers to a summarized record of relevant transactions of particular head at one
place. All accounts are divided into two sides. The left side of an account is called debit
side and the right side of an account is called credit side.
Amount invested by the owner in the firm is known as capital. It may be brought in the
form of cash or assets by the owner.
The money or goods or both withdrawn by owner from business for personal use, is
known as drawings. Example: Purchase of car for wife by withdrawing money from
The excess of revenues over its related expenses during an accounting year is profit.
Profit = Revenue – Expenses.
A non-recurring profit from events or transactions incidental to business such as sale of
fixed assets, appreciation in the value of an asset etc.
The excess of expenses of a period over its related revenues is termed as loss. Loss =
Expenses – Revenue.
The products in which the business deal in. The items that are purchased for the purpose
of resale and not for use in the business are called goods.
The term purchased is used only for the goods procured by a business for resale. In case
of trading concerns it is purchase of final goods and in manufacturing concern it is
purchase of raw materials. Purchases may be cash purchases or credit purchases.
➢ Purchase Return
When purchased goods are returned to the suppliers, these are known as purchase return.
Sales are total revenues from goods sold or services provided to customers. Sales may be
cash sales or credit sales.
➢ Sales Return
When sold goods are returned from customer due to any reason is known as sales return.
Debtors are persons and/or other entities to whom business has sold goods and services
on credit and amount has not received yet. These are assets of the business.
If the business buys goods/services on credit and amount is still to be paid to the persons
and/or other entities, these are called creditors. These are liabilities for the business.
➢ Bill Receivable
Bill Receivable is an accounting term of Bill of Exchange. A Bill of Exchange is Bill
Receivable for seller at time of credit sale.
➢ Bill Payable
Bill Payable is also an accounting term of Bill of Exchange. A Bill of Exchange is Bill
Payable for purchaser at time of credit purchase.
Discount is the rebate given by the seller to the buyer. It can be classified as:
1) Trade Discount: The purpose of this discount is to persuade the buyer to buy more
goods. It is offered at an agreed percentage of list price at the time of selling goods. This
discount is not recorded in the accounting books as it is deducted in the invoice/cash
2) Cash Discount: The objective of providing cash discount is to encourage the debtors to
pay the dues promptly. This discount is recorded in the accounting books.
Income is a wider term, which includes profit also. Income means increase in the wealth
of the enterprise over a period of time.
The goods available with the business for sale on a particular date is known as stock.
Cost refers to expenditures incurred in acquiring manufacturing and processing goods to
make it saleable.
The documentary evidence in support of a transaction is known as voucher. For example,
if we buy goods for cash we get cash memo, if we buy goods on credit, we get an invoice,
when we make a payment we get a receipt.
➢ Double Entry System of Book-keeping
Double Entry System of Book-keeping refers to a system of accounting under which both
the aspects (i.e. debit or credit) of every transaction are recorded in the accounts
involved. The individual record of person or thing or an item of income or an expense is
called an account. Every debit has equal amount of credit. So the total of all debits must
be equal to the total of all credits.