Key Terminologies (Lecture 3)MGT-101 Financial Accounting

Accounting TerminologiesProprietorOwner of businessInvests his capital, gives his time and attentionEnjoys profit and bears lossCapitalAmount of cash or the value of goods or both invested by the owner in business

ContOwners EquityInternal source of financing Includes investments, share capital, reserves and retained earningsDrawingsWithdrawal of cash or goods Private and personal use

ContPurchasesBought merchandiseIntention of sellingCash purchases: against cashCredit purchases: against future payment promisePurchases ReturnsPurchased goods, returned to the supplier/ seller(Defective, Not according to sample Damaged, Excess of the quantity ordered)

ContPurchases AllowanceBenefit of reduction of purchase priceDue to defect or a damage Purchases DiscountReduction in price at the time of purchaseSalesGoods sold to earn profit

ContSales are divided into:Cash Sales: for cashCredit Sales: for promise to receive cash in future.Sales Returns:Sold goods returned from customer(Defective, Not according to sample, Damaged, Excess in quantity ordered)

ContSales AllowancesBenefit of reduction in the sale price due defect or damageSales Discount:Reduction in the price at the time of salesStock/InventoryUnsold goods at the end of accounting period

ContVoucherEvidence of transaction occurrenceWritten documents used in exchange of goods or servicesCash Memo:Written documents used for cash transactionsInvoiceWritten documents of credit transactions

ContAccounting periodPeriod for which financial statements are preparedDebtors (Accounts Receivables)Persons from whom amount is to be received Creditors (Accounts Payable)Persons to whom amount is to be paid

ContTrade DiscountDeduction allowed by a trader on the list price of the productCash DiscountDeduction allowed by a creditor to his debtors for prompt/ early paymentAssetsValuable things possessed by the business

ContExpenseCost of doing the business/ performing business operationsAccounting CycleSequence of accounting procedures used to record, classify, summarize and interpret the business transactions.

Accounting Cycle

AccountingCYCLE

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