Thursday, 26 October 2017

Basic Accounting Terms - 1

Accounting terminology-


Basic Accounting Terminologies
Basic Accounting Terms


Capital: Capital means an amount invested by the owner in the business. Investment by the owner can be in the form of cash or in kind. For example, if the owner uses personal furniture for the business it will be recognized as the capital


Liability: Liability is something which the business owes to any outsider. For example, a loan from a bank



Current liabilities: Current liabilities are the liabilities which the business has to pay within a year. These are short-term liabilities. For example, trade creditors. Trade Creditors are the suppliers from whom we purchase the goods on credit. Usually, the payment to trade creditors is made within one year

Contingent Liability: Contingent Liability is that kind of a liability which is non-existent as on date, but it may become an actual liability in the future. For example, if a customer has filed a suit against the company for some compensation. This can become an actual liability in the future if the firm loses the case. However, as on date, it is not a liability as the outcome is not known today


Asset: Asset means something which the business owns. For example, plant and machinery.

Fixed Assets: Fixed assets are long-term assets. These are assets which are purchased for use over a long period of time (Generally more than one year).  For example, land and building

Current Assets: These are short-term assets. Current assets are assets which are expected to be converted to cash within a year. For example, Debtors. Debtors are the customers to whom we have sold the goods on credit. Generally, the amount receivable from debtors is received within a year's time.



Liquid Assets: Liquid assets include cash and all other assets which can be converted into cash at a very short notice. These are the assets which can be disposed of quickly. They are also called quick assets. For example, cash in hand, cash at bank, shares etc.

Tangible Assets: These are assets which have physical existence. We can touch, see or feel these assets. For example, plant and machinery

Intangible assets: These are the assets which do not have any physical existence. It is not possible to see, touch or feel them. For example, Goodwill (Goodwill is the reputation of the firm expressed in terms of money)


Depreciation - The word depreciation has been derived from the Latin word 'Depretium' which means 'decline' or 'reduction' in price or value. Depreciation is a continuous, gradual and permanent decrease in the value of fixed assets. For example, machinery purchased today will not have the same value after 5 years, even if it is unused. This reduction in value of machinery is called as Depreciation.


Balance Sheet - A balance sheet is a statement that shows a company's assets and liabilities as on a particular date. The balance sheet gives an idea as to what the company owns and owes. In simple words, it shows the financial health of the business





Goodwill - Goodwill is the monetary value of the reputation of the firm. Some firms develop a good reputation in the market over a period of time. For example, TATA Group companies, L & T, Google, etc. Such reputation expressed in monetary terms is called Goodwill. This reputation helps these firms to earn more profits as compared to a newly started business.

Bad Debts - Bad debts refer to irrocoverable dues (from the debtors). Bad debt is a loss to the business which reduces its profit.

Read Further -
Basic Accounting Terms II

No comments:

Post a Comment