LECTURE ONE Learn accounting seriesFOUNDATION STAGE:BUSINESS:"Any legal activity undertaken for the sake of earning profit is called business."

(i) Manufacturing Business.(ii) Trading Business.(iii) Business of Providing Services.

TRANSACTION:Any business deal between two or more persons (including owner, employee, supplier, etc.) which is measureable in term of money and involved an exchange is called transaction. Exchange means give and take

it may be exchange of goodsExample: goods sold, purchased, etc.

Or services. Example:Doctors, lawyers, professors, carpenters etc. sells their services. To identify whether a deal is a transaction or not one must see that both the conditions are being fulfilled.

1 Is the deal involving exchange?2 Is this exchange is measureable in

money.(Have monetary value) Examples:

Purchased goods for cash Rs. 3000/= Yes Paid salaries to an employee Rs. 2000/= Yes Appointment of a clerk at Rs. 1000/= No Publishing a tender notice for purchase of furniture.

Cash TransactionWhen cash is immediately paid or receipt of cash on spot for executing a deal.

Credit TransactionIf the payment or receipt of cash is postponed for some future period isknown as credit transaction.Examples: Purchased goods from X Rs. 100/=

Sold goods on account to A amounting Rs. 800/= Bought furniture on credit Rs. 3000/=

PURCHASES:In accounting those goods which are purchased for resale purpose are called purchases. Example:

a. Stationery is purchased by a stationer is called "Purchases"

b. Cloth purchased by a cloth merchant is called "Purchases"c. Cement purchased by a cement dealer is called "Purchases"

If you purchase a few books and brought in to your class for studying these books are not purchases but if you sell these books to your class fellows it will be a purchase. Similarly cloth purchased by a cloth merchant is a purchase but if computer or furniture is purchased for his / her shop is not a purchase.

SALES:The amount received against by sale of good or b sale of services is called sales, sales revenue or sales income.

ASSETS:Properties or financial resources of the business are called assets of business.

ROPRIETOR: Owner of the business. He invests his money. Gives his time and attention to the business. He enjoys profit and bear loss of the business.

EQUITYRight or a claim against the assets business is called equity It is of two kinds:i. Internal equity: Claim of owner (capital)ii. External equity: Claim of outsiders. (Loans)

ExampleA starts a business by investing Rs.100,000 & takes a loan of Rs.200,000 from a bank, then owner’s equity will be Rs.100,000 which is invested by the owner and Rs. 200000 is outsiders equity.

Assets=equities GOODS OR MERCHANDISEThe things which are manufactured for selling purpose or bought for reselling purpose are known as goods or merchandise.Example:a. Cloth is goods or merchandise for a cloth dealer.b. Cement is goods or merchandise for a cement dealer.c. Furniture is goods or merchandise for a furniture vender.

If these items are manufactured or bought to retain in business or for personal use then these will not be termed as goods e.g. If Mr. A deals in cars then cars are goods for him. When he purchases Air conditioner for his office then it will not be termed as goods.

CAPITALAmount with which a business is started. Or the value of goods with which the owner starts his business.Example:Ali started business with cash Rs. 100,000; Furniture Rs. 20,000 and Building Rs. 300000. r on he invests further Rs. 1,00,000 in business. So the total capital of All is Rs. 520,000.

DRAWINGSCash or goods taken away by the proprietor from the business for his personal use are called his drawings.Example:Mr. Ali withdrew from business cash Rs. 2000. And goods worth of Rs. 500 for his personal use. His total drawings are amounted to Rs. 2,500.

DEBTORS/ACCOUNTS RECEIVALBES

The persons to whom the goods have been sold on credit and from whom the amount is receivable are called "Debtors". Debtors are also termed as Accounts Receivable. (grouped under assets)Example: Ali Sold goods to Imran on credit for Rs. 500, Imran are a Debtor of Ali. When name is not mentioned use word debtors or accounts receivable in place of imran to pass journal entry.

CREDITORSThe persons from whom the goods are purchased on credit And to whom the amount is payable are called creditors. Creditors are also termed as Accounts Payable. (grouped under liabilities)Example:All Sold goods to Imran on credit for Rs. 500, Ali is a Creditor of Imran When name is not mentioned use word creditor or accounts payable in place of imran to pass journal entry.Example:a. Stationery is purchased by a stationer is called "Purchases"b. Cloth purchased by a cloth merchant is called "Purchases"c. Cement purchased by a cement dealer is called "Purchases"

COMMISSIONIt is reward of service given by one to another person/business.When paid becomes expense when received becomes incomeExample:Amount paid to a commission agent. EXPENSEAmount spent to get short term benefit. Example:Salaries, Rent, Stationery etc.Or expired portion of cost (depreciation)

ACCOUNT / LEDGERA summarized record of all transactions relating to a particular person or thing is called an account. Or separate record of each asset, liability, income, expense, or owner equity.Example:Building Account, Plant Account, Salaries Account, Rent Account Capital Account etc.STOCK OR INVENTORYThe goods which remain unsold at the end of a day, month or

year are called stock. It may also be termed as stock-in trade or inventory.Group (assets)

Additional BUSINESS:"Any legal activity undertaken for the sake of earning profit is called business."

(i) Manufacturing Business.(ii) Trading Business.(iii) Business of Providing Services.

Explanation: Where the activity is not legal it is not a business secondly where the objective is not to earn profit or the objective is other than profit like welfare or service to the society etc then that activity will not a business both the conditions should be fulfilled.INCOME OR REVENUEThe price received by a business against goods sold or services rendered to customers is known as income or revenue. OR"Revenue is the price of goods sold and services rendered during given “accounting period." Example:Sales, Commission earned, etc.

EXPENDITUREExpenditure takes place when amount is spent to acquire an asset, the benefit of which will remain for many years.Example:Amount spent to purchase Building, Furniture, Plant etc.

ACCOUNTING PERIODThe length time for which separate business records (financial statements) are prepared is called accounting period. Accounting period vary according to the nature of business. It may consist of3 months or 6 months but, normally accounting period consists of 1 year. Example:If accounting records of a business concern are maintained from January to December, it is an "Accounting Period" of that business.VOUCHERWritten evidence in support of a business transaction is called voucher. CASH MEMOIt is a document issued by a seller to the buyer when goods are sold for cash. INVOICEIt is a document issued by a seller to the buyer when the goods are sold on creditVOUCHERWritten evidence in support of a business transaction is called voucher. CASH MEMOIt is a document issued by a seller to the buyer when goods are sold for cash. INVOICEIt is a document issued by a seller to the buyer when the goods

are sold on credit

DEBIT NOTEIf goods bought on credit are returned to the seller, the buyer debit the seller's account and informs the seller through a note. This note is called "Debit Note". CREDIT NOTEIf goods sold on credit are returned by the buyer, the seller credit the buyer's account and informs the buyer through a note. This note is called "Credit Note". NOTES RECEIVABLEAll the documents in the shape of receivable promissory notes and bill receivables are called notes receivable.

BANKING TRANSACTIONS: