i.com i definitions

Accounting definitions (1) I.Com I16

1. Define Business.

Any work for the purpose of profit.

2. What are Different Classes of Business?

i)Trading ii)Manufacturing iii)Servicing

3. Define Trading.

A business in which goods are purchased and sold without any modification is called trading

4. Define Manufacturing.

A business in which goods are purchased and resold after some modification is called manufacturing.

5. Define Servicing?

A business in which services are purchased and sold is called services.

6. What is Transaction?

Any dealing between two persons.

7. Define Proprietor?

A person who invests the money or things in the business is called proprietor or owner.

8. Define Capital.

Amount invested in business by the owner is called capital.

9. What do you know about Entity Concept?

A business has a separate entity from its owner or proprietor.

10. Define Drawing

IRFAN SHAHZAD KHAN, MUHAMMAD NADEEM lecturer in KCC & Govt Degree College Kharian


The cash or goods taken away from business by owner for his personal use are called drawing.

11. Define Purchases or Merchandise?

Buying or purchases of goods for resale purpose are called purchases.

12. Define Cash Purchases.

A purchase of goods for cash is called cash purchase.

13. What are Credit Purchases?

Purchase of goods on account / credit is called credit purchases.

14. What is Purchases Return/ Return Inward/ Return by Supplier?

When goods are returned to suppliers / creditors from whom they are purchased, due to any reason, are called purchased return.

15. Define Sales/Turnover?

When goods are sold by business to any person at particular price is called sales.

16. What are Cash Sales?

When goods are sold for cash are called cash sales.

17. What is A Credit Sale?

When goods are sold on account is called credit sales.

18. What is Sales Return Or Return Inward Or Return by Customer?

When good are return by customer to business due any reason are called sales return.

19. What is Trade Discount and what will be its Accounting Treatment?

When concession or rebate is given by seller to buyer on list price of goods at the spot of selling is called trade discount and there is no accounting treatment of trade discount.

20. What is Cash Discount?



A discount which is allowed or received at the time of cash receipt or payment on credit sale or purchases is called cash discount.

21. What is Discount Allowed?

A discount which is allowed by seller to buyer at the time of early receipt against credit sales is called discount allowed.

22. What is Discount Received?

A discount which is received by buyer from seller at the time of early payment against credit purchases is called discount received.

23. Define Creditors.

A person from whom business purchase good son credit is called creditors.

24. Define Debtor?

A person to whom business sells goods on credit is called its debtor.

25. What are Liabilities?

All the debts and obligations of business is called liabilities.

26. What are Assets?

All valuable things in a business are called assets.

27. Types of Assets?

There are two types of assets:i) Tangible assetsii) Intangible assets

28. Define Tangible Assets and Give Examples

Assets having their physical form are called tangible assetsE.g. building, land etc

29. Define Intangible Assets and Give Examples.

Assets which have no physical form but they are only felt are called intangible assets.E.g. good will, patent etc



30. What do you mean by Expenses?

A part of expenditure whose benefit is received during a particular accounting period is called expenses.

31. What is meant by Income/ Revenue?

Revenue received against expenses is called income.

32. What is Book Keeping?

An art of recording business transaction in the books of account in a systematic manner is called book keeping.

33. Define Account.

A summarized record of transaction relating to particular person or thing is called account.

34. Define Voucher?

Any written evidence in support of a business transaction is called voucher.

35. Define Cash Base Accounting.

A system of accounting in which transactions are recorded when cash is actually paid or received is called cash base accounting.

36. What is Invoice?

A document by the seller to the buyer for credit sales of goods is called invoice.

37. Define Commission?

Remuneration for services performed by one person to another normally on the percentage basis is called commission.

38. Define Salary?

A fixed remuneration for services performed by one person to anther for fixed period is called salary.



39. Define Wages?

A remuneration which is normally paid on the basis of work preformed by one person for another is called wages.

40. What is Meant by Dual Concept?

It means for every debit, there is a credit< there is a debit>

41. What is Accounting Period?

A period which is determination of profit and loss of any business over its whole life. Generally it is period of one year.

42. What is Matching Concept?

A concept which requires that revenues of particular accounting period should be matched against expenses of that period.

43. Define Accounting Equation?

A method by which the financial position of a business can be checked at glance is called accounting equation.

44. Define Owner Equity?

Capital invested by the proprietor is called owner’s equity.

45. Define Personal Accounts?Accounts relating to persons, firms or companies are called personal accounts.

46. Define Nominal Accounts?All those account which keep the records of expenses, gains and losses are called Nominal accounts.

47. What are different Kinds of accounts according to British approach?i) Personal accounts ii) Real accounts iii) Nominal accounts



48. what are the different kinds of accounts according to American approach?i) Assets ii) Liabilities iii) Capital iv) Revenue v) Expenses

49. what is Journal?A book of original entry to record different business transactions according to date is called journal.

50. Define Narration?A short explanation of each transaction which is written below each entry is called narration.

51. Define Journalizing?The process of recording business transaction in journal is called journalizing.

What do you know about “ Double Entry System”A system in which equal debit and credit entries are made for every transaction. In which every business transaction effects two or more accounts is called double entry system.

52. Define Compound Entry?The entry in which more than one accounts are debited or more than one accounts are credited is called “compound entry”

53. Day Book?Journal is called day book because every transaction is recorded on the same day when it takes place.

54. Define Ledger?The book in which all business transactions are finally recorded in the concerned accounts in a summarized and classified form is called ledger.

55. What is Balance?The difference between the two sides of an accounts is called balance.

56. What do you mean by Zero Balance?If the two sides of an accounts are equal, it shows “zero balance”

57. What is Closing Balance?



The balance on debit or credit side on the closing of any accounts closing balance?

58. What is meant by Credit Business?If the credit side of an accounts is greater than debit side, the different is known as debit balance.

59. What is meant by Debit Balance?If the debit side of an account is greater than credit side, the difference is known as debit balance.

60. King of all books?Because all the entries from the books of original entry must be posted to the different accounts in the ledger.

61. Define Trial Balance?A statement which is prepared by taking out the debit and credit balance of all accounts appearing in ledgers in order to check the arithmetical accuracy of ledger is called Trial Balance.

62. What is Balancing of Accounts?The process of equalizing the two sides of an account is called balancing.

63. What is meant by Opening Balance?A balance of any accounts that is brought forward from the previous accounting period in present accounting period or you have at the beginning of accounting period.

64. Purchases Return book/ Return outward book?A book of original entry in which all purchases return are recorded according to date, it is called return outward book.

65. What is Sales Return book?A book of original entry in which all sales return are recorded according to date is called sales return outward book.

66. Define Debit Note?



When goods are returned or an allowance is claimed from the supplier’s on account of receipt of defective goods, an intimation is sent to them which is called debit note.

67. Define Credit Note?When goods returned by customers are accepted, a document is issued to acknowledge the allowance claimed from them, such document is called credit note.

68. Define Cash Book?A book of original entry in which all cash receipts and payments are recorded chronologically is called cash book.

69. Write three kinds of Cash book?i) Single column cash book. ii) Double column sash book. iii) Three column cash book.

70. What is meant by Single Column cash book?A cash book in which only cash receipts & payments are recorded is called Single column Cash book.

71. Define Double Column cash book?A cash book in which cash as well as discount transaction is recorded is called Double column cash book?

72. Define Three Column Cash Book?A cash book in which cash, bank, and discount transactions are recorded on each side in three columns separately is called Three column cash book.

73. Define Petty Cash Book?The book in which petty items of expenses are recorded is called petty Cash book.

74. What is Imprest System of petty Cash book?A system in which total petty expenses for a particular period are estimated and that amount is issued by the chief cashier to the cashier called imprest system of Petty cash.

75. What is an Open System of Petty cash?A system in which a cashier receives from the chief cashier a fixed sum of money for petty expenses is called open system of petty cash.

76. Define Bank?A financial institution which purchases & sells money, and transact other financial business of like nature.



77. What is Primary Functions of a bank?The primary function of a bank is to borrow money and to lend money.

78. Define Cheque?An unconditional order in writing, drawn by a customer on his bank, requesting it to pay on demand a certain sum of money, only to a person named in it, is called cheque.

79. What is Cross Cheque?When two parallel lines are drawn on the face of a cheque, it is denoted as cross cheque.

80. Define Bank Draft?A written order of a bank to a person to pay a certain sum of money to a person in whose favour the draft has been issued.

81. Define Postal Order?A written order by one post office to another to pay a certain sum of money to the person named in it.

82. Define Post Dated cheque?A cheque which pears a future date for withdrawal of money is called post dated cheque.

83. What is bank Current Account?A bank in which customer is allowed to deposit and withdraw money according to his desire is called current account.

84. Define Bank Reconciliation Statement?A statement in which contains a complete and satisfactory detail of the differences in balances as per the Cash Book and Pass Book is called Bank reconciliation Statement.

85. What is Bank Statement?A copy of customer account which is issued by a bank to its customer normally informing about his balance after regular intervals.

86. Define Pass Book?A copy of the customer account in the bank ledger is called Pass Book.

87. Define Unpresented Cheque?The cheques which have been issued to the creditors and have credited in the bank column of the cash book but have not presented for payment to the bank are called Unpresented cheques.

88. What do you meant by Uncollected Cheques?



Cheques deposited in the bank but the bank have not yet been collected by the bank are called uncollected cheques.

89. Define Dishonoured Cheque.A cheque which is returned by the bank unpaid due to any reason is called Dishonoured cheque.

90. Define Favourable Balance of cash book?Debit balance of cash book is called favourable balance.

91. Define Unfavourable Balance of cash book?Debit balance of pass book is called unfavorable balance of pass book.

92. Define Bill of Exchange?Bill of exchange is an unconditional written order drawn by one person to another, signed by the acceptor, requesting the acceptor to pay a certain sum of money to specified person named in it.

93. Define Drawer?A person who draws the bill of exchange is called Drawer.

94. Define Drawee?The person to whom bill is drawn is called drawee.

95. Define Payee?A person who receives the amount of bills on maturity date is called payee.

96. What is Bill Receivable?A bill of exchange from the view of its drawer is called bill receivable.

97. What is Bill Payable?A bill of exchange from the view of its acceptor is called bill payable.

98. Define Promissory Note?



Promissory note is an unconditional written order drawn by one person to another, signed by the maker, to pay a certain sum of money to specified person, after certain period of time.

99. Define Discounting of Bill?When holder of the bill sells it to bank before due date to fulfill his money need against discount is called discounting of bill.

100. Define Endorsement of Bill?When a bill is transferred to creditor instead of his debt is called endorsement bill.

101. What is meant by Maturity of Bill?When payment is made by acceptor & received by payee on the due date is called maturity of bill.

102. What is meant by Renewal of Bill?When a drawee is not in position to meet the original bill at maturity, he may request to the drawer to draw a new bill for further period against interest. This process of drawing a new bill is called renewal of bill.

103. Define Insolvent?When liabilities of any person exceeds from his assets he is called insolvent.

104. What is Insolvency?The situation in which liabilities of any person exceeds his assets is called insolvency.

105. What is Noting Charges?Charges which are paid to notary public on dishonour of bill of exchange for noting of bill are called noting charges.

106. Define Notary Public?A person who notes the bill of exchange on its dishonour is called Notary public.

107. Define Noting?A process of recording the dishonoured bill by the notary public is called Noting.

108. What is Holder of Bill?A person, who is entitled in his own name to the possession and to claim the amount due on it, is called holder.

109. Define Clean Bill?



When no documents of title relating to the goods and other documents are attached is called clean bill.

110. What do you know about Rebate on Bill of Exchange?Amount allowed to drawee for early payment of the amount of the bill of exchange is called rebate.

111. Define Mutual Accommodation?A situation in which bill of exchange is drawn for accommodation of both drawer and drawee is called mutual accommodation.

112. What are Final Accounts?Account which are finally prepared to show the profit & loss and financial position of a business are called final accounts.

113. What is Trading Accounts?The account which is prepared to determine the gross profit or loss for a particular period is called trading account.

114. Define Direct Expenses?The expenses which are related to purchase of goods or to bring the goods in saleable condition are called direct expenses.

115. Define Indirect Expenses?The expenses which are related to sale of goods and also administration expenses etc. are called indirect expenses.

116. Define Profit & Loss account?The account which is prepared to determine the net profit or loss for a particular period is called profit & loss accounts.

117. Define Gross Profit?If direct incomes are more than the direct expenses, the difference represents gross profit.

118. Define Net Profit?



If gross profit and indirect incomes are greater than indirect expenses, the difference represents net profit.

119. What is Marshalling?The order in which assets and liabilities are stated on the balance sheet is known as marshalling.

120. What is meant by Closing Entries?The journal entries which are passed for the purpose of closing different accounts of business at the end of particular accounting period are called closing entries.

121. Define Balance Sheet?A statement of assets and liabilities which is prepared on the last date of particular accounting period to show the financial position of the business is called balance sheet.

122. Define Fixed Assets?Assets which are purchased for permanent use in the business are called fixed assets. For example: Building, Plant & Machinery etc.

123. Define Liquid Assets?Assets which can be quickly converted into cash are called liquid assets. For example: Cash at bank. Bill receivables etc.

124. Define Fictitious Assets?Assets which cannot be used and have no market value are called factious assets. For example: Preliminary expenses, discount on issue of shares etc.

125. Define Contingent Assets?Assets which comes into existence upon happening of a certain event are called contingent assets.

126. Define Outstanding Assets?Income earned but not received and expenses paid in advance are called outstanding assets.

127. Define Current Liabilities?The debts which are payable after a short period of time are called current liabilities. For example: Creditors. Outstanding expenses etc.

128. Define Long Term Liabilities?The debts which are payable after a long period of time are called long term liabilities.For example: long term bank loans. Debentures etc.



129. Define Liquid Liabilities? Debts which are normally payable after very short period of time are called liquid liabilities.

130. Define Internal Liability?Capital of business is called internal liability.

131. Define External Liabilities?Debts which are payable to outsiders are called external liability.

132. Define Contingent Liabilities?The liabilities which are payable only on the happening of certain event are called contingent liabilities.

133. Define Outstanding Liabilities?Income received but not yet incurred and expenses incurred but not yet paid represent outstanding liabilities.

134. Define Adjusting Entries?The entries required at the end of particular accounting period to record internal transactions are called adjusting entries. For example: depreciation A/c etc.

135. Define Closing Stock?The unsold goods are purchases at the end of the accounting period is called closing stock.

136. Define Outstanding Expenses?The expenses which have been incurred in the business but not yet paid are called outstanding expenses.

137. Define Prepaid Expenses?Expenses which have been paid before their due date is called prepaid expenses.

138. Define Unearned Income?Income received in advance but not yet earned is called unearned income.

139. What is Debt?The amount due from debtor is called debt.

140. What is Bad Debt?The amount which cannot be recovered from debtors is called bad debts.

141. Define Provision?



A liability of uncertain timing or amount is called provision.

142. Define Normal Loss?A loss which is unavoidable represents normal loss. For example leakage, wastage.

143. Define Abnormal Loss?A loss which can be avoided through precautionary measures is called abnormal loss. For example loss by fire, accident.

144. What do you meant by New Provision?A provision which is allowed after preparing trial balance is called new provision.

145. Define Capital Expenditure?An outflow of funds to acquire an asset that will benefit the business more than one accounting period is called capital expenditure.

146. What do you meant by Revenue Expenditure?An outflow of funds to meet running expenses of a business that will benefit the business for the current period only are called revenue expenditures.

147. What are Capital Receipts?The receipts which are of non-returning nature and benefits of which are available for a long period of time are called capital receipts?

148. Define Revenue Receipts?All those receipts which are of returning nature and which are usually of small amounts of meeting day to day expenses are called revenue receipts.

149. What is Capital Profit?A profit on sale of an asset or on the raising capital funds is called capital profit.

150. Define Capital Loss?A loss which is incurred on the sale of fixed assets or through raising the capital funds of the business is called capital loss.

151. Define Revenue Loss?A loss which is incurred during the regular activities of business is called revenue loss.

152. Define Deferred Revenue Expenditures?



An expenditure the impact of which is likely to last for more than one accounting periods are called deferred revenue expenditures.

153. Define Revenue Profit?A profit which is earned during ordinary activities of the business called revenue profit.

154. Define Revenue Payments?An amount which is paid on behalf of revenue expenditures is called revenue payment.

155. Define different Classes of Errors?i. Book keeping errors

ii. Trial balance errors

156. Define Book Keeping Error?Errors which are committed in the books of original entry or ledger are called book keeping errors.

157. Define Error of Omission?The error resulting from the complete failure to enter a transaction in the books are called errors of omission.

158. What is a Complete Error?When any particular transaction has not at all been entered in book of original entry is known as complete error.

159. What is meant by Partial Error?If a transaction has been recorded in a book of original entry but has not been posted in ledger account is called partial error.

160. Define Error of Commission?Error which occurs when a transaction is wholly or partially incorrectly recorded in the books of account is called errors of commission.

161. Define Compensating Errors?



Compensating errors means errors which are cancelled by other error of same amount in the same account. These errors are of a neutralizing nature.

162. Define Error of Posting?If a transaction has been recorded in the books of original entry has been posted in the ledger account is known as error of posting.

163. What do you know about the Trial Balance Errors?Errors which are made in the preparation of trail balance are called trial balance errors.

164. What is Suspense Account?A ledger account in which entries are made on a temporary basis when the correct account cannot be immediately identified is called suspense account.


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