Key Terminologies (Lecture 3)

MGT-101 Financial

Accounting

Accounting Terminologies

Proprietor

• Owner of business

• Invests his capital, gives his time and attention

• Enjoys profit and bears loss

Capital

• Amount of cash or the value of goods or both invested by the owner in business

Cont…

Owner’s Equity

• Internal source of financing

• Includes investments, share capital, reserves and retained earnings

Drawings

• Withdrawal of cash or goods

• Private and personal use

Cont…

Purchases

• Bought merchandise

• Intention of sellingI. Cash purchases: against cash

II. Credit purchases: against future payment promise

Purchases Returns

• Purchased goods, returned to the supplier/ seller

(Defective, Not according to sample Damaged, Excess of the quantity ordered)

Cont…

Purchases Allowance

• Benefit of reduction of purchase price

• Due to defect or a damage

Purchases Discount

• Reduction in price at the time of purchase

Sales

• Goods sold to earn profit

Cont…

Sales are divided into:

1.Cash Sales: for cash

2.Credit 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)

Cont…

Sales Allowances

• Benefit of reduction in the sale price due defect or damage

Sales Discount:

• Reduction in the price at the time of sales

Stock/Inventory

• Unsold goods at the end of accounting period

Cont…

Voucher

• Evidence of transaction occurrence

• Written documents used in exchange of goods or services

Cash Memo:

• Written documents used for cash transactions

Invoice

Written documents of credit transactions

Cont…

Accounting period

• Period for which financial statements are prepared

Debtors (Accounts Receivables)

• Persons from whom amount is to be received

Creditors (Accounts Payable)

• Persons to whom amount is to be paid

Cont…

Trade Discount

• Deduction allowed by a trader on the list price of the product

Cash Discount

• Deduction allowed by a creditor to his debtors for prompt/ early payment

Assets

• Valuable things possessed by the business

Cont…

Expense

• Cost of doing the business/ performing business operations

Accounting Cycle

• Sequence of accounting procedures used to record, classify, summarize and interpret the business transactions.

Accounting Cycle

Accounting

CYCLE

Thank You…