Accounts
• A business transaction refers to an economic activity that impacts the financial position of a business. It involves the exchange of goods, services, or money between two parties.
• For example: Kamakshi purchased machinery from Chetan for Rs. 23,00,000, which will be recorded as a business transaction.
• An account is a formal record summarizing all financial transactions associated with a particular person, entity, or item. It serves as the backbone of the accounting process.
• For example: Shivam Rana A/c, Harish A/c, etc., represent individual accounts.
• Capital refers to the amount invested by the proprietor in a business enterprise, forming the foundation of its financial resources.
• For example: Pawan started a business with cash of Rs. 1,00,000.
• Drawing is any cash or value of goods withdrawn by the owner for personal use or private payments made out of business funds.
• For example: Renu took furniture from the business for her personal use.
• Liability refers to the obligations or amounts owed by the business to external parties.
• Liabilities are classified as:
• Non-Current Liabilities: Amounts payable after 1 year. For example: Bank loans.
• Current Liabilities: Amounts payable within 1 year. For example: Creditors.
• Assets are valuable resources owned by a business, measurable in monetary terms, that provide future economic benefits.
• Assets are classified as:
• Non-Current Assets: Provide benefits for more than 1 year. For example: Machinery, Goodwill.
• Current Assets: Benefits exhaust within 1 year. For example: Prepaid expenses, debtors.
• Fictitious Assets: Have no physical existence or market value. For example: Advertisement Suspense A/c.
• Tangible Assets: Can be seen, touched, and felt. For example: Plant and Machinery, Buildings.
• Intangible Assets: Cannot be seen or touched but their presence is felt. For example: Goodwill, Copyrights.
• Revenue receipts are recorded on the credit side of Trading and Profit and Loss A/c, whereas capital receipts are shown in the balance sheet.
• Expenditure refers to the amount spent for acquiring assets, goods, and services.
• Types of expenditure include:
• Capital Expenditure
• Revenue Expenditure
• Deferred Revenue Expenditure
• Expense is the cost incurred in producing and selling goods and services.
• Income is the surplus of revenue over expenses, reflecting the profitability of the business.
• Profit is the excess of total revenue over total expenses within a specific accounting period.
• Gains are incidental benefits or earnings derived from activities outside the main operations, such as the sale of fixed assets.
• Loss occurs when total expenses exceed total revenue during an accounting period.
• Purchases refer to buying goods for resale or use in the manufacturing process.
• Sales refer to the revenue generated from selling goods and providing services.
• Stock represents the value of unsold goods at the end of an accounting period that were purchased for resale.
• Inventory for manufacturers includes:
• Raw Materials
• Work-in-Progress
• Finished Goods
• Stock-in-Trade
• Trade receivable refers to the amount of receivables on account of the sale of goods or services rendered by the company. It includes debtors and bills receivable.
• Debtors represent persons or firms to whom goods have been sold or services rendered on credit but payment has not been received yet.
• A bill of exchange becomes a bill receivable for the person who draws it (drawer) and gets it back after acceptance from the drawee.
• Trade payable refers to the amount payable on account of goods purchased or services taken in the normal course of business. It includes creditors and bills payable.
• Creditors represent persons or firms from whom goods have been purchased or services procured on credit and payment has not been made to them.
• A bill of exchange becomes a bill payable to the person who accepts it (drawee) and returns it to the drawer.
• Goods include items purchased for reselling or used in producing finished products.
• Cost refers to the amount of resources given up in exchange for goods or services.
• A voucher is a document based on which transactions are initially recorded in the books.
• Discount is the allowance given by the seller to the buyer. It is classified into:
• Trade Discount
• Cash Discount
• GST is a single indirect tax that consolidates multiple indirect taxes.
• Bad debts are amounts irrecoverable from a debtor.
• An insolvent is a person or enterprise unable to pay its debts.
• A solvent is a person or enterprise capable of paying its debts.
• Revenue is the income of a recurring nature, such as receipts from sales, rent, etc.
• Turnover refers to the total sales made during a particular period.
• Livestock includes domestic animals like cattle or horses.
• Investments refer to the deployment of funds in shares or debentures of companies to earn returns.
• Merchandise includes goods purchased for resale.
Lecture 1: One shot
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