Entity refers to a reality that has a distinct individual existence that can be identified. A business entity is a distinct and easily distinguishable commercial firm such as Super Bazaar, Hire Jewellers, ITC Limited, and so on. An accounting system is always tailored to the needs of a particular corporate organisation (also called accounting entity).
An event involving the transfer of a monetary value between two or more parties. Purchasing things, receiving money, making a payment to a creditor, incurring costs are all examples of transactions that qualify as transactions. There are two types of transactions that may take place: cash and credit.
In the context of a business, assets are economic resources that may be effectively represented in monetary terms. Assets are valuable things that a company owns and uses in the course of its operations. For example, Super Bazar has a fleet of trucks, which it employs to transport groceries to customers; the trucks, in turn, generate revenue for the business company. Super Bazaar's balance sheet will include this item as an asset on the asset side of the balance sheet. Assets may be generally divided into two categories: current assets and noncurrent assets.
It is a liability if a business does not meet its commitments or pay its debts when they become due at some point in the future. They are in charge of representing creditors' claims against the firm's assets. Small and large companies alike find themselves in the position of having to borrow money at some point or another, as well as purchasing products on credit.
For eg. Super Shop purchases products from Fast Food Products for a total of Rs.10,000 on credit for a month on March 25, 2005. The creditors of Fast Food Products will be represented as creditors on the liabilities side of the balance sheet if the balance statement of Super Shop is produced as of March 31, 2005, according to the accounting standards. If Super Bazaar obtains a loan from Delhi State Cooperative Bank for a term of three years, this debt would be shown as a liability on Super Shop’s balance sheet as well. Liabilities are generally divided into two categories: current and noncurrent.
Capital refers to the amount of money that the company's owner has put in the company. Capital may be contributed in the form of cash or assets by the owner for the benefit of the business entity. It is both a commitment to the company and a claim on the firm's assets. As a result, it is included in the liabilities section of the balance sheet as capital.
Sales are the entire amount of money earned through the sale of products or the provision of services to consumers. There are two types of sales: cash sales and credit sales.
Sales revenue refers to the quantities of money received by a company through the sale of its goods or the provision of services to consumers, and it is generated by the sale of those items or services. Other sources of income that are common to many companies include commissions, interest, dividends, royalties, rent paid, and other similar sources. The term "revenue" may also refer to "income."
Expenses are the costs incurred by a business in the course of generating income for the company. In most cases, expenditures are quantified by the cost of assets used or services consumed over a certain period of time in an accounting period. The following are the most common types of expenses: depreciation, rent, wages, salary, interest, heating, lighting, water costs, telephone, and so on.
Expenditure refers to the act of spending money or incurring a debt in exchange for a benefit, service, or item obtained. Expenditure includes the purchase of commodities, the acquisition of equipment, the purchase of furniture, and other such activities. The expenditure is regarded as an expense (also known as revenue expenditure) if the benefit of the expenditure is consumed within a year after the expenditure. For example, if the benefit of an expenditure lasts longer than a year, it is classified as an asset (also known as capital expenditure), which includes the acquisition of equipment, furniture, and other such items.
Profit is defined as the difference between a period's revenues and its associated expenditures throughout the course of an accounting year. Profit allows the owners to expand their initial investment.
Unexpected profits resulting from events or transactions that occur incidentally to the operation of a company, such as the sale of fixed assets, the winning of a legal dispute, or the increase in the value of an asset.
Loss is defined as the difference between a period's expenditures and its corresponding income. It has a negative impact on the owner's equity. It also refers to money or money's value that has been lost (or expense incurred) without getting any advantage in return, such as cash or items that have been stolen or destroyed in a fire disaster, among other things. Loss on sale of fixed assets is also included in this figure.
The reduction in the price of the products offered is referred to as a discount. It is available in two different formats. Offering a discount in the form of a percentage of the list price deducted at the time of sale is one method of providing a discount. This kind of discount is referred to as a "trade discount." The majority of the time, it is made available to wholesalers and retailers by the manufacturers.
Debtors who pay their debts within a specified period of time or sooner may be entitled to a specific reduction from their total debt if they purchase items on credit after being sold on credit basis. This deduction is made from the amount owing at the time of payment of the balance owing. As a result, it is referred to as a cash discount. The cash discount serves as an incentive to debtors, encouraging them to make timely payments.
The term "voucher" refers to the document that serves as proof in favour of a transaction. A cash memo is issued when we make a cash purchase; an invoice is issued when we make an online purchase with payment through credit card; a receipt is issued when we make a payment via check; and so on.
It refers to the goods with which the business unit is involved, i.e. the items with which it is involved in the purchasing and selling or the items with which it is involved in the manufacturing and selling. The things that are bought for use in a company are not referred to as goods in this context.
For example, the purchase of chairs and tables by a furniture merchant is referred to as a purchase of goods, while the purchase of furniture by another is referred to as a purchase of an asset. In a similar vein, stationery is considered a good by a stationery merchant, while it is considered an expenditure by others (not purchases).
Drawings are defined as the withdrawal of money and/or products from a company by the owner for his or her personal use. The owners' investment is reduced as a result of the drawings.
It is the entire quantity of items purchased by a company on credit and in cash for use or sale that is referred to as purchases. Trading businesses make purchases of goods for resale, whether or not the merchandise has been processed. Manufacturing businesses buy raw materials and then process them further to create completed products, which are then sold to customers. There are two types of purchases: cash purchases and credit purchases.
Goods on hand, spare parts, and other items are referred to as stock (inventory) in accounting. Things that are used in a company are referred to as "stock on hand." In a trading business, the stock on hand is the quantity of products that are still unsold at the conclusion of a certain accounting period. This is referred to as closing stock in the industry (ending inventory).
Generally speaking, closing stock refers to raw materials, semi-finished items, and completed products that are on hand as of the closure date for a manufacturing company's operations. Similarly, starting stock (also known as beginning inventory) refers to the quantity of inventory present at the start of the accounting period.
Debtors are individuals and/or other entities that owe a sum of money to a business as a result of purchasing products and services on credit. When it comes to the asset side of the balance sheet, the total amount owed to such individuals and/or organisations as of the closing date is recorded as miscellaneous debtors on the asset side.
Creditors are individuals and/or other entities that are obligated to pay an amount to a business in exchange for the provision of products and services to the company on credit. As of the closing date, the total amount due to such individuals and/or organisations is reflected in the Balance Sheet as miscellaneous creditors on the liabilities side of the ledger.