Accounting terms Flashcards
Define capital
This is the amount invested by the owners in the business. it is also known as owner’s equity. Owner’s equity is the owner’s stake in the business. it shows how much is his/ her investment in the assets of the business.
Define drawings.
It is the amount of cash or goods withdrawn by the proprietor from the business for his personal or domestic use.
Define Assets.
Anything owned by an individual or business that can be
valued in terms of money is called an asset. In other words, anything enabling the firm to get cash or a benefit in future is an asset. For example
land, buildings, machinery, furniture, stock, debtors, bank balance and cash etc.
What is the classification of assets?
Classification of Assets
i) Fixed Assets: The assets which are acquired not for resale but with the purpose of increasing the earning capacity of the business by employing them.
For example - land, buildings, machinery, computer, furniture, vehicles, livestock etc.
ii) Current Assets : Current Assets are those assets which are retained in the
business with the purpose of converting them into cash within a short period of
time say one year. For example - cash in hand, bills receivables, debtors,
stock (goods) etc.
iii) Tangible Assets : The assets which can be seen and touched or have physical
existence. For example - building, machinery, furniture, computers etc.
iv) Intangible Assets : The assets which cannot be seen and touched or
which do not have physical existence. For example - goodwill, trademarks,
patents etc.
v) Wasting Assets : Wasting assets are those assets which are natural
resources extracted and consumed as raw material or otherwise. For
example - mines, quarries, oil wells etc.
define liability
The assets of a business concern are financed by the funds supplied by
the proprietors and outsiders. Money is invested by the proprietor to start his business.
Money is also borrowed from others and invested in business. With this money
assets are purchased. So the proprietor and outsiders have a claim against the assets
of the business. This claim of the proprietor and outsiders is termed as ‘Liabilities’.
In other words, any amount which the firm owes to the proprietors and outsiders is a
liability for the business unit. Hence, liabilities are the obligations or debts payable by
the business unit in future.
classification of liabilities
Liabilities have been classified as:
i) External Liabilities
ii) Internal Liabilities
explain external liabilities
External liabilities are those liabilities which the business owes to the
outsiders for goods purchased on credit, for expenses or for loans taken.
For example :
Creditors for goods : Sundry creditors, bills payable
Creditors for expenses : Expenses yet to be paid like outstanding salaries, wages
outstanding, rent due but not yet paid.
Creditors for loans : Bank loan, Bank overdraft, partners loan, loans taken from
other outsiders.
explain internal liabilities
Internal liabilities are those liabilities which the business owes to the owners or proprietors. It is the proprietor’s claim against the assets of the business. The
Business Entity Assumption states that a business is separate from its owners.
Any amount contributed by the owner towards the business concern is a liability
for the business concern. This liability is also termed as Capital. Hence, the
owner’s claim against the assets of the business unit is called as capital. In case
of one man business or sole proprietorship the capital is contributed by the
proprietor himself. In case of partnership business firm, capital is contributed by
the partners, and in case of companies, capital is contributed by the shareholders.
Owners of the business are those who contribute capital. They get profit of the
business, for the risk taken by them. So, the owners have a claim against the
firm which is a liability for the firm.
Owner’s claim can be expressed as:
a) Capital
b) Interest on Capital (unpaid)
c) Profits of the business (undistributed)
d) Reserves.
Hence, capital is also a liability for the business unit.
i. Outsider’s and owner’s claim against the assets of the firm is called __________ .
ii. Liabilities are classified into two categories _______ and ______ .
iii. Owner’s claim is __________ liability.
iv. Outsider’s claim is __________ liability.
v. Owner’s claim against the assets of the business is also called as
- liability
ii) external, internal
iii) internal
4) external
v) owner’s equity/capital
__________ is the difference between revenue and expense.
Income
true or false
Amount received from sale of assets or borrowing loan is not revenue.
true
what is revenue
Revenue refers to the inflow of money or other assets that results from the sale of goods or services or from the use of money. It is the amount realized or receivable from the sale of goods.
