ch-2 Flashcards
Define business transactions?
It means a financial transaction or event entered into by 2 parties that initiates the accounting process of recording it in the books of account of an enterprise.
Differentiate between cash transaction and credit transaction?
When the amount is transacted (paid or received ) immediately on entering into a transaction it is called cash transaction.
When the amount is promised to be paid later it is called as credit transaction.
Define account?
It is a record of transactions under a particular head of account or a particular head
Define capital? What are the other names of capital?
Capital is the amount invested in an enterprise by the proprietor. Capital is also known as owners equity or net worth.
Define drawing?
It is the amount or goods withdrawn for personal use by the proprietor.
Define liabilities?
Differentiate between internal liabilities and external liabilities?
Liabilities mean the amount owed (payable) by the business.
Liability towards the owners of the business is termed as internal liability.
Liability towards the outsiders is termed as external liability.
Differentiate between current liability and non-current liability?
Non-current liability is that liability which is payable after a period of more than a year from the end of the accounting period.
Current liability is that liability which is payable within 12 months from the end of the accounting period.
Define assets?
Assets are the properties owned by the business enterprise
Differentiate between non-current assets ,Current assets and fictitious assets?
Non-current assets are those assets which are held by an enterprise not with the purpose to resell but are held either as investment or to facilitate business operations
Current assets are those assets which are held by an enterprise with the purpose of converting them into cash within a short period i.e 1 year.
Fictitious assets are those assets which are neither tangible nor intangible assets.
Differentiate between tangible and intangible assets?
Tangible assets are those assets which have physical existence.
Non-tangible assets are those assets which do not have any physical existence.
Define receipts?
Receipt is the amount received or receivable for selling assets, goods or services
Differentiate between revenue receipts and capital receipts?
Revenue receipts- It is the amount received or receivable in the normal course of business against the sale of goods or rendering of services.
Capital receipts- It is the amount received or receivable against transactions which are not of revenue nature.
Define expenditure?
It is the amount spent or liability incurred for acquiring assets ,goods or services.
Differentiate between Capital expenditure, Revenue expenditure and Deferred revenue expenditure.
Capital expenditure- It is an expenditure incurred in acquiring the assets or improving the existing assets which will increase the earning capacity of the business.
Revenue expenditure- It is the expenditure incurred ,the benefit of which is consumed or exhausted within the accounting period.
Deferred revenue expenditure- It is revenue expenditure in nature but is charged in more than 1 accounting period because it is estimated that benefit of such expenditure will accrue in more than 1 financial year.
INCOME=REVENUE-EXPENSE
Define expense?
It is the cost incurred for generating revenue
Differentiate between Prepaid expense and outstanding expense.
Prepaid expense- It is an expense that has been paid in advance and the benefit of which will be available in the following year or years
Outstanding expense-It is an expense that has been incurred but has not been paid
Define income?
Income is the profit earned during the accounting period
Define profit?
It is the income earned by the business from its operating activities
Differentiate between gross profit and net profit.
Gross profit is the difference between revenue from sales
Net profit is the profit after deducting total expenses from total revenue of the enterprise.
