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It is the amount or goods withdrawn for personal use by the proprietor.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.
Define gain.
It is the increase in owners equity
Define loss
It is the excess of expense over its period of revenue
Differentiate between cash purchases and credit purchases.
Goods purchased on cash are cash purchases.
Goods purchased on credit are credit purchases.
Define purchases return. What is its other name.
Goods purchased may be returned to the seller for any reason. It is also known as return outwards.
Define cash sales and credit sales.
Goods sold on cash are cash sales.
Goods sold on credit are credit sales.
Define sales return. What is its other name.
Goods sold when returned to the purchaser are termed as sales return .It is also known as return inwards
Define revenue from operations.
It means the revenue earned by an enterprise from its operating activities.
Define goods
They are the physical items of trade that are purchased to be sold
Define stock/Inventory
It is a tangible asset held by an enterprise for purpose of sale in ordinary course of business
Differentiate between opening stock and Closing stock
Opening Stock- It is the stock in hand at the end of the previous accounting year
Closing Stock- It is the stock in hand at the end of the current accounting year.
What are the different kinds of stock or inventory?
Also define them.
Stock/Inventory of goods-Stock remaining unsold
Stock/Inventory of raw material- It comprises the stock of raw material used for manufacturing of goods lying unused
Work in progress- It is the stock that is in the process of being finished.
Define trade receivables
It is the amount receivable for sale of goods and/or services rendered in the ordinary course of business.
Differentiate between debtor and bills receivable
Debtor- is a person or an entity who owes amount to the enterprise against credit sale of goods and services rendered
Bills receivable- It means a bill of exchange accepted by a debtor ,the amount of which will be received on the specified date
Define trade payables.
It is the amount payable for the purchase of goods and/or services taken in the ordinary course of business
Differentiate between creditor and bills payable
Creditor is a person or an enterprise to whom an enterprise owes amount against credit purchases of goods and/or services taken.
Bill payable means a bill of exchange accepted ,the amount of which is payable on the specified date
Define cost
It is the amount of expenditure incurred
Define voucher
Voucher is an evidence of business transactions
Define discount
It is the reduction in the price of goods
Distinguish between trade discount and cash discount
Trade discount is the reduction in prices by the seller to the purchaser of goods when they buy goods of certain quantity or value
Cash discount is the discount allowed for timely payment of the amount
Define bad debts
It is the amount owed to the business that written off because it has become irrecoverable
Define book value
This is the amount at which an item appears in the books of account of financial statements
Define books of account
The records or books in which financial transactions of an entity are recorded and maintained
Define cost of goods sold
It is the direct cost attributable to the production of goods sold or services rendered
Define depreciation
It is the fall in the value of an asset because of usage or with the efflux of time
Define entity
It means an economic unit which performs economic activities
Define entry
A transaction or an event recorded in the books of account
Define insolvent
A person or an enterprise which is not in a position to pay its debts
Define rebate
It is the reduction in price allowed by the seller of goods after the goods have been sold
Define solvent
Solvent is a person or an enterprise which is in a position to pay its debts
