-Harsha Lal- ACW Accounts at Edumarz
Answer-
Business– Any legal activity undertaken with a purpose of earning profits is called business. Eg – Purchase of machine, Sale of merchandise.
Trade – The purchase and sale of goods and services for earning profit is called trade.
Capital– The amount initially invested by a proprietor while starting a business is called capital. In other words, excess of assets over liability is capital.
Assets– It is anything of value that can be converted into cash wherever it’s needed.
Fixed Assets– The assets which are used by business for a long period of time are called fixed assets. Eg- land, building, plant, machinery, furniture etc.
Current Assets- The assets which are used by business for a shorter time period are called current assets. Eg:- raw material, finished goods, cash & bank balance etc.
Liabilities– Amount owned by a business to others is called liabilities. It’s an obligation to pay.
Long term liabilities- Liabilities which are usually paid after 1 year are called long term liabilities. Eg- Long term loans , debentures issued by a company.
Short term liabilities– Liabilities which are paid within 1 year . Eg- Short term loans,creditors bank overdraft etc.
Drawings– Amount withdrawn from the company by the proprietor for personal use is called drawings.
Goods – Things which are bought and sold by a business are called goods. Goods may be raw materials, work in progress or finished goods.
Purchase– Goods purchase with an intention to resale it. It may be in the form of raw materials or finished goods.
Sales – When goods purchased are sold to earn profits is called sales. Goods sold for cash are termed as cash sales and goods sold for credit are termed as credit sales.
Purchase return– Goods once purchased by the business are returned back due to certain reasons, then it is called purchase return.
Sales return– Goods once purchased by a customer are returned back due to some reason then it is a sales return.
Stock – Goods which are left unsold in the business at the end of the year are termed as stock.
Revenue– Amount earned from the day to day business activity is called revenue. Eg- Rent, interest, commission, discount etc.
Income – Amount which increases the capital of the business is called income. The excess of revenue over expenses is called income.
Loss– When expenses incurred are more than revenue then this is termed as loss.
Gain– It is a monetary benefit resulting from transactions which are incidental to business such as profit on sale of fixed assets.
Debtors– A person who gives the goods or a benefit at present, but will receive the due amount in future.
Creditors– A person who receives the good or a benefit at present, but is liable to pay the amount in the future.
Bad debts – It is the amount that is unpaid by the debtor even after repeated reminders. It has no intention of repaying the amount.