Understanding the basic
concepts and the terminology in any subject that you want to study is of great
value and importance. It will not only
help you develop the required skills, but it also enable you to deepen your
knowledge or understanding of the subject.
It is appropriate to mention that acquiring the basic knowledge and skills of a subject can
lead you to gain thorough understanding of a subject.
Accounting is regarded
as a Business Language. It is of great essence for a business to establish a
good accounting system in order to keep track of every single business
transaction or a business event and determine the profitability by dint of
income statement and the status of a business with the help of balance sheet.
Accounting is also
connected with our personal lives. It is easy to understand and implement for
our day-to-day activities that involve money. It is therefore important to
understand some of the accounting terms. Accounting term is a specific word
that is related to the whole process of accounting. Some of the important
accounting terms are mentioned herein.
Accounting – It’s a business language. The art of analyzing, recording, organizing or classifying and maintaining financial activities or the events that are of financial character which in turn leads to prepare financial statements.
Account – An individual record of specific items. It is a summary of all the business transactions relating to assets or liabilities or capital or revenues or expense etc. Every account has two sides, debit and credit showing accumulated balances.
Accounting Equation – It shows the relationship between the assets, liabilities and capital of a business entity. The accounting equation is: Assets = Liabilities + Capital. The accounting equation states Left hand side equals to Right hand side.
Accounting Period- It indicates the period of time which is no more than twelve months – from January 1 through 31 December. It’s generally a calendar year or a quarter taking the span of time covered by a set of financial statements, income statement, balance sheet and the cash flow statement.
Business Transaction – Any business activity or event that effects a business to show what it owns and what it owes as well as the ownership of the business. For example: A short term Loan amount from bank being debited to cash account and credited to bank account represents that a business house owns the amount and at the same time it owes to bank while making the balances in agreement as assets equals to liabilities.
Debtors – They are the customers or the clients whom a business provides goods or services on credit. They are the ones who owe money to the business.
Creditors – They are the persons whom a business owes the money.
Capital – Capital is the amount that has been invested by the owner or proprietor in the business.
Written by:
K. A. Fareed (Fareed Siddiqui)
Writer, Trainer, Author, Blogger, Software Developer
BBA, MBA-Finance, MPhil-Financial Management, (MSc-Software Engineering)
(PhD-Management)
MA-English, MPhil-English
Post Graduate Diploma in Computer Applications and Programming
Certificate course in English language proficiency
Level 1 – Leadership and Management ILM – UK
Pursuing CMA-USA
Individual Member of Institute of Management Consultants of India
Writer, Trainer, Author, Blogger, Software Developer
BBA, MBA-Finance, MPhil-Financial Management, (MSc-Software Engineering)
(PhD-Management)
MA-English, MPhil-English
Post Graduate Diploma in Computer Applications and Programming
Certificate course in English language proficiency
Level 1 – Leadership and Management ILM – UK
Pursuing CMA-USA
Individual Member of Institute of Management Consultants of India
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