Accounting Vocabulary

• The Institute of Chartered Accountants of India ( ICAI) has done an excellent compilation of various terms used in the business under “ Guidance Note on term used in Financial Statement” .

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• CAPITAL : Generally refers to the amount invested in an enterprise by it’s owners. It is also used to refer to the interest of owners in the assets of an enterprise.

• ASSETS : Tangible objects or intangibles rights owned by an enterprise and carrying probable future benefits .

• LIABILITY : The financial obligation of an enterprise other than owner’s funds .

• RECEIPT :Gross inflow of cash/ Receivable or other considerations arising in the course activities of the organisation .

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• REVENUE RECEIPT: The gross inflows of cash , receivables or other consideration arising in the ordinary course of business from the sale of goods , from the rendering of services. It excludes amounts collected on behalf of third parties.

• CAPITAL RECEIPT : Gross Inflow of cash / receivable or other consideration for acquisition of tangible or intangible Assets .

• EXPENDITURE : Incurring a liability , disbursement of cash or transfer of property for the purpose of obtaining assets or good or services.

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• CAPITAL EXPENDITURE :Incurring Liability , disbursement of cash for the purpose of acquisition of assets for which , benefit out of which extended for more than one accounting year .It consists of expenditure the benefit of which is not fully consumed in one period but spread over several periods.

• REVENUE EXPENDITURE : Incurring liability , or disbursement of cash relating to the operation of an accounting period or benefit of that expenses do not extended that period.

• DEFERRED REVENUE EXPENDITURE : Expenditure for which payment has been made or a liability incurred but which is carried forward on the presumption that it will be of benefit over a subsequent period or periods.

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• SALES TURNOVER :The aggregate amount for which sales are affected or service rendered by an enterprise during a particular period . The term Gross turnover and net turnover are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts .

• COST : Expenses incurred to produce or acquiring something

or providing services . • COST OF GOODS SOLD : In manufacturing operations ,

it includes (i) Cost of material (ii) Labour & factory over head( iii) Administrative overhead and selling expenses normally excluded .

• COST OF SALES :In manufacturing operations , it includes (i) Cost of material (ii) Labour & factory over head( iii) Administrative overhead (IV) selling & distribution expenses .

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• PROFIT : A general term for the excess of receipt

over expenditure. • CAPITAL PROFIT : Capital profit is a profit made on

sale of a fixed assets or a profit earned on getting capital for the business .Capital profit should not transfer to profit & loss account , but transfer to Capital reserve account .

• REVENUE PROFIT : Revenue profit on the other hand is a profit made by trading , i.e profit on sales of goods , income from investment , discount received , commission earned , rent received . Such profit is taken to profit & loss accounts.

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• LOSS : Excess of expenditure over receipt .It’s diminution of owner’s equity/capital.

• CAPITAL LOSS :Capital loss are those losses which occur on selling of fixed assets or raising of capital .Capital loss should not be a part of profit & loss account but may be shown as an assets in the balance sheet .

• REVENUE LOSS :Revenue losses are those losses which arise during the normal course of business . Such loss are debited to profit & loss accounts .

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• INVENTORY :Tangible property held for sale in the ordinary course of business or in the process of the production for such sale , or the consumption in the production of goods or services for sale .

• DEPRECIATION : A measure of the wearing out ,consumption or other loss of value of depreciable assets arising from use , effluxion of time or obsolescence through technology and market changes.

• ACCUMULATED DEPRECIATION : The total to date of the periodic depreciation charges on depreciable assets .

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• PROFIT & LOSS STATEMENT : A financial statement which presents the revenue and expenses of an enterprise for an accounting period and shows the excess of revenue over expenses or vise versa .

• P& L APPROPRIATION ACCOUNT : An account sometimes included as a separate section of the profit and loss statement showing application of profits towards dividend , reserve etc .

• BALANCE SHEET : A statement of the financial position of an enterprise as at given date , which exhibits its assets, liabilities , capital , reserves and other accounts balance at their book value .

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• PRIOR PERIOD ITEMS : A material change or credit which arises in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods .

• PREPAID OR UNEXPIRED EXPENSES : those expenses which have been paid in advance i.e whose benefit will be available in future are called pre-paid expenses.

• ACCRUED INCOME : That income which has been earned but not received during the accounting year

• OUTSTANDING EXPENSES : Those expenses which have been incurred and are due for payment i.e not paid as yet are

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• ACCOUNTING PRINCIPLE : The term principle refers to fundamental belief or a general truth which once establish dose not change . AICPA defined the term principle “ as a guide to action , a settled ground as basis of conduct or practice .Accounting principle can be classified in two categories .

(i) Accounting Concept

(ii) Accounting Convention

ACCOUNTING POLICIES : AP are the specific accounting principles and methods of applying those principles that are considered by a business concern to be the most appropriate in the circumstances to present financial statements .

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• BASES OF ACCOUNTING • (i) CASH BASIS OF ACCOUNTING : The method of

recording transactions by which revenues and costs , and assets and liabilities are reflected in the accounts in the period in which actual receipts or actual payments are made .

(ii) ACCRUAL BASIS OF ACCOUNTING : The method of recording transactions by which revenues , costs , assets , liabilities , are reflected in the period in which they accrue .

(iii) MIXED/ HYBRID BASIS : Under this method both cash and accrual basis are followed . Incomes are recorded on cash basis and expenses are recorded on accrual basis .This is considered as the most conservative principles of accounting .

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• BOOK VALUE : The amount at which an item appears in the books of account or financial statement.

• GOODWILL : An intangible assets arising from business connection or trade name or reputation of an enterprise.

• SUNDRY DEBTOR : Amount owed by an enterprise on account of goods purchased or services received or in respect of contractual obligations . It is also termed as trade creditors or accounts payable .

• SUNDRY DEBTOR : Persons from whom amounts are due for goods sold or services rendered or in respect of contractual obligations .Also termed as trade debtors , accounts receivables .

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• CONTINGENT ASSETS : An assets the existence , ownership or value of which may be known or determined only on the occurrence or non-occurrence of one more uncertain future event .

• CONTINGENT LIABILITY : An obligations relating to an existing condition or situation which may arise in future depending on the occurrence or non- occurrence of one or more future events .

• CA , DEBASHIS MOHANTY, FCA,LLM,DISA