Key Terminologies (Lecture 3) MGT-101 Financial Accounting

Accounting Terminologies Proprietor Owner of business Invests his capital, gives his time and attention Enjoys profit and bears loss Capital Amount of cash or the value of goods or both invested by the owner in business

Cont… Owner’s Equity Internal source of financing Includes investments, share capital, reserves and retained earnings Drawings Withdrawal of cash or goods Private and personal use

Cont… Purchases Bought merchandise Intention of selling I.Cash purchases: against cash II.Credit purchases: against future payment promise Purchases Returns Purchased goods, returned to the supplier/ seller (Defective, Not according to sample Damaged, Excess of the quantity ordered)

Cont… Purchases Allowance Benefit of reduction of purchase price Due to defect or a damage Purchases Discount Reduction in price at the time of purchase Sales Goods sold to earn profit

Cont… Sales are divided into: 1.Cash Sales: for cash 2.Credit Sales: for promise to receive cash in future. Sales Returns: Sold goods returned from customer (Defective, Not according to sample, Damaged, Excess in quantity ordered)

Cont… Sales Allowances Benefit of reduction in the sale price due defect or damage Sales Discount: Reduction in the price at the time of sales Stock/Inventory Unsold goods at the end of accounting period

Cont… Voucher Evidence of transaction occurrence Written documents used in exchange of goods or services Cash Memo: Written documents used for cash transactions Invoice Written documents of credit transactions

Cont… Accounting period Period for which financial statements are prepared Debtors (Accounts Receivables) Persons from whom amount is to be received Creditors (Accounts Payable) Persons to whom amount is to be paid

Cont… Trade Discount Deduction allowed by a trader on the list price of the product Cash Discount Deduction allowed by a creditor to his debtors for prompt/ early payment Assets Valuable things possessed by the business

Cont… Expense Cost of doing the business/ performing business operations Accounting Cycle Sequence of accounting procedures used to record, classify, summarize and interpret the business transactions.

Accounting Cycle Accounting CYCLE

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