1. PREPARED BY: MUKHTAR KHATTAK SUBJECT: FINANCIAL ACCOUNTING Definition of Accounting Accounting is the language of business.

2. TERMS When we study any subject some words are used with their specific meanings, these words are called terms.

3. ACCOUNTING TERMS When we study accounting subject some words are used with their specific meanings,these words are called Accounting terms. e.g. Assets, Equity, Liability, Revenue etc

4. (1)BUSINESS All those economic and legal activities which are operated for earning profit are called business

5. TYPES OF BUSINESS (1).Trading or Merchandising business: Trading or Merchandizing business are those business in which we buy finished products and resell them to the individual and other business organization. e.g. shoes shop etc.

6. TYPES OF BUSINESS (2). Manufacturing business: Manufacturing business are those business in which we buy raw-material, transform into finished products by the use of labor and machinery and then sell to the individual and other business organization. e.g. Bata Shoes Company.

7. TYPES OF BUSINESS (3). Services business: Services business operate to provide in needed services for fees. e.g. Doctors, Lawyers etc.

8. (2). TRANSACTION Buying and selling between two persons are called transaction. Kinds of Transaction: (a). Cash Transaction: When Cash is paid or received as a result of an exchange is known as cash transaction. (b). Credit transaction: When the payment or receipt of cash is postponed for a future date is known as credit transaction.

9. (3). BOOK-KEEPING It is concerned with the recording of business transactions in a systematic and prescribed manner. The person engaged in this job is called a book-keeper or record-keeper.

10. (4).MERCHANDISE(GOODS) The things or items bought or sold in an enterprise in order to earn profit are called merchandise or goods. e.g. books, cloth etc.

11. (5).DRAWINGS Cash or goods taken away by the owner from business for personal use are called drawings.

12. (6).PURCHASES Goods purchased are called Purchases.

13. TYPES OF PURCHASES (1). Cash Purchases: Goods purchased on cash is called cash purchases. (2). Credit Purchases: Goods purchased on credit is called credit purchases.

14. (7). SALE Goods sold are called sale.

15. TYPES OF SALE (a). Cash Sales: Goods sold on cash are called Cash sales. (b). Credit Sales: Goods sold on credit are called credit sales.

16. (8).PURCHASE RETURNS When the merchandise purchased are found defective and poor in condition (quality,weight,size,color ).They are sent back to the supplier. This is called Purchase Returns.

17. (9).SALES RETURNS When the merchandise sold to the customers are found defective and poor in condition(quality,weight,size,color), they are sent back to the business. This is called as Sales Returns.

18. (10).PURCHASE ALLOWANCE When the merchandise purchased are found defective and are not returned to the seller. The seller agrees to allow some reduction from the price charged.This reduction is called purchases allowance.

19. (11).SALES ALLOWANCE When the merchandise sold are found defective and not returned by the customers, but the business agree to allow some reduction from the price charged. This is called Sales Allowance.

20. (12).DISCOUNT It is allowance from the price of goods sold or purchased.

21. TYPES OF DISCOUNT There are two types of discount. (1).Cash discount.(2).Trade discount. 1-Cash Discount: A discount which is allowed or received at the time of cash payment on credit sales or purchase is called cash discount. (a). Discount received. (b). Discount allowed.

22. TYPES OF DISCOUNT 2-Trade Discount: When Concession is given by seller to buyer on listed price of goods at the spot of sale is called trade discount.

23. (13). EXPENSES Expenses are the cost of goods and services used up in the process of obtaining revenue. e.g. Salaries paid to employees, paid rent etc.

24. (14).REVENUE Income earned from the sale of goods and services are called revenue.

25. (15).DEBTOR(ACCOUNTS RECEIVABLE) A person who owes money to another is called a debtor.

26. (16).CREDITOR(ACCOUNTS PAYABLE) A person who pays out something or to whom money is owing is called a creditor.

27. (17).VOUCHER A written evidence in support of a transaction is called a voucher.

28. (18).NOTES RECEIVABLES A note-receivable is a written promise in which the customer promises to pay the obligation plus interest charges to the business on or before a specified date.

29. (19).NOTES PAYABLE Notes payable is a written promise to repay the amount at particular date and usually calls for the payment of interest as well.

30. (20).ASSETS The things and properties possessed by the business are called assets. e.g. Cash, Accounts receivables,notes receivables, machinery, building, patents etc.

31. GROUPS OF ASSETS 1-Current Assets: Current assets are those assets which are either in cash or easily convertible into cash. e.g. Cash, Accounts Receivable, Notes Receivables and stock etc.

32. Groups of Assets 2-Non-Current Assets: These are the assets which are acquired with a view to hold them and earn income other than the business income. Such as Share of other companies, Govt.securities etc.

33. Groups of Assets 3-Fixed Or plant Assets: These assets are acquired to retain and use in business operation. E.g. Land, Building, plant & Machinery, Furniture & Fixture, Motor vehicles etc.

34. Groups of Assets 4-Intangible Assets: These are the assets which are not physically touchable, but still valuable for business operation. e.g. good will, patents,copy rights etc.

35. (21).EQUITIES The claims of the owners or outsiders in the assets of the business are called equities. Categories: (1). Owner equity: The claims of the owner in the assets of the business are called owner equity. (2).Liabilities:The claim of the outsiders in the assets of the business are called liabilities.

36. Types of liabilities (a). Short Term/Current liabilities: The liabilities which are payable within one year are called as short term or current liabilities. (b). Long Term Liabilities: The liabilities which are not payable within one year are called as long term liabilities.

37. (20).