Dear Teachers,

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These slides have been prepared based on the NCERT syllabus to support you in teaching Plus One and Plus Two Accountancy and Computerised Accounting.

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Please review and verify the content before using it in your classrooms. If you find any errors or have feedback, please let me know.

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Mujeeb Rahiman C

HSST Commerce

GHSS Pattikkad

Malappuram Dt.

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✉️ mujeebchemmala@gmail.com

9995983075 �

Chapter - 1

Introduction to Accounting

Basic Accounting Terms

1. Entity

Entity means a reality that has a definite individual existence.

eg. person, product, business etc..

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Business entity means a specifically identifiable business enterprise. Also called accounting entity.

eg. Lulu Hypermarket, Reliance industries Ltd. etc.

2. Transactions

All economic events in a business are called transactions.

eg. purchase of goods, sale of goods, payment of salary, capital contributed by owner etc.

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Financial dealings between entities are called transactions.

It can be a cash transaction or a credit transaction.

3. Assets

Land and Building

Vehicles

Machinery

Cash in hand

Cash at Bank

Stock

Valuable things or properties of a business enterprise including the amounts due from others are called assets.

They owe money to business

a. Current Assets

b. Non-Current Assets

Cash in hand

Cash at Bank

Stock

a. Current Assets

Cash and other assets which are expected to be realised in cash with in a short period, normally one year.

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eg. Cash in hand, cash at bank, stock, debtors etc....

Debtors

b. Non-Current Assets

Land and Building

Vehicles

Machinery

Non-current assets are held for continued use in the business and are not meant for sale.

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Examples are Long Term Investments and Fixed Assets (സ്ഥിര ആസ്‍തികള്‍) like Land, building, machinery, vehicles etc....

Long term investment

b. Non-Current Assets

Fixed Assets

Tangible Assets

Which can be seen and touched, physical existence

eg. Land, building, vehicles, furniture etc...

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Intangible Assets

Which cannot be seen, do not have a physical existence. These assets helps the business to earn profits.

eg. Patent right, copy right, Goodwill etc..

Long term investments

4. Liabilities

Goods purchased on credit from ABC Ltd. for Rs. 50,000 (Supplier or Creditor)

Loan taken from Federal Bank Rs. 25,000

Bank Overdraft

Debentures

Unpaid Rent , outstanding wages, outstanding salary etc...

Liabilities are obligations or debts that an enterprise has to pay at some time in the future. It refers to the amount which the firm owes to outsiders for money borrowed or for goods purchased or for services received. Liabilities are classified as :

Current Liabilities

Non Current Liabilities

Current Liabilities

(Short Term Liabilities)

Liabilities which are to be paid in near future

(normally with in one year)

eg. Bank overdraft, short term loans, creditors, outstanding expenses etc.

Non Current Liabilities

(Long Term liabilities OR Fixed Liabilities)

Liabilities which fall due in a relatively long period

(normally more than one year)

eg. Long term loans, debentures etc..

5. Capital

It refers to the amount invested by the owner in a business. It may be in the form of cash, goods or assets. For the firm it is a liability towards the proprietor. This is so because the proprietor is separate and distinct from the business. (Business Entity Concept)

Rs. 50,000

Rs. 20,000

Rs. 30,000

Capital = Rs. 1,00,000

6. Sales

Sales are total revenues from goods sold or services provided to customers. The term sales is used only for the sale of goods or services.

eg. Sale of toys, sale of grocery item, car washing etc....

The term sales include Cash Sales and Credit Sales

Sales Returns

When goods are returned by the customers, it is called Sales Returns or Return Inwards

7. Revenues

These are the amounts of the business earned by selling its products or providing services to customers, called sales revenue. Other items of revenue common to many businesses are: commission, interest, dividends, rent received, etc.

8. Expenses

Costs incurred by a business in the process of earning revenue are known as expenses. It includes amount paid for purchases, rent, commission, salary, wages, advertisement, depreciation etc.

9. Expenditure

Spending money or incurring a liability for the purpose of acquiring assets, goods or service called expenditure. It may be classified in to two.

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a) Revenue Expenditure (expense)

b) Capital Expenditure

a) Revenue Expenditure (expense)

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If the benefit of expenditure is exhausted within a year, it is treated as revenue expenditure. eg. purchase of goods, salaries, rent, electricity charges etc..

b) Capital Expenditure

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If the benefit of an expenditure lasts for more than a year, it is treated capital expenditure. eg. purchase of machinery, furniture, land, building etc.

Revenue Receipts

Examples :

Money obtained by sale of goods

Commission and fee received for services rendered

Interest and dividend received on investments

Capital Receipts

Amount received from sale of fixed assets

Capital contributed by proprietor, partners, share holders etc..

Amount received by way of loans

10. Profit

It is the excess of total revenues over total expenses of a business for an accounting period. Profit increases the investment of the owner.

Profit = Revenues - Expenses

11. Gain

A profit that arises from events or transactions which are incidental to business such as sale of fixed assets, appreciation in the value of an asset etc.

12. Loss

It is the excess of total expenses over total revenues of a business for an accounting period. Loss decreases the investment of the owner.

Loss = Expenses - Revenues

It also refers to money or money’s worth lost without receiving any benefit in return, e.g., cash or goods lost by theft or a fire accident, etc. It also includes loss on sale of fixed assets.

13. Discount

Discount is the deduction in the price of the goods sold.

It is offered in two ways

i) Trade Discount

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When discount is allowed by a seller to its customers at a fixed percentage on the list or catalogue price of the goods is called Trade Discount.

ii) Cash Discount

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When discount is allowed to the customers for making prompt payment is called Cash Discount.

14. Voucher (Source document)

The documentary evidence in support of a transaction is known as voucher.

For example, if we buy goods, we get invoice / cash memo; when we make a payment we get a receipt and so on.

15. Goods

Goods include all those things which are purchased for resale or for producing the finished products which are also meant for sales.

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For a furniture dealer, purchase of chairs and tables are termed as goods, while for others it is termed as an asset.

Asset

Goods

16. Drawings

Withdrawal of money or goods by the owner from the business for personal use is known as drawings. Drawings reduces the investment of the owners.

Owner

Owner

17. Purchases

Cloth

for Rs. 10,000

Chairs

for Rs. 15,000

In case of trading concerns the term purchases is used when ‘Goods’ are purchased for resale.

eg. A cloth merchant purchases cloths, grocery merchant purchases grocery item, furniture by a furniture shop etc..

Cotton

for Rs. 50,000

Machinery

for Rs. 1,00,000

In case of a manufacturing concern the term purchases is used when ‘Raw Materials’ are purchased for the purpose of conversion into finished products and then sale.

eg. Textile factory purchases cotton, petroleum company purchases crude oil etc...

The term purchases include Cash Purchases and Credit Purchases

Purchases Returns

When purchased goods are returned to the suppliers, it is called Purchases Returns or Return Outwards

18. Stock

In a trading concern the term stock (inventory) includes the value of those goods which are purchased for reselling and which are lying unsold.

In a manufacturing company, stock (inventory) comprises raw materials, semi-finished goods and finished goods.

The stock may be of two types

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i) Opening Stock ii) Closing Stock

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The value of stock lying unsold at the beginning of the accounting period is called opening stock. The value of stock lying unsold at the end of the accounting period is called Closing stock

Opening

Stock

Jan 1 , 2019

Closing

Stock

Dec 31, 2019

19. Debtors

Customer

The term debtors represent those persons or firms who owe some amount to the business for buying goods or services on credit.

The total amount standing against such persons or firms on the closing date, is shown in the balance sheet as sundry debtors on the assets side.

20. Creditors (കടംകൊടുത്തവര്‍)

Purchased tyres from Apollo Tyres on credit

Apollo is the creditor because the business owes money to them

Creditor

20. Creditors

The term creditors represents those persons or firms to whom some money is still owing by the business for goods purchased or services procured on credit.

The total amount standing to the favour of such persons or firms on the closing date, is shown in the Balance Sheet as sundry creditors on the liabilities side.

Debtors | Creditors

Purchased goods

on Credit Rs. 10,000

Sold goods

on Credit Rs. 10,000

Goods

(Customer)

(Supplier)

Debtor

Creditor

Sunil

Shameer

Can you identify the Debtor and Creditor ?

Malayalam Film ‘Punjabi House’

Debtor

Creditors

MUJEEB RAHIMAN C

HSST COMMERCE

GHSS PATTIKKAD

MALAPPURAM DT