Basic accounting terminology - class-XI

Hybrid costing is a combination of process costing and job costing, used when products have both unique and common features.

The three primary elements of cost for any product are direct materials, direct labor, and manufacturing overheads (expenses).

Let cost be C. Marked price = 1.2C. Selling price = 0.9 * 1.2C = 1.08C. Profit = 1.08C - C = 0.08C = 56. C = 56 / 0.08 = 700.

The dual-rate cost-allocation method classifies costs into fixed and variable pools and allocates them using different bases for each.

A cost center is a department or function within an organization that incurs costs but does not directly generate revenue.

Deposit is a money deposited by customer in bank for saving.

An event is a happening that results in a change in the financial position of a business, such as the closing inventory balance, whereas a transaction is an exchange of value.

Debit means left side. For e.g. every accounting entry will have a debit and credit amount. The debit amount is usually listed first and will be entered on the left side of the general ledger account indicated. The general ledger accounts will have both a debit and credit side, left and right side. The balance in a general ledger account will be either a debit balance or a credit balance. 

Amount spend on normal servicing or repair of any asset is a revenue expenditure and should be debited to repairs account in profit & loss account. Any amount spent which improves the life of any asset, should be capitalized.

All business transactions are to be first recorded in journal in chronological order. Process of recording the transaction is called journalizing.

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Every business have to prepare financial statements at the end of every financial year to know the profitability and financial position of the business. In case of trading concern, business need to prepare trading account and Profit & Loss account and the Balance Sheet. In case of manufacturing concern, business need to prepare manufacturing account, trading account and Profit & Loss account and the Balance Sheet.

A transaction is a business event that has a monetary impact on an entity's financial statements, and is recorded as an entry in its accounting records. 

An event involving some value between two or more entities. It can be purchase of goods, receipt of  money, payment of creditor, incurring expenses, etc. It can be a cash transaction or a credit transaction. A transaction is a business event that has a monetary impact on an entity's financial statements, and is recorded as an entry in its accounting records. A high-volume transaction, such as billing to a customer, may be recorded in a specialized journal, which is then summarized and posted to the general ledger. Alternatively, lower-volume transactions are posted directly to the general ledger.

The term "transaction" refers to any business dealing or event which has a value measurable in terms of money and which involves transfer of money or money's worth between the business and others. The capital introduced by the proprietor, the amount withdrawn by the proprietor, purchase of goods on cash or credit, selling of goods for cash or credit, receipt of money  from a debtor, payment to a creditor, borrowing of loan from bank or payment of a loan, payment of salaries, rent, telephone charges, and receipt of incomes such as discount, rent and interest are examples of transactions. A credit transaction is one in which payment or receipt of money is postponed for a future date. Here, the name of the party is mentioned (with or without the word 'credit'). Purchased furniture from Mohan on credit, sold goods to Rejeev on credit, and salary unpaid, are some examples of credit transactions.

Credit transaction means any transaction by the terms of which the repayment of money loaned  or loan commitment made or payment for goods, services or properties sold or leased is to be made at future date or dates. In other words  credit transaction means goods or services are purchased but the payment will settle in a later date. 

A event involving some value between two or more entities. It can be purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc. A transaction is a business event that has a monetary impact on entity's financial statements, and is recorded as an entry in its accounting  records. A high-volume transaction, such as billing to a customer, may be recorded in a specialized journal, which is then summarized and posted to the general ledger. Alternatively, lower-volume transactions are posted directly to the general ledger. A transaction can be a cash transaction or a credit transaction.

The term "transaction" refers to any business dealing or event which has a value measurable in terms of money and which involves transfer of money or money's worth  between the business and others. The capital introduced by the proprietor, the amount withdrawn by the proprietor, purchase of goods on cash or credit, selling of goods for cash or credit, receipt of money from a debtor, payment to a creditor, borrowing of loan from the bank or payment of a loan, payment of salaries, rent, telephone charges, and receipt of incomes such as discount, rent and interest are examples of transactions. Cash transactions refer to any transaction which involves immediate payment or receipt of cash, e.g. purchase of goods for cash, sale of goods for cash, and payment of expenses or receipt of incomes

Business goodwill is a key intangible asset that represents the portion of the business value that cannot be attributed to other business assets. The value of a company brand name, solid customer relations, good employee relations represent goodwill. 

Every organization surely want to analyse the overall business performance. Normally this is 12 month or a period of a year. This year is called accounting year, also termed as financial year.

A transaction is an agreement between a buyer and a seller to exchange goods, services or financial instruments. Transaction is a business event that has a monetary impact on an entity 's financial statements. For example - paying a supplier for services rendered or for supply of goods, paying an employee for hours work  etc.  This all are transactions and involve money and money' s worth. 

A brief about the journal entry is written after every journal entry to give the transaction details about the journal entry. 

Every economic activity is performed through transactions and events. An event is the happening, consequence or result of the transaction. Hence in our example the surplus profit is an event which is result of transaction.

Every economic activity is performed through transactions and events. A transaction may be a business, performance of an act or an agreement. Event is used to mean a happening as a consequence of transaction(s).

Any business transaction which occur during the course of business must have the documentary evidence. Since the accounts of the business need to be audited in future, all evidence must be available for records.

The transactions are recorded first of all in the journal and then they are posted to the ledger. Thus the journal is the book of first or original entry while the ledger is the book of second entry. Journal records transactions in a chronological order. Journal is more reliable then ledger. The process of recording transactions is termed as journalising.

Accounting cycle starts only when there is an event or transaction of monetary value. If a transaction is completed, its considered an event to record the same in business books. Non economic transaction should not be considered as an event. Hence, no recording is done.

Every economic activity is performed through transactions and events. A transaction may be a business, performance of an act or an agreement. Transaction is used to an economic event in accounting.

Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. transactions and events of financial information. It revels profit or loss for a given period, and the value and nature of firm's assets, liabilities and owner;s  equity. It is the language of business.

A cash transactions is a transaction where there is an immediate payment of cash for the purchases of an asset. It differs from other type of transactions that involves delayed delivery of purchased item, or delayed payment for the item.

A post-dated check (or post-dated cheque) is a check written with a future date. In other words, the date that appears on the check is after the date when the check was written. Even with a future date appearing on the check, the check could clear (be paid from) the bank account prior to that date.

Any exchange of value for value ( for money or money's worth) is called a transaction. Something having value is received, and something having value goes out.  Selling or purchasing of goods or taking or granting any loan are examples of transactions. 

Unsold items i.e Closing stock is captured in the financial statements as 'Current Asset'. An event can be internal or external. This is an internal event. 

Accounting is based on the certain concepts and conventions which are commonly known as Generally Accepted Accounting principles". 

This can be summarized as:

Sold goods to customer is defined as credit sales. 

Posting is the transfer of journal entries to a general ledger, which usually contains a separate form for each account. Journals record transactions in chronological order, while ledgers summarize transactions by account. Posting in accounting consists of a few simple steps.

Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that the company's financial records adhere to the revenue recognition and matching principles. Adjusting entries are necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period. Each adjusting entry usually affects one income statement account (a revenue or expense account) and one balance sheet account (an asset or liability account)

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period.

Any business transaction will involve at least two parties. One can not do the transaction with himself. One party may be receiver and another will be give. 

Trading accounting is prepared only by those organization where the purchase and sale of goods is done. 

A company is a separate legal entity with perpetual succession, meaning it is not affected by the death or insolvency of its members. The other options (legal entity, common seal, association of members) are all standard characteristics of a company.

Fixed assets are those which gives the benefits to the organization on a long term basis. Fixed Assets are recorded in the books of account on the original cost irrespective of their market value as per the cost concept in accounting.

Monetary concept of accounting defines that only those transactions are recorded in the books of account which are measured in terms of money. 

Profit & Loss account is prepared for a business for a particular period. Profit & Loss account is having two sides i.e. Income and expenses side or debit or credit side. All incomes/revenues are recorded in credit side and expenses are debited. 

A trial balance is a statement showing the debit and credit balances of all ledger accounts. It is not a financial statement itself, but rather a tool used to check the arithmetic accuracy of the ledger before preparing final accounts.

Consistency is the basic assumption and it is assumed that the various Policies/Methods adopted by the concern while preparing the accounts are consistent from one period to another. This convention plays its role particularly when there are some different methods available. However, consistency does not implies that there is no way for the introduction of new policies. 

Separate entity concept defines that the owner and business are having a separate legal entity in the eye of law. Any amount contributed by the owner is considered as liability to the business. 

In a sole proprietorship and a partnership, the owners have unlimited personal liability for the debts of the business. In contrast, a corporation is a separate legal entity where shareholders generally have limited liability.

A co-operative society is registered under the Co-operative Societies Act, which grants it a separate legal identity distinct from its members. This allows it to own property and enter into contracts in its own name.

When a director resigns, the board of directors can fill the vacancy in a board meeting, but this appointment is temporary and must be approved or regularized by the shareholders at the next general meeting.

A sole trader is an individual who owns and manages the business alone. Because there is no legal distinction between the owner and the business, the owner bears unlimited liability for all business debts and is responsible for all management decisions.

Separate entity concept defines that the owner/proprietor and business are treated two separate legal entity in the eyes of law. Hence any contribution made by owner as part of capital is treated as liability in the business. 

In accounting we can communicate only those business transactions and other events which can be expressed in monetary units. This is called monetary unit assumption.  Therefore, only money or money's worth transactions are recorded in the books of account. 

On purchase of a Car, total assets of balance sheet will be increased by $Rs. 5,00,000$ and on making of down payment of $Rs.1,00,000$ total assets will decrease by $Rs. 1,00,000$. The result will be that total assets of Balance sheet will increase by $Rs.4,00,000$.
On other hand a liability of $Rs.4,00,000$ has been made so the liability side of Balance Sheet will be increased by $Rs.4,00,000$.

Business transactions are recorded when they occur and not when the related payments are received or made. This concept is called accrual basis of accounting and it is fundamental to the usefulness of financial accounting information.

When goods are returned to a supplier, the liability to the supplier decreases. Since the goods are no longer in inventory, the asset value also decreases. This is a standard accounting entry for purchase returns.

All listed options describe standard accounting definitions: income increases capital, losses decrease it, additional capital increases it, and drawings decrease it. Therefore, all are correct.

The transaction in which there is no immediate payment of cash is known credit transaction. For e.g., sale of goods to Ram for Rs. 1,000. In this transaction goods worth Rs. 1,000 sold to Ram on 5 days credit is a credit transaction as the payment is not made immediately for the goods.

The transaction which involves immediate payment of cash is known as cash transaction. For e.g., Sale of goods to Ram for Cash Rs. 1,000. In this transaction goods are sold to Ram when he paid Rs. 1,000 cash.

Any event which involves transfer of money or money's worth is known as financial transaction. It is an agreement, or communication, carried out between a buyer and a seller to exchange an asset for payment. It is still a transaction if the goods are exchanged at one time, and the money at other.

Unsold items i.e Closing stock is captured in the financial statements as 'Current Assets'.

'Transaction' involves money or money's worth, and hence, has a financial impact in the books of accounts.

In joint venture accounting, when a co-venturer retains stock, it is treated as a closing balance in the joint venture account. The stock is debited to the co-venturer's account, and since it is an asset for the venture, it appears as a credit balance in the venture ledger.

Discounting a bill of exchange is a cost incurred for the joint venture. Therefore, the discount charges are treated as an expense of the venture and are debited to the Joint Venture Account.

Adjusting entries are the entries which are passed at the year end. The balance sheet as well as the trial balance will tally but the financial statements will not show a correct picture of the financial position of the company.

"Debit the receiver, and credit the giver" is a golden rule for Personal A/c. Personal accounts are the accounts for individual, firms, companies etc. By debit the receiver means the person who is receiving goods on credit will be debited and the person who is giving will be credited.  

General reserves and dividend equalization funds are appropriations of profit. They are not personal accounts (people) or real accounts (assets), but rather nominal accounts representing equity reserves.

The bank issuing the credit card charges a commission from anywhere between 1% to 4% for each such transaction. The commission charged is immediately debited to the seller's bank account.

Internal check refers to an arrangement of duties where the work of one person is automatically checked by another, ensuring that no single person has control over all aspects of a transaction.

Vouching is the process of verifying the authenticity and accuracy of transactions by examining the supporting documentary evidence, such as invoices, receipts, and vouchers.

Unearned Income is that income which is received in advance. That mean income received against which services are not provided so far.

As per double entry system of accounting, every transaction affects two account. In the given transaction, Bank and customer account are affected. Bank account is a real account and customer account is a personal account. 

A joint venture is a business entity created by two or more parties generally to share the ownership to complete a specific task or venture.