MGT-101

Financial
Accounting

Key Terminologies
(Lecture 3)

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
Owners 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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