INTRODUCTION TO

ACCOUNTING
BASIC TERMS - 1
1. BUSINESS TRANSACTION:

✓ The term ‘Business Transaction’

means a financial or economic
event entered into by two parties
that initiates the accounting
process of recording in the books
of account of an enterprise.
✓ Financial event – Expressed in
terms of money.
✓ Examples: Sale of goods,
Purchase of fixed assets, Payment
of interest etc.
 2. CAPITAL:

✓ Capital is the amount invested by the

proprietor or by partners in an enterprise.
✓ It may in the form of money or assets having a
monetary value.
✓ It is the LIABILITY of the business towards the
proprietor or partners.
✓ LIABILITY – Capital is a liability because, under
‘Business Entity Concept’, business is a
separate and distinct entity from its owners.
✓ Capital is also known as ‘Owner’s Equity’ or
‘Net Worth’.
✓ Capital = Assets - Liabilities
3. DRAWINGS:

✓ It is the amount withdrawn or goods

taken by the proprietor or partner for
personal use.
✓ Drawings reduces the capital of the
owners.
✓ At the time of preparing Balance
Sheet, it is deducted from the capial
of the proprietor or partner
4. ASSETS:

✓ Assets are the properties owned by an

entity or enterprise.
✓ They are economic resources of the
business.
✓ Examples: Land, Building, Machinery,
Stock, Trademarks, Copyrights, Goodwill
etc.
✓ Assets can be classified into:
a) Non – Current Assets
b) Current Assets
CLASSIFICATION OF ASSETS:
ASSETS

Non- Current Assets
(Fixed Assets)
Those assets which are held
by an entity from a long-term
point of view, to facilitate
business operations.
Current Assets
Those assets which are held
by an entity with the
purpose of converting them
into cash within a short
period, i.e., one year.
Example: Goods purchased
with a purpose to resell.

Tangible Assets Intangible Assets

Those assets which do not
Those assets which have
have physical existence,
physical existence, i.e.,
i.e., they cannot be seen
can be seen and touched.
and touched.
Examples: Machinery,
Examples: Trademarks,
Furniture etc.
Computer Software etc.
5. LIABILITIES:

✓ Liabilities mean amount owed

(payable) by the business.
✓ Liability towards the owners of the
business is termed as internal
liability, on the other hand, liability
towards the outsiders is termed as
external liability.
✓ Examples for external liability: Bank
loan, Creditors, Long-term
borrowings etc.
CLASSIFICATION OF LIABILITIES

• Non-current Liability is that liability

which is payable after a period of
Non-current more than a year from the end of the
accounting period.
Liability • Examples: Long-term loans,
Debentures etc.

• Current Liability is that liability which

is payable within 12 months from the
Current Liability end of the accounting period.
• Examples: Creditors, Short-term loans
etc.