Capital
Capital is an amount the business owner has invested into the business to commence the business activities. Capital can also be further added to the business in the form of additional capital.
For Example, a business Started with cash, Machine, and Stock. All these items are collectively called capital.
Drawing from the business
Drawing from the business are the cash amount or any other item withdrawn by the business owner for personal use. Business and business owners are considered two separate legal entities. Business owners have to pay the interest on drawings to the business.
Credit Sales
Credit sales are the sales made to the customers to whom businesses sell goods on credit, considering they will clear the dues in the future.
Credit Purchases
Credit purchases are the purchases from the sellers from whom a business purchases goods on credit. Businesses have to pay the dues on time.
Bills Receivable
In bills receivable, the Business owner draws bills of exchange in the name of the customer with the credit sales. Bills of exchange is a legal agreement between the business owner and the customer with a specific date written on it.
Bills Payable
Bills Payable is a legal document at the time of credit purchases drawn by the seller on the business owner. By accepting the bill of exchange, the business owner agrees to pay the dues on the specified date.
Debit
Debit is an accounting entry is a transaction that shows either an increase or decrease in the asset or liability of the business.
For Example, A machine is purchased by paying through a cheque.
In this transaction, the asset account is being debited with new machinery, and the bank account is being credited.
Credit
Credit in accounting is a transaction that shows an increase or decrease in the liability or capital of a business.
For Example, Payment of rent to the landlord. In this transaction, payment of rent reduces the liability of rent and also reduces the cash.
Cost Of Goods Sold(COGS)
The cost of goods sold is the cost incurred to produce the goods.
COGS is used to know a business’s gross profit.
Gross profit Formula: Revenue- COGS
For Example, A bakery selling cakes can consider the ingredients to make the cake as raw material.
Depreciation
Depreciation is a non-cash expenditure incurred by the business. Depreciation reduces the value of an asset. Depreciation is charged on book value.
It can be calculated in two different ways:
1) Straight-line Method
2) Written Down value method
Fixed Cost
Fixed cost is the cost that does not change with the change in other factors like production.
For Example, The rent of the land is a fixed cost. It will not change with the change in other factors.
Variable Cost
Variable cost is the cost that changes with the change in other actors.
For Example, The cost of Raw materials will change with changes in production.
Semi-Variable Cost
A semi-variable cost is a cost that remains fixed to a certain extent, and then it changes with the change in other factors.
For Example, The electricity bill of the premises will be fixed to a certain extent, and then it will be aligned with the level of consumption.
unpaid Expenses
Unpaid expenses are the expenses for which the expenses are not paid in return for the goods or services availed.
These expenses are the monetary obligation of the business, which a business needs to fulfill in the future.
For Example, Postpaid mobile bills.
Prepaid Expenses
Prepaid expenses are the expenses for which the expenses are paid in advance in return for the goods or services availed.
These expenses can also be considered as current assets as the amount is already paid for the goods or services in advance.
For Example, Paid three months of rent in advance.
Accrued Income
Accrued income is the income that is not received for the goods sold or services performed.
These incomes are the asset of the business as they will increase the cash balance shortly.
For Example, Commission will be paid after three months
Unearned Income
Unearned income is the income that is received in advance without performing any service or sale of the goods.
These incomes are treated as a liability as the business is liable to perform the activity for the consideration received.
Retained Earnings
Retained earnings are the portion of profits kept by the business before the distribution of the dividend to the shareholders. These profits are retained in the form of reserves for the future.
Double-Entry Bookkeeping
Double-Entry Bookkeeping is a form of accounting in which each transaction has two entries. One is on the debit side, and the other will be on the credit side. It helps the accounts to be in a balanced shape.
For Example, Closing Stock at the end of the year will first appear on the credit of the trading account and then on the asset side of the balance sheet.
Revenue
Revenue is the amount a business has earned in a set time. It is a taxable income. It is a gross Income.
