Important Business Terminology

The person who invests money, Goods or any other Assets in the business, gives time, assumes risk

and is entitled wholly to the profit or loss of the business is called owner or proprietor.

 Capital or owner's equity

The amount of cash, Goods r any other assets which is invested by the owner is called Capital or Owner’s equity. For example Mr.Z the owner invested cash Rs.100000, Goods Rs.80000 and building Rs.50000 in the business. So capital will be Rs.230000.

 Drawings                               

The cash or goods taken away by the owner from the business for his personal use are called his drawings. For example capital invested by Mr.Z is Rs.230000 and he withdraws Rs.30000 from business for personal use then Rs.30000 will be treated as drawings.

 

 Debtors or Accounts Receivables

Debtors are the persons or customers to whom goods have been sold on credit basis and from whom the business is to receive the money in the near future. For example Business sells Goods to Mr.B on credit for Rs10000.payment is to be received after 3 months. It means that Mr.B will be debtor for  business.

 Creditors or Accounts Payables

Creditors are the persons or suppliers from whom goods have been purchased on credit basis and to whom the money is to be paid in near future. For example business purchased goods for Rs.25000 from Mr. Fawad on credit basis. In this case Mr.Fawad will be considered as creditor for the business.

 Assets

Assets are the economic resources (having certain value) owned by a business on a particular date and which are expected to benefit the future operations of the business. For example cash, furniture, building, land, machinery, stock, debtor, bank balance etc.

 Expenses

Expenses are he costs of the goods and services used up in the process of obtaining revenues. It is the cost of doing business. Their benefit remains for the short period. For example telephone charges, salaries, wages, rent, insurance, advertising, electricity charges etc.

 Revenue

It is the price of goods sold or services provided by a business to its customers. For example revenue from sales, interest received, rent received and commission earned etc.

 Accounting period

It is a span of time for which a business generally prepares it s financial statement. Generally it is a period of one year. Accounting period can also be for six months, three  months and one month as well.

 Liabilities

Liabilities are the debt or obligations of a business. For example creditors, bank loan etc.

 Allowance

Sometimes the customers (buyers) find that goods purchased have minor defects. In that case the seller may agree to reduce the price of damaged or defective goods to induce the buyer to keep the goods. Such reduction in price is known “purchases allowance” to the buyer and “sales allowance” to the seller.

Trade discount

Discount allowed by manufacturer or wholesaler at the time of selling goods to retailer as a deduction from the listed price or catalogue price is called trade discount.  It is not recorded in the books of account.

Reasons for trade discount                                                                                       

Bulk quantity, Close relationships and Custom in the business

Cash discount

It is deduction or allowance given by creditor to a debtor if the amount due is paid by the debtor before the due date. It is known as a discount allowed by the creditor and discount received by the debtor.

 Voucher

Any written evidence which is issued in support of transaction is called voucher.

 Commission

Any amount which is paid or received against the services is called commission. It is normally calculated on the basis of percentage of sales.

 Equity

Any claim upon the assets of the business is called Equity. Two types of persons can enjoy this claim.

1- Owner

2- Creditors