RISING STAR ACADEMY (IT)

(MSC IT ACCOUNTING DEFINATIONS)

 Financial accounting

Financial accounting is the process of recording, summarizing and reporting the

number of transactions resulting from business operations over a period of time.

 Transaction

Agreement, contract, exchange, understanding, or transfer of cash or property that occurs

between two or more parties

 Asset

Things that are resources owned by a company and which have future economic
value

 Real assets

Are physical assets that have value due to their substance and properties. Real
assets include precious metals, commodities, real estate, agricultural land,
machinery and oil

 Financial assets

Are cash and securities, such as stocks and bonds

 Liabilities

Are your company's obligations – either money that must be paid or services that
must be performed.

 Purchases

The purchase of inventory items under the periodic inventory system

Cash purchase Involves immediate payment of cash at the time of purchase.

Credit purchase when payment for purchase of goods is not made at the time of transaction
and is deferred to a future date.
Purchase returns are also known as returns outwards because they are being
sent out from the firm which bought them

 Sales

The sale of goods which have been purchased with the intention of selling

Cash sale involves immediate receipt of cash at the time of sale.

Credit sale arises when payment for sale of goods is not made at the time of sale and is
deferred to a future date.
Sales returns are also known as returns inwards because they are being returned back to
the firm which sold them

 Expenses

Represent the cost of doing business where doing business is the sum total of the
activities directed towards making a profit.

Created by: KHALIL AHMAD CHISHTI

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 RISING STAR ACADEMY (IT)
 Accounting period

Is the span of time covered by a set of financial statements.

 Entity separate concept

It states that the transactions associated with a business must be separately

recorded from those of its owners or other businesses.

 Business entity

Is an organization created by one or more natural persons to carry on a trade or

business, Types of business entities include corporations, partnerships, and limited
liability companies.

 Trade discount

Is the reduction in price a manufacturer or wholesaler gives a wholesaler or retail

when they buy a product or group of products. In other words, a trade discount is a
certain percentage a manufacturer is willing to reduce its list price for wholesalers or
retailers

 Cash discount

Is a deduction allowed by some sellers of goods or by some providers of services

in order to motivate customers to pay within a specified time. The cash
discount is also referred to as an early payment discount.

 Owner Equity

Is the owner's share of the assets of a business

 Revenue

Is the amount of money that a company actually receives during a specific period,
including discounts and deductions for returned merchandise

 Capital

Is the owner's investment of assets in a business. The owner can also make
profits from a business that he/she runs.

 Debtor (account receivable)

Is an person, company or organization who owes money. Debtors are usually

people, organizations or companies that have borrowed money in some form

 Creditor (account payable)

A term used in accounting, 'creditor' refers to the party that has delivered a product,
service or loan, and is owed money by one or more debtors

 Entries

The first step in the accounting cycle and are used to record all business
transactions and events in the accounting system

Created by: KHALIL AHMAD CHISHTI

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 RISING STAR ACADEMY (IT)
 Single-entry

Bookkeeping system or single-entry accounting system is a method of

bookkeeping relying on a one sided accounting entry to maintain financial
information.

 Double-entry

In accounting, is a system of bookkeeping so named because every entry to an

account requires a corresponding and opposite entry to a different account.
The double entry has two equal and corresponding sides known as debit and credit.

 Compound Entry

A compound journal entry is an accounting entry in which there is more than one
debit, more than one credit, or more than one of both debits and credits

 Net profit

Of a company after operating expenses and all other charges including taxes,
interest and depreciation have been deducted from total revenue. Also called net
earnings or net income.

 Allowance

Is a fixed amount of money received by a salaried employee from his employer

to meet a particular type of expenditure over and above salary

 Trial balance.

A listing of the accounts in the general ledger along with each account's balance in
the appropriate debit or credit column.

 Journal

Is a record of financial transactions in order by date. Traditionally, a journal has been

defined as the book of original entry.

 Provision

is an amount that you put in aside in your accounts to cover a future liability

 Invoice

An invoice is a commercial document that itemizes and records a transaction

between a buyer and a seller. If goods or services were purchased on credit,
the invoice usually specifies the terms of the deal and provides information on the
available methods of payment\

 Controlling account

Is an account in the general ledger for which a corresponding subsidiary ledger has
been created. The subsidiary ledger allows for tracking transactions within
the controlling account in more detail.

Created by: KHALIL AHMAD CHISHTI

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 RISING STAR ACADEMY (IT)
 Revenue expenditure

Is a cost that is charged on daily bases or short term effect.

 Capital Expenditure.

Is an amount spent to acquire or significantly improve the capacity or capabilities of

a long-term asset such as equipment or buildings.

 Account

An is a record in the general ledger that is used to sort and store transactions.

 Gross profit

Is net sales minus the cost of goods sold.

 Compensating error

Is an accounting error that offsets another accounting error.

 casting error

Occurs when sum total of the line items in the balance sheet, income and
expenditure or other financial statements or related disclosure notes is not equal to
the sum total mentioned at the end of the column

 Error of principle

Is an accounting mistake in which an entry is recorded in the incorrect account,

violating the fundamental principles of accounting

 Accrued expense

Is expense which has been incurred but not yet paid.

 Balance sheet

Is a statement of the financial position of a business which states the assets,

liabilities and owner's equity at a particular point in time.

 Depreciation

Is an accounting method of allocating the cost of a tangible asset over its useful life
and is used to account for declines in value. Businesses depreciate long-term assets
for both tax and accounting purposes

 Narration

Is a short explanation of every transaction, captured under each journal entry. There
will a Debit and a credit entry for any transaction.

Created by: KHALIL AHMAD CHISHTI

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 RISING STAR ACADEMY (IT)
 Capital Payment

The amount which is actually paid on account of capital expenditure is known

as capital payment

 bank overdraft

A negative balance in the bank's records for the company's checking account

 Normal Loss

Is any loss which is incurred during the normal course of operation in the process.
Abnormal Loss is a loss which happens accidently.

 Scrap value asset

The estimated price that can be collected by salvaging or selling the asset after its
useful life

 Posting

Is the act of moving debit and credit account balances from individual journals to
their corresponding ledgers

 Going concern concept of accounting

It implies that the business entity will continue its operations in the future and will not
liquidate.

 Accrual basis of accounting

The accounting method under which revenues are recognized on the income
statement when they are earned(rather than when the cash is received).

 Accounting equation

shows on a company's balance sheet whereby the total of all the company's assets
equals the sum of the company's liabilities and shareholders' equity.
FORMULA (assets=liabilities + owner equity)

Created by: KHALIL AHMAD CHISHTI