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Financial Accounting

Chapter No 1

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BASIC TERMINOLOGIES

OF

ACCOUNTNG

1st Lecture Prepared By: Kamran Khan (kamranuni@yahoo.com)

(Lecturer, Kardan university)

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1)BUSINESS:

Any legal activity which is carried on to earn profit is known as business.

2)Profession:

This is a kind of business for which previous training, skills and qualification is required. e.g. if u want to become a lecturer of Accounting so first of all u must have the knowledge of accounting then u can start your teaching profession.

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3)Proprietor/Owner:

Proprietor is the person who invests capital(cash, goods etc).He is entitled to earn profit and suffers losses.

e.g. Ahmad started a business of furniture .In this example

Ahmed is the owner of business

4) Transaction:

Any act of buying and selling b/w two persons or business enterprises is called a transaction. OR Exchange of values is known as transaction. e.g. purchase and sale of property, goods etc.

Ahmad

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5) Merchandise/Goods

The things purchased by a business organization for the

purpose of reselling them is same condition are called

merchandise or goods.

e.g. Bookseller sells books the books are merchandise

for bookseller.

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6) Purchase

The cost of merchandise purchased is called purchases. When the

price of goods purchased is paid in cash is called cash purchases

and when it is paid on any future dates, it is called credit purchases.

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7)Purchase Return:

when the goods/merchandises are returned back to supplier for some defect or for any other reason they are called purchase return or return outward or return to supplier. e.g. we have put an order for 500 chairs but among 500 chairs we have received 50 chairs broken. Definitely v will return these 50 chairs to our supplier & thus this return of 50 chairs will b known as purchase return.

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8)Sales

The amount earned from sales of goods is called sales. If

this price is received in cash, it is called as cash sales

and when it is to be received on any some future dates,

is called credit sales.

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9) Sales Return:

When the merchandises sold are returned by the customers for some defect or any other reason they are called sales return or return inward or returns from customers.

10) Commission:

When a person or enterprises renders some business services for another person or enterprises, the remuneration rewarded to that person or enterprises is known as commission. It is revenue when received and expense when paid

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11) Account Receivable:/Debtor

Whenever the goods are sold on loan basis. The person to whom the goods are sold on loan basis is called as A/C Receivable. It is recorded as asset for the business because u have to receive cash in some future period of time.

12) Accounts Payable:/Creditor

Whenever the goods are purchased on credit basis. The person from whom the goods are purchased is termed as A/C Payable.

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13) Discount:

It is reduction, deduction grant or allowance from the price of goods or any other asset.It can be divided into two types

Discount

Trade discount Cash discount

a)Trade Discount: Discount which is received and paid at the time of sales and purchase is called trade discount.

b)Cash Discount: Discount which is allowed to(A/C Receivable) or received from (A/C Payable) is known cash discount.

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14) Drawings

The cash or commodities withdrew by owner for his

personal uses from business are known as Drawings.

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What is Return of Investment?

Return of investment is the return of amount that you have invested or loaned to the business/person at some future date.

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“Return on investment is return of something by the company/person for the use of your fund”.

Example: “Return “of” and “On” Investment”

If you have loaned $1000 to a person Ali ,and Ali promises to pay $1100 at the end of year 1st ,then $1000 is return of your investment and $100 is return on your investment.

What is Return on Investment?

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Types of Business

Owner’s

Business

Sole Proprietorship

Partnership

Corporations

Manufacturing

Merchandising

Services

Nature

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