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Following are the Important Terms used in Accountancy:

Book Keeping 

Book keeping is the systematic recording, classifying and summarizing the business transactions in the book of accounts in accordance with the principles of accounting. In the words of Carter “Book keeping is the art of correctly recording in book of accounts all those transactions that result in the transfer of money or money’s worth”.


It is a consolidated statement of various transactions occurred between a customer and the firm. It should be clearly expressed and it is a concise record of the transactions relating to a person or a firm or a property or a liability or an income or expenditure. The abbreviation for account is A/c.


Day-to-day business activities are called transaction. It may involve transfer of money due to exchange of goods or services between two parties or two persons. Transaction may be cash transaction and/or credit transaction.

For Example:

(a) Purchase of machinery worth                      Rs.50,000/-

     (b) Cheque Received from Ramu                      Rs.15,000/-


In order to start and run the business, the owner has to contribute some initial amount to the firm for the purpose of producing and selling the goods. The amount invested in order to earn an income is known as capital. Capital may be classified as fixed capital and working capital.

Capital is the Liability of the business to its proprietor, because as and when the owner claims, firm is liable to repay the money to its owner.


It refers to any amount which a business firm has to pay legally to outsiders. All dues to others including proprietor’s capital are said to be liabilities.


Anything possessed by the firm which is of certain monetary value is called Asset. In other words, assets refer to tangible object and an intangible right of an enterprise, which carries probable future benefits. It may be classified as current assets and fixed assets.


Income is a flow of benefit to the enterprise arising out of resources controlled by it. The definition of income consists of both revenue and gain. Revenue arises in the course of ordinary activities of an enterprise. In manufacturing or trading enterprises revenues arise mainly from the sale of goods.

Example : Sales, dividend received, interest received, etc.


It means an amount spent on any item by the proprietor to acquire benefit out of it. The expenses are classified into Capital Expenditure and Revenue Expenditure. Capital expenditure refers to any amount spent to increase the earning capacity of the business or acquisition of asset.

Revenue expenditure refers to the amount spent for the purpose of acquiring benefit for the particular year alone.

Example: Payment of salaries, rent, etc.


Buying of goods by the trader for selling them to his customers is known as purchases. Purchases may be cash purchases and credit purchases.

For example: Ramu purchases goods of Rs. 85,000/-.

Purchase Returns

Purchase returns mean a firm or buyer returns to the vendor the goods purchased due to defective parts or product.


Exchange of goods for money is called sales. Simply sales means goods sent out from the organization to its customers. Sales can be cash sales and credit sales. For Example : Sale of finished goods to Murali Rs.  60,000/-.

Sales Returns

When a customer returns some of the purchased goods (due to some reasons) to the firm it is called sales returns.

For Example: Murali returns goods worth Rs. 5,000/-.


Creditor is a person who supplies finance or goods to others i.e., he has to get money from others. Suppose more than one person are supplying finance or goods to others. It means the consolidated names of suppliers is called creditor. The creditors are shown as liability in the balance sheet. 


Debtor is a person who owes money to others because he has purchased the goods or has got finance from others. Simply debtor is one who has to pay money to others. The Debtors are shown on the Asset side of the Balance sheet.


The things which a trader sells or purchases are called goods.


It refers to the withdrawals of money or money’s worth (goods) by the proprietor from his business for his personal use.

Journal Entry

Journal Entry means particular transactions are to be split into two parts i.e., debit and credit based upon the accounting rules.


A ledger refers to a summary statement of all the transactions relating to a person, asset, expense or income which have taken place during a given period of time and show their net effect.


While making a sale, the seller prepares a statement giving the particulars such as quantity, price per unit, the total amount payable, any deductions made and shows the net amount payable by the buyer. This type of statement is called an invoice.