Learn CBSE Accountancy Index Terms for Class 11, Chapter 1 Introduction to Accounting
1. Accounting – Accounting can be defined as a process of reporting, recording, interpreting, and summarising economic data. The introduction of accounting helps a company’s decision-makers make adequate choices, by providing information on the financial status of the business.
The American Institute of Certified Public Accountants (AICPA) has defined accounting as the “Art of recording, classifying, and summarising in a significant manner and in terms of money, transactions, and events which are, in part at least, of financial character, and interpreting the results thereof”.
2. Economic Event – Economic event is a consequence that a company has to undergo when a number of monetary transactions are involved, such as purchasing new machinery, transportation, machine installation on-site, etc.
3. Organisation – Organisation refers to a collection of people who are working towards a common goal and objective. In other words, it can be said that an organisation is a place where people assemble together and perform different sets of duties and responsibilities toward fulfilling the organisational goals.
4. Financial Accounting – Financial accounting is that branch of accounting that involves identifying, measuring, recording, classifying, and summarising the business transactions, i.e. it involves the steps from identifying, recording transactions to summarisation, and communicating the financial data.
5. Cost Accounting – Cost accounting is referred to as a form of managerial accounting that is used by businesses to classify, summarise and analyse the different costs with the purpose of cost control and cost reduction and thereby helping management in making better decisions.
The primary function of cost accounting is said to be arranging, recording, and identifying suitable investment allocation for investment to determine the costs of goods and services. It also helps in presenting relevant data to the management related to service, contract, or finding shipment costs.
It also includes information related to the cost of production, distribution, and selling.
6. Management Accounting – Management accounting refers to that branch of accounting that is concerned with presenting the accounting information in such a way that helps the management in planning and controlling the operations of a business and in decision-making.
7. Entity – A business entity states that the business and the owner are two separate entities and therefore, should be considered separate from each other. The financial transactions pertaining to the business entity should be recorded separately from the business owners’ transactions.
This concept is also known as the ‘Economic Entity Concept’, which means that the owner of the business and the business itself are considered two separate entities.
Therefore, any transactions or events that impact the business will be recorded and events that impact any other entities apart from the business will be considered as irrelevant and not be entertained.
8. Transaction – A business transaction is a monetary occasion with an outsider or third party that is recorded in an association’s accounting framework. Examples of transactions are purchasing stock from a provider, offering products to a client for cash, and buying an insurance plan from an insurer.
9. Assets – The economic value of an item that is possessed by the enterprise is referred to as ‘Assets’. To put it in other words, assets are those items that can be transformed into cash or that generate income for the enterprise shortly. It is useful in paying any expenses of the business entity or debt.
10. Liability – The economic value of an obligation or debt that is payable by the enterprise to another establishment or individual is referred to as liability. To put it in other words, liabilities are the obligations that are rising out of previous transactions, which are payable by the enterprise, through the assets possessed by the enterprise.
11. Capital – The term ‘Capital’ concerns any monetary assets or resources claimed by a business that is valuable in developing the business, paving the way for growth, and increasing the rate of return. Capital can likewise address the accumulated capital of business assets subtracting from its liabilities.
12. Sales – Sales refer to the exchange of goods and services in return for money. It is a process to transfer goods from manufacturer to distributor, distributor to wholesaler, wholesaler to retailer, and retailer to consumer. The primary object of sales is to increase revenue.
13. Revenue – Revenue is the earnings that an enterprise has from its normal business pursuits, usually from the sale of commodities, and services to consumers. Revenue is also mentioned and referred to as turnover or sales. A few companies get revenue from royalties, other fees, or interests.
An enterprise believes that it can sell as many quantities of the commodity as it requires by setting a cost price less than or equivalent to the market cost price. In such a case, there is no logic to set a cost price lower than the market cost price. In other words, the enterprise should sell some amount of the commodity so that the cost price it sets is exactly equivalent to the market cost price.
14. Profit – Profit is the gain from any business activity. Whenever a business sells a product, its motive is to gain some benefit from the buyer in the name of profit. Basically, when they sell the product for more than its cost price, then they get a profit on it but if they have to sell it for less than its cost price, then they have to suffer a loss. The concept of profit and loss is basically defined in terms of business. Any financial benefit gained in business goes to the owner of the business.
15. Gain – Gain is a profit that arises from events or transactions which are incidental to business such as the sale of fixed assets, winning a court case, or appreciation in the value of an asset.
16. Loss – The amount the seller incurs after selling the product less than its cost price is mentioned as a loss.
17. Owner’s Equity – Owner’s equity is referred to as the rights of the owners in the assets of the business. The term owner’s equity is most appropriately used in the case of sole proprietorship business, but it can be known as stockholders equity or shareholders equity in case the business is structured as an LLC or a corporation.
18. Discount – Discount refers to the condition of the price of a product or service that is lower than the face value. The discount equals the difference between the price paid for and its par value. A discount is a kind of reduction or deduction in the cost price of a product. It is mostly used in consumer transactions, where people are provided with discounts on various products. The discount rate is given in percentages.
19. Voucher – A voucher is a document that shows the details of a transaction for any goods that have been purchased or any service that has been rendered. It can be said to be a written document that supports the entries made in the record books that helps in verifying the accuracy of the transactions.
A voucher is an internal document that a company uses as supporting evidence for accounting entries. Businesses treat it as a redeemable transaction bond as it has a monetary value and is helpful in specific cases.
20. Goods – Goods are any item that provides utility and fulfils the needs of the consumer. Goods can be classified as durable and non-durable based on their durability. Durable goods last for a long time while non-durable goods perish sooner than durable goods.
Goods involve the transfer of ownership from the seller once it is purchased by the consumer (buyer). There is a certain time period that is required for the production of goods. Goods due to their tangible nature have a proper structure, size, and shape. They can be produced as per the market demand.
21. Drawings – Any sum of money that is drawn out of a business for personal use is called drawings. The assets decrease to the amount of withdrawal from the owner’s account. Drawings need not always be in the form of money, they can be goods and services that are provided by the business.
23. Purchases – Purchase is the activity of buying an item to either use it in the production of goods and services or resell it to another entity. A purchase account is one where a business invests huge capital to possess certain assets. These assets are bought at a predetermined price for the exchange of goods.
24. Stock – A stock is a financial instrument that represents the part ownership of a company. Organisations use this instrument to raise capital for their business. Stock is a type of investment that is done by individuals and businesses when they invest their money in business ventures in order to get a higher return on their investment. When stock is bought, it means that an individual possessing that stock is possessing a part of the company whose stock was purchased. In simple words, purchasing a stock of a company will make the purchaser an owner of a part of that company.
25. Debtors – A debtor is an individual or entity that owes money to a business. Companies treat it as an asset because they will get money from them in the near or distant future.
26. Creditors – A creditor is an individual or entity to whom a business owes money. Companies treat it as a liability because they will have to pay them in the near or distant future.
27. Current Assets – A current asset is an asset that a company holds and can be easily sold or consumed and further lead to the conversion of liquid cash. For a company, a current asset is an important factor as it gives them a space to use the money on a day-to-day basis and clear the current business expenses. In other words, the meaning of current assets can be explained as an asset that is expected to last only for a year or less is considered as current assets.
In other words, An asset is referred to be a current asset when it is expected to be realised or planned to be sold or utilised within 1 year or the enterprise’s standard operating period. Enterprises hold the current assets in the form of cash or their regeneration into cash or for utilising it by furnishing goods and services.
28. Non-current Assets – A non-current asset is an asset that the company acquires or invests in, but the value of that investment does not recur within an accounting year. These types of investments last for long and cannot be easily liquidated into cash and can generate economic benefits to the company for more than a year.
In other words, the company capitalises the cost of the assets or investment for a long time or many years, rather than evaluating it within the year of purchase of the asset.
29. Expenses – Expenses in accounting refer to the cost incurred or money the business owners spend to generate revenue. A business must keep its expenses under control to generate profits both in the short and long run.
30. Expenditure – A business incurs Capital Expenditure to acquire assets for long-term income generation. It also incurs Revenue Expenditure to run the day-to-day operations of a business.
31. Income – Income is the revenue that a business earns from the sale of its goods or services. It is essential for the survival and growth of any enterprise, and the failure to generate revenue can lead to a shutdown of the business.
32. Revenue Expenditure – Revenue expenditure is referred to as the expenditure incurred by an organisation to manage the day-to-day functions of a business, which include employee wages, inventory, rent, electricity, insurance, stationery, postage, and taxes.
These are the expenditures that neither help in the creation of assets nor in reducing the liabilities of a business. It is recurring in nature and very essential to maintain the daily operations of a business or an organisation.
33. Capital Expenditure – The expenditures that are incurred by an organisation for long-term benefits are known as capital expenditures. These expenditures serve the purpose of increasing the capacity or capabilities of the long-term asset by either enhancing or adding new assets to the organisation.
These expenditures are added to the asset side of the balance sheet. It is done mostly on assets such as land, equipment, furnishings, or vehicles that help to drive benefits for the organisation by increasing the operating capability.
34. Fixed Assets – Fixed assets are long-term tangible assets that are used by businesses in generating income. Fixed assets provide the firm with long-term financial gain as they have a useful life of more than one year. Fixed assets are also known as capital assets and are denoted by the terms Property, Plant, and Equipment in the balance sheet. Fixed assets cannot be easily converted into cash.
35. Current Liabilities – Current liabilities are an enterprise’s obligations or debts that are due within a year or within the normal functioning cycle. Moreover, current liabilities are settled by the use of a current asset, either by creating a new current liability or cash.
36. Accounts Payable – Accounts payable (AP), sometimes referred to as ‘Payables,’ are an organisation’s continuous costs or ongoing expenses that are commonly transient or short-term obligations, which should be paid off in a predetermined period to stay away from default. Default is the inability to reimburse an obligation or repayment of a debt.
37. Accrued Expenses – Accrued expenses, additionally called accrued liabilities, are payments that an organisation is committed to paying in the future for which products and services have effectively been conveyed. These types of costs are acknowledged on the balance sheet and are generally recorded under the head of current liabilities. Accrued liabilities are changed and perceived on the balance sheet toward the finish of each bookkeeping period; changes are utilised to archive products and services that have been conveyed yet not charged.
38. Prepaid Expenses – Prepaid expenses are referred to as those expenses or expenditures that are not recorded in the company accounts as an expense, but the price for the same has been paid in advance. In other words, it is a kind of future expense for which a company has paid in advance.
We hope that the offered Accountancy Index Terms for Class 11 with respect to Chapter 1: Introduction to Accounting, will help you.
Related Links:
- Class 11 Accountancy Terms Part I – Chapter 1: Introduction to Accounting
- Class 11 Accountancy Terms Part I – Chapter 2: Theory Base of Accounting
- Class 11 Accountancy Terms Part I – Chapter 3: Recording of transactions – I
- Class 11 Accountancy Terms Part I – Chapter 4: Recording of Transactions – II
- Class 11 Accountancy Terms Part I – Chapter 5: Bank Reconciliation Statement
- Class 11 Accountancy Terms Part I – Chapter 6: Trial Balance and Rectification of Errors
- Class 11 Accountancy Terms Part I – Chapter 7: Depreciations, Provisions, and Reserves
- Class 11 Accountancy Terms Part II – Chapter 1: Financial Statements I
- Class 11 Accountancy Terms Part II – Chapter 2: Financial Statements II
- Class 11 Accountancy Terms Part II – Chapter 3: Accounts from Incomplete Records
- Class 11 Accountancy Terms Part II – Chapter 4: Applications of Computers in Accounting
