BASIC CONCEPT OF ACCOUNTING

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BASIC CONCEPT OF ACCOUNTING

🔹 1. Accounting

Meaning:
Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions.

Example:
If a shopkeeper buys goods, sells them, pays rent, and earns profit—he records all these activities in accounting.

🔹 2. Business Transaction

Meaning:
Any exchange of money or value between two parties.

Example:
You buy a laptop for ₹30,000 → This is a business transaction.

🔹 3. Purchase

Meaning:
Buying goods for business.

Example:
A shop buys 50 shirts from a supplier → This is a purchase.

🔹 4. Sales

Meaning:
Selling goods to customers.

Example:
The shop sells 10 shirts to customers → This is sales.

🔹 5. Purchase Return

Meaning:
Returning goods to the supplier.

Example:
Out of 50 shirts, 5 are defective → Returned to supplier.

🔹 6. Sales Return

Meaning:
Customer returns goods to the business.

Example:
Customer returns 1 shirt due to size issue.

🔹 7. Assets

Meaning:
Things owned by the business used for operations.

Example:
Cash, furniture, computer, building.

🔹 8. Liabilities

Meaning:
Amounts the business has to pay to others.

Example:
Loan from bank, unpaid bills.

🔹 9. Capital

Meaning:
Money invested by the owner.

Example:
Owner starts business with ₹1,00,000 → This is capital.

🔹 10. Debtors

Meaning:
People who owe money to the business.

Example:
You sold goods on credit → Customer will pay later → He is a debtor.

🔹 11. Creditors

Meaning:
People to whom business owes money.

Example:
You bought goods on credit → Supplier is creditor.

🔹 12. Debit (Dr.)

Meaning:
Receiving aspect of transaction.

Example:
You receive cash ₹5,000 → Debit Cash Account.

🔹 13. Credit (Cr.)

Meaning:
Giving aspect of transaction.

Example:
You pay ₹5,000 → Credit Cash Account.

🔹 14. Drawings

Meaning:
Money or goods taken by owner for personal use.

Example:
Owner takes ₹2,000 from business for home use.

🔹 15. Receipts

Meaning:
Proof of receiving money.

Example:
You pay fees and get receipt → It confirms payment.

🔹 16. Account

Meaning:
Record of all transactions related to a person or item.

Example:
Cash Account, Ram Account, Furniture Account.

🔹 17. Ledger

Meaning:
Book where all accounts are maintained.

Example:
All entries from journal are posted into ledger.

🔹 18. Journal Entries

Meaning:
Daily record of transactions.

Example:
Bought goods ₹10,000
👉 Purchase A/c Dr. 10,000
👉 To Cash A/c 10,000

🔹 19. Trial Balance

Meaning:
Statement to check accuracy of accounts.

Example:
Total Debit = Total Credit → Accounts are correct.

🔹 20. Profit

Meaning:
Income > Expenses

Example:
Sales ₹50,000 – Expenses ₹30,000 = Profit ₹20,000

🔹 21. Profit & Loss Account

Meaning:
Shows actual profit or loss.

Example:
All income and expenses are recorded here.

🔹 22. Balance Sheet

Meaning:
Shows financial position (Assets & Liabilities).

Example:
Assets = ₹1,50,000
Liabilities = ₹50,000

Capital = ₹1,00,000 

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