Basic Accounting terms:Income & Expenses

  • Accounting terminology is the language of accounts which serve as a means of communication of business activities to the users.
  • Income refers to the profit earned during a period. In other words, income is the difference between revenue and expense.
  • Expense is the cost of use of things or services for the purpose of generating revenue. It includes direct and indirect expenses.
  • Profit is the excess of total revenue of a period over total expenses during an accounting year.
  • Gain is the profit that arises from transactions which are incidental to business such as profit on sale of fixed assets or investments at more than their book values.
  • Loss is the excess of total expenses over total revenues of a business enterprise for an accounting period.
  • Purchases is used for goods to be dealt-in i.e. goods are purchased for resale or for producing the finished products which are meant for sale.
  • When purchased goods are returned to the suppliers these are known as Purchases return.
  • Sales refer to transfer of ownership of goods or services to customers for a price.
  • Goods sold when returned by the purchaser or customers are termed as Sales Return.
  • Receipts refer to the amounts received or receivable for selling assets, goods or services.
  • Revenue Receipts are the amounts received or receivable in the normal course of business i.e. through sale of goods and rendering of services.
  • Capital Receipts are the amounts received or receivable against transactions which are not revenue in nature. For example amount received or receivable from sale of old machinery.
  • Capital Expenditure is an expenditure incurred to acquire assets or improving the existing assets which will increase the earning capacity of the business.
  • Revenue Expenditure is the expenditure incurred, the benefit of which is consumed within the accounting period.
  • Deferred Revenue Expenditure is the expenditure which is revenue in nature but the benefit of which is likely to be derived over a number of years.
  • Other important accounting terms include bad debts, solvent, insolvent, discount, trade discount, cash discount, account, etc.

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  • Q1

    Gain may be defined as the

    Marks:1
    Answer:

    Benefit from non recurring transactions.

    Explanation:

    Gain is the increase in owner's equity resulting from something other than the day to day earning from irregular or non0recurring nature. such as the sale of fixed assets appreciation in the value of assets etc.

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  • Q2

    An asset consumed during an accounting period is treated as

    Marks:1
    Answer:

    Amount spent by a business.

    Explanation:
    Costs incurred by a business in the process of earning revenue are known as expenses. Generally, expenses are measured by the cost of assets consumed or services used during an accounting period.
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  • Q3

    Revenue can be stated as

    Marks:1
    Answer:

    Amount received by a business from sale.

    Explanation:

    Amounts of the business earned by selling its products or providing services to customers called sales revenue.

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  • Q4

    Profit may be defined as

    Marks:1
    Answer:

    Excess of revenue over expense.

    Explanation:

    The excess of total revenues over total expenses of a business enterprise for an accounting period. Profit increases the investment of the owners.

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  • Q5

    Define Profit.

    Marks:1
    Answer:

    Profit is the excess of revenues over expenses during an accounting period.

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