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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