ACCOUNTING TERMS AND FINACIAL STATEMENT

BILLS RECEIVABLE BILLS PAYABLE

Bills receivable are amounts owed to a business by its Bills payable are amounts a company owes to its
customers for goods or services sold on credit. They suppliers or creditors for goods and services
represent a claim for payment that the company purchased on credit.
expects to collect in the future.

 Considered an asset on the balance sheet.  Consider as a current liability on the balance
 Reflects the company’s expected future cash sheet if due within one year.
inflows.  Reflects the company’s expected future cash
 If amount not received from the customer outflows.
leads to bad debt  It represent payment of debt

DEBTORS CREDITORS

A debtor is someone who has borrowed money or A creditor is someone who provides goods, services,
received goods or services with a promise to pay later. or money with the expectation of being paid back.
It may individual debtor or business debtor It may secured creditors and unsecured creditors

 Considered an asset on the balance sheet  Considered as liability on the balance sheet
because it is a future cash inflow. because it is a future cash outflow.
 If debtor cannot repay the debt it’s consider  Creditors have the right to receive repayment
as a bad debt. according to the terms agreed upon, including
 Debtors often incur debt through loans, credit interest and fees. They can take legal action if
cards, mortgages, or bonds. debts are not repaid.

CAPITAL DEPRECIATION

Capital refers to the amount invested by the The systematic allocation of the cost of a tangible
proprietor or owner in a business enterprise. asset over its useful life. It reflects the wear and tear
of the asset.
 It may cash or asset, goods.
Formula: (Cost of Asset - Salvage Value) / Useful Life
 Capital also known as owner equity or net
For example cost of asset 900000.00
asset. Salvage value 50000
 It consider as a liability on balance sheet Useful life 5 years

 Equity capital, Debt capital and working = 900000 – 50000

5
capital are the types of capital.
= 170000.00
 LEDGER JOURNAL ENTRY

A ledger is a comprehensive record that organizes all A journal entry is a fundamental component of the
financial transactions of a business in a systematic accounting process, Each entry provides a detailed
manner. account of the transaction, including the accounts
affected, the amounts debited and credited, and a
 Ledgers are typically divided into accounts. brief description.
 Each account within the ledger will have its
own separate page or section. Key components

For example : company sale its product for cash Rs 1 Date: The date the transaction occurred.
200
2. Accounts: The specific accounts affected by the
In double entry system transaction. Each entry will include at least one debit
account and one credit account.
Cash A/C Dr 200.00
To sales A/c 200.00 3. Debit and Credit Amounts: Each entry contain
debit and credit. The total debits must always equal
Here cash is under cash A/C
Sale is under sales A/c the total credits to maintain the accounting equation.

4. Description: A brief explanation of the transaction,

which helps clarify the nature of the entry for future
reference.

PROFIT AND LOSS ACCOUNT

TRADING ACCOUNT
A trading account is a financial statement of buying A Profit and Loss Account (also known as an
and selling of a goods for specific period. It focuses Income Statement) that summarizes a company's
on the direct costs and revenues associated with the revenues, costs, and expenses over a specific period
sale of goods, providing insights into the company's
gross profit. Key components

Key component : - Operating Expenses: rent, utilities, and depreciation.

1. Sales Revenue: Total income generated from the
sale of goods during the accounting period. This figure Operating Income (Operating Profit):
represents the top line of the trading account.
Other Income and Expenses: that are not directly
2.Cost of Goods Sold (COGS): including related to the core business activities like interest
received , interest paid , donation received
 Opening Inventory: The value of unsold inventory
at the beginning of the period. Income Tax Expense:
 Purchases: The total value of goods purchased
during the period.
 Closing Inventory: The value of unsold inventory at
the end of the period.

3. Gross Profit:
Gross Profit=Sales Revenue−COGS
 BALANCE SHEET 2) LAIBILITY

Liabilities represent what the company owes to

A financial statement that reports a company's assets,
liabilities, and equity, showing what the company external parties and are also divided into two main
owns and owes at a specific date. categories:

The balance sheet consists of three main Current Liabilities

components: assets, liabilities, and equity
These are obligations that the company expects to
1) ASSET: - . settle within one year. Examples include:
Assets represent what the company owns.  Accounts Payable: Money owed to suppliers
for goods and services received but not yet
paid.
Current Assets  Short-term Loans: Debt obligations due
within one year, including lines of credit.
These are assets expected to be converted into cash  Accrued Expenses: Expenses that have
or used up within one year. Examples include: been incurred but not yet paid (e.g., wages
payable, interest payable).
 Cash and Cash Equivalents: Money on  Current Portion of Long-term Debt: The
hand or in bank accounts, and short-term portion of long-term debt that is due within
investments. the next year.
 Accounts Receivable: Money owed to the  Unearned Revenue: Payments received in
company by customers for goods or services advance for goods or services to be delivered
delivered. in the future.
 Inventory: Goods available for sale or raw
materials used in production. Long-Term Liabilities
 Prepaid Expenses: Payments made for
expenses that will be incurred in the future These are obligations that extend beyond one year.
(e.g., insurance premiums).
Examples include:
 Short-term Investments: Investments that
can be easily converted into cash within one
 Long-term Debt: Loans and bonds that are
year.
not due within the next year.
 Deferred Tax Liabilities: Taxes that are
Non-Current Assets: - These are long-term owed but will not be paid until a future period.
investments and assets that are not expected to be  Pension Liabilities: Obligations to pay
liquidated within one year. Examples include: employee pensions.

 Property, Plant, and Equipment (PP&E): 3). EQUITY

Tangible fixed assets like land, buildings,
machinery, and vehicles. Equity represents the residual interest in the assets of
 Intangible Assets: Non-physical assets such the company after deducting liabilities. It reflects the
as patents, trademarks, copyrights, and ownership stake of shareholders. Components
goodwill. include:
 Long-term Investments: Investments in
stocks, bonds, or other companies that are  Common Stock:
intended to be held for more than one year.  Preferred Stock:
 Deferred Tax Assets: Taxes that have been  Additional Paid-In Capital:
paid but are not yet recognized as expenses,  Retained Earnings:
which can reduce future tax liabilities.  Treasury Stock: