BUSINESS

Any activity undertaken with the intention to make profit, but result can be profit or loss

FORMS OF BUSINESS

SOLE TRADER COMPANIES

PARTNERSHIP

SOLE TRADER

The simplest form of business owned and managed (operated) by one person (although there might be any
number of employees). The sole trader and their business are legally the same entity and therefore the sole
trader is fully and personally liable for any losses of the business.

E.g., Small retailer, Painter, Decorator, Fruit shop, etc

ADVANTAGES OF SOLE TRADER

 Limited paperwork and therefore less cost in establishing this type of structure
 Owner has complete control over the business
 Owner is entitled to profits and ownership of assets
 Less stringent reporting obligation compared with the other business structure
 No requirement to make financial accounts publicly available, no audit requirement
 Can be highly flexible

DISADVANTAGES OF SOLE TRADER

 Owner is personally liable for all debts (unlimited liability)

 Personal property may be vulnerable for debts and other business liabilities
 Large sums of capital are less likely to be available to a sole trader, leading to reliance on overdrafts
and personal savings
 May lead to long working hours without normal employee recreation leave and other benefits
 May be issue of continuity of business in the event of death or illness of the owner

PARTNERSHIP

Partnership occurs when two or more people decide to run a business together. Some or all of them will be
actively involved in the business. Partners share profits and losses in accordance with their agreement.

E.g. Medical practice, Accounting firms, Solicitors, Estate agents etc.

ADVANTAGES OF PARTNERSHIP

 Less stringent reporting obligation, no requirement to make financial accounts publicly available, no
audit requirement
 Additional capital can be raised because more people are investing in the business

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  Division of roles and responsibilities and an increased skill set
 Sharing of risk and losses between more people, no company tax on the business

DISADVANTAGES OF PARTNERSHIP

 Partners are jointly personally liable for all debts (unlimited liability)
 There are costs associated with setting up partnership agreement
 There may be issues of continuity of business n the event of death or illness of the partners
 Slower decision making due to the need for consensus between partners
 Unless a clause is written into the original agreement, when one partner leaves, the partnership is
automatically dissolved and another agreement is required between existing partners

COMPANIES

Company is a business owned by many people and operated be many (though not necessarily the same)
people. Companies are more complex and owned by shareholders or members.

TYPES OF COMPANIES

PUBLIC LIMITED PRIVATE LIMITED

(Share issue to anyone) (Share issue to friends & family)

A company is a legal entity in its own right and therefore the shareholders have only limited liability for any
losses a company makes.

ADVANTAGES OF COMPANIES

 Limited liability makes investment less risky than being a sole trader or investing in a partnership
 Limited liability makes raising finance easier and there is no limit on the number of shareholders
 A limited liability company has a separate legal entity form its shareholders. So a company continues
to exist regardless of the identity of the owners
 There are tax advantages to being a limited liability company. The company is taxed as a separate
entity from its owners and the tax rate on companies may be lower than the tax rate for individuals
 It is relatively easy to transfer shares from one owner to another. In contrast, it may be difficult to
find someone to buy a sole trader’s business or to buy a share in a partnership

DISADVANTAGES OF COMPANIES

 Limited Liability Company has to publish annual financial statements. This means that anyone can
see how well or badly they are performing
 Limited liability company financial statements have to comply with legal accounting requirements
(Follow accounting standards)
 The financial statements of larger limited liability company have to be audited. This can be
inconvenient, time consuming and expensive

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  Shares issues are regulated by law. It is difficult to reduce share capital

KINDS OF BUSINESS LINES

MANUFACTURING RETAIL SERVICES HYBRID

BUSINESS BUSINESS BUSINESS BUSINESS

MANUFACTURING BUSINESS
Making profits through production or creation of goods from raw material in such a way that it derives some
utility to the consumer is known as a manufacturing business.

E.g. Processing of sugarcane in a sugar mill to get fine sugar

RETAIL BUSINESS
Retail business means procurement of goods from manufacturer or wholesalers at a low price and selling it
at higher price to make a profit. It is also known as a merchandising.

E.g. A florist selling flowers

SERVICE BUSINESS
An activity performed to earn money through customer satisfaction is known as a service. It involves
professional skills and expertise.

E.g. A professional teacher earns money by taking tuition classes

HYBRID BUSINESS
A business which involves all the three activities, i.e manufacturing of goods, merchandising of goods or
products and delivering service falls under the hybrid category.

E.g. A furniture seller, who manufactures furniture, buys old furniture and sells it at a higher price after
repairing and also provides services for polishing old furniture.

ORGANIZATION
An organization is a place, where people are working together to achieve a common goal. It is called an
organization.

CLASSIFICATION OF ORGANIZATION MOTIVE

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 PROFIT ORIENTED NON-PROFIT ORIENTED
ORGANIZATION ORGANIZATION

PROFIT ORIENTED ORGANIZATION

A legal entity, which operates for earning profit for the owner, is known as for-profit or profit organization

NON-PROFIT ORIENTED ORGANIZATION

A non-profit organization is a legal entity, which operates for serving the society as a whole

COMPARISON CHART
SERIAL BASIS FOR PROFIT ORIENTED NON-PROFIT ORIENTED
NO COMPARISON ORGANIZATON ORGANIZATION
1. Motive Profit motive Service motive
2. Form of Sole proprietorship, partnership Club, trust, public hospitals,
organization & company societies etc
3. Management Sole proprietor, partners and Trustee, committees and governing
directors of the company bodies
4. Source of revenue Sale of goods/products Donation, subscription,
and services membership fee etc
5. Commenced Capital contributed Funds from donations,
through by the owners subscriptions, governments grants
etc
6. Income statement, statement Receipts & payment A/c, income &
Financial of financial position, cash flow expenditure A/c and statement of
statements statement financial position
7. Money earned over Profit is transferred to capital Surplus is transferred to
& above account capital fund

WHAT IS AN EVENT
In ordinary language “Event” means anything that happen. Human life is full of events. So many events take
place in the family and social life of a person.

CLASSIFICATIONS OF EVENTS

MONETARY EVENTS NON-MONETARY EVENTS

MONETARY EVENTS

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Events which are related with money, i.e which change the financial position of a person are known as
“Monetary Events”.

E.g. Daily shopping, Marriage ceremony, Birthday event, Marriage anniversary, Buying & selling of goods etc.

NON-MONETARY EVENTS

Events which are not related with, i.e which do not change the financial position of a person are known as
“Non-monetary events”.

E.g. Winning a game, Delivering a lecture in a meeting etc

TYPES OF EVENTS HAPPEN

INTERNAL EVENTS EXTERNAL EVENTS

Any event happen inside Any event happen

the business is called outside the business is
internal event. called external event.

E.g. Loss of furniture by

fire, Decrease in the E.g. Purchase of furniture
value of car due to wear from Mr.A
and tear

HOW AN EVENT BECOME TRANSACTION

To become a transaction an event must have the following features.

1) MUST BE TWO PARTIES

No transaction is possible without two parties. So it takes two parties for a transaction to take place. There
cannot be a giver unless there is a receiver. E.g. Mr.Ahmad borrows Rs. 50,000 from a bank. This is a
transaction because there are two parties here Mr.Ahmad and Bank.

2) MEASUREABLE IN TERMS OF MONEY

An event will not be considered as a transaction, unless it is capable of being measured in terms of money.

3) TRANSFER OF PROPERTY, GOODS OR SERVICES

An event will not be considered as a transaction, unless property, goods or services will not transfer as a
result of event happen. E.g. Buy a motor car from Mr.Raheel for Rs 800,000. This result in transfer of
property from Mr.Raheel to us.
We pay salary to our employees Rs 450,000. This result in transfer of service, the employees renders us
services and we pay them for their services.

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 4) CHANGE THE FINANCIAL POSITION OF BUSINESS
Transaction takes place only when there is a change in the financial position of the business

QUANTITATIVE CHANGE QUALITATIVE CHANGE

BUSINESS TRANSACTION

A business event which can be measured in terms of money and which must be recorded in books of
accounts is called “Transaction”.

(OR)

A transaction is an exchange of interest between two persons or parties.

(OR)

If the financial position of a business changes on the happening of an event which is measurable in terms of
money, that event is regarded as a “Transaction” in accounting.

CLASSIFICATION OF TRANSACTIONS

INTERNAL TRANSACTION EXTERNAL TRANSACTION

INTERNAL TRANSACTION

A transaction with which no outside person or institution is involved is called internal transaction. E.g. Loss
of furniture by fire, Decrease in the value of assets on account of use (Depreciation) etc.

EXTERNAL TRANSACTION

A transaction taking place with an outside person or organization is called an external transaction. E.g. A
motor vehicle is purchase for Rs 100,000 from Pak motors. This is an external transaction.

NATURE OF TRANSACTION

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 CASH TRANSACTION PAPER TRANSACTION

CREDIT TRANSACTION

1) CASH TRANSACTION

If the value of a transaction is met in cash immediately, it is called cash transaction. E.g. we buy furniture for
Rs 150,000 from National furniture mart and immediately pay them in cash. It is a cash transaction.

2) CREDIT TRANSACTION

If the value of a transaction is not met in cash immediately, it is called credit transaction. E.g. Business buys
goods for resale and payment is made after one month. It is a credit transaction.

3) PAPER TRANSACTION

When there is no question of meeting the value of a transaction, it is regarded as a paper transaction. E.g. I
have lost Rs 50,000. This changes my financial position. My cash decrease by Rs 50,000 which actually
changes financial position. But there is no question of meeting the value of such a transaction. It is called
paper transaction.

ACCOUNTING (A BUSINESS LANGUAGE)

Accounting is a language, a system that communicates information. It is often referred to as the language of
the business.

DEFINITIONS OF ACCOUNTING

Many authors have defined the term “Accounting” in different ways. Several possible accounting definitions
are given below:

1) “The act of collecting, processing, reporting, analyzing, interpreting and projecting financial
information’s”.
2) “The system of providing quantified information about an organization to people who need such
information’s”
3) “The process of identifying, measuring and communicating economic information’s to permit
informed judgments and decisions by users of the information’s”.

The most accepted Accounting definition is given by the American Institute of Certified Public Accountants
Committee.

4) “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms
of money, transaction and events, which are, in part at least, of a financial character and interpreting
the result thereof”.

ACCOUNTING VS ACCOUNTANCY

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The two words “Accounting” and “Accountancy” are often used to mean the same thing. But it is not correct.
Accountancy is the main subject; however accounting is one of its branches. The word “Accountancy” is far
extensive; i.e the scope of Accountancy is far wide and extensive compared to Accounting. Accountancy
covers the entire body of theory and practice, e.g. Book-keeping, Accounting, Costing, Auditing, Taxation etc

OVERVIEW OF ACCOUNTING
There is a flow diagram to understand the view of accounting

ACCOUNTING CONSIST
OF TWO ELEMENTS

RECORDING SUMMARIZING

Transactions must be The transactions for a

recorded as they occur period are summarized in
in order to provide up order to provide MANAGEMENT
to date information for information about the ACCOUNTS
management company to interested
parties

FINANCIAL STATEMENTS

STATEMENT OF STATEMENT OF CASH

PROFIT &LOSS / FLOWS
COMPERHANSIVE
INCOME

STATEMENT OF STATEMENT OF
FINANCIAL POSITION NOTES TO THE CHANGES IN EQUITY
ACCOUNTS

OBJECTIVES OF ACCOUNTING

 Financial information is necessary in order to run a business in an efficient manner. Reliable

information will be available only through keeping proper books of accounts.

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  Proper accounting is essential, if money is to be borrowed for the purpose of business. The lender
will only agree to lend money when he is satisfied as to the solvency of the borrower. Information
available from books of accounts is the means of measuring such solvency.
 Cash in hand can be verified and any defalcation can be detected, if proper books of accounts are
maintained.
 Payment of income tax and sale tax is only possible, if books of accounts are maintained.
 In case of any dispute, books of account can be produced in the court of law as documentary
evidence.
 Government fixes up fair prices, formulates industrial policy, prepares economic plans, decides
import and export quotas and does many other functions on the basis of accounting information
available from books of accounts.
 To facilitate rational decision making to management and user of financial information.
 To ascertain the financial position of the business.

TYPES OF ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

 Production of summary financial  Preparation of accounting reports for

statements/accounting reports for internal users E.g. Management,
external users. Employees.
 Prepared annually,(six-monthly or  Production of detail accounts, used by
quarterly in some countries). management to control the business and
 Generally required by law. plan for the future.
 Reflects past performance and current  Normally prepared on monthly basis.
position.  Not mandatory by law.
 Information is calculated and  Includes budget and forecast of future
presented in accordance with (IAS or activities as well as reflecting past
IFRS) performance.

FINANCIAL ACCOUNTING

Financial accounting is mainly a method of reporting the financial performance and financial position of a
business. Financial accounting provides historical information.

MANAGEMENT ACCOUNTING

Management accounting is an integral part of management activity concerned with identifying, presenting
and interpreting information used for:

 Formulating strategy
 Planning and controlling activities
 Decision making
 Optimizing the use of resources

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 USERS OF FINANCIAL STATEMENTS AND ACCOUNTING INFORMATION

There are various groups of people who need information about the activities of a business.

OWNER OF THE BUSINESS

Owners of the business are interested in their current and future profits and security of their investment.
Profits and shown by statement of profit or loss and other comprehensive income and financial strength is
shown by the statement of the financial position.

MANAGERS OF THE BUSINESS

Managers need information about the business financial situation as it is currently and as it is expected to be
in the future. This is to enable them to manage the business efficiently and to make effective decisions.

TRADE RECEIVABLES OR CUSTOMERS

They need to know if the business will continue to supply them in future.

TRADE PAYABLE OR SUPPLIERS

Trade payable or suppliers need to know that they will be regularly

LENDERS

They need to know the ability of business to repay them. Long term loans may also be backed by “Security”
given by business over specific assets. The value of these assets will be indicated in the statement of financial
position.

GOVERNAMENT (TAX AUTHORITIES)

Information is needed to make financial policies for economy and calculation of tax payable by a business

EMPLOYEES

They need to know the financial position and performance of a business to check the security of their
employment. It also gives them information about their future salaries, bonuses and benefits.

PUBLIC

They want to access the effect of business on economy, environment and local community.

FINANCIAL ANALYSTS OR ADVISORS

They need information for their clients or audience. E.g. Stockbrokers need information to advice investors.
Credit agencies want information to advise potential suppliers of goods to the company.

COMPETITORS

Competitors may also access publicly available information to assist decision making in relation to their own
business activities.

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 BASIC KEY ELEMENTS OF ACCOUNTING

ASSETS LIABILITIIES EXPENSES INCOMES

1) ASSETS

Assets are things of value owned by a business to earn income and profit. A business gets economic benefits
out of these items.

(ASSET DEFINATION AS PER IAS 1)

“An asset is a resource controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise.”

CLASSIFICATION OF ASSETS

PHYSICAL EXISTENCE CONVERTABILITY USAGE

CLASSIFICATION BY PHYSICAL EXISTENCE

Classifying assets based on their physical existence

(TANGIBLE ASSETS) (INTANGIBLE ASSETS)

TANGIBLE ASSETS

Tangible assets are the assets with physical existence. We can touch, feel and see them.

EAMAMPLES

Land Building
Machinery Furniture & Fittings
Equipments Motor vehicles
Plant and machinery Office supplies
Computers Inventories
Cash Bank
Debtors or Account Receivables Prepayments

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 INTANGIBLE ASSETS

Intangible assets are assets that lack of physical existence. We cannot touch, feel and see them.

EXAMPLES

Goodwill Patents
Brands Copyrights
Trademark Logos
Software Trade secrets
Trade names Design
Franchise Lease agreements

CLASSIFICATION BY CONVERTIBILITY

If assets are classified based on their convertibility into cash

CURRENT ASSETS NON-CURRENT ASSETS

OR OR
LIQUID ASSETS
FIXED ASSETS
OR
OR
SHORT-TERM ASSETS
LONG-TERM ASSETS

CURRENT ASSETS

Current assets are assets that can be easily converted into cash and cash equivalents. (Typically within a year)

EXAMPLES

Cash Cash equivalent

Bank Short-term deposits

Short-term investments Debtors or Account receivables

Inventories Prepaid expenditures

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NON-CURRENT ASSETS

The assets that are expected t be used by a business for more than a year. Non-current assets are assets that
cannot be easily and readily converted into cash and cash equivalents. They bought with the intention of use
rather than resale.

EXAMPLES

Land Building

Machinery Equipments

Furniture & Fixture Motor vehicle

Plants Goodwill

Trademarks Patents

Software Copyrights

CLASSIFICATION BY USAGE

If assets are classified based on their usage or purpose

OPERATING ASSETS NON-OPERATING ASSETS

OPERATING ASSETS

Operating assets are that are required in the daily operation of a business. In other words, operating assets
are used to generate revenue from company core business activities.

EXAMPLES

Cash Cash equivalents

Debtors or Account receivables Bank
Inventory Equipments
Building Machinery
Furniture & Fixture Motor vehicle
Plant goodwill
Trade marks Copyrights
NON-OPERATING ASSETS

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Non-operating assets are assets that are not required for daily business operations but can still generate
revenue for the business.

EXAMPLES

Short-term investments Marketable securities

Vacant Land Interest on fixed deposits

2) LIABILITIES
A liability is the money owed by the business for resources supplied by people or organizations other than
the owner.

(LIABILITY DEFINATION AS PER IAS 1)

“A liability is a present obligation arising from past event, the settlement of which is expected to result in an
outflow of economic benefits”.

TYPES OF LIABILITIES

CURRENT LIABILITY NON-CURRENT LIABILITY CONTIGENT LIABILITY

OR OR

SHORT-TERM LIABILITY LONG-TERM LIABILITY

CURRENT LIABILITIES

Current liabilities are those liabilities which are normally due and payable within a year. Another word for
these liabilities is short-term-liabilities as they become due within a shorter period. (Within one year)

EXAMPLES

Creditors or Account payable Interest payable

Salaries payable Wages payable
Bank overdraft Sales tax payable
Income tax payable Accrued expenses
Commission payable Unclaimed dividend
Short-term loans Interest on loan payable
Rent payable Provisions
Bills payable Credit card debt
LONG TERM LIABILITIES

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Long term liabilities are those liabilities which are payable in more than twelve months time or due after one
year or more.

EXAMPLES

Long-term loans Deferred tax liability

Mortgage liability Interest (if payable on maturity)
Long-term bank loans Debentures
Lease payments Pension obligation
Car loans Borrowing for more than one year

CONTINGENT LOANS

Contingent liabilities depends upon the outcome of a future event occurring or not; these potential liabilities
that may or may not become real.

EXAMPLES

Breach of contract Damage to the environment

Damage to the prestige of persons Damage to the prestige of an entity
An outcome of accident Lawsuit proceedings
Product warranty claims Guarantee for loans

3) EXPENSES
Expenses are decrease in economic benefits during the accounting period in form of outflow or depletion
(decrease in value) of assets or occurrence of liabilities. Expenses are cost of supply of goods or services. i.e.
cost of operating a business.

OR

An expense is the cost of operations that a company incurs to generate revenue. As the popular saying goes,
“it costs money to make money”

EXAMPLES

Salaries Wages
Marketing Advertising
Promotion Rent
Carriage Cartage
Octroi duty Freight expense
Interest expense Taxes
Depreciation Insurance
Selling & Distribution expenses Administration expenses
Repair Maintenance

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 Commission Electricity
Telephone Mobile
Water charges Gas bill
Loss by fire Impairment loss

DIFERENCE BETWEEN EXPENSE & EXPENDITURE

The key difference between an expense and expenditure is that an expense recognizes the consumption of a
cost, while expenditure represents the disbursement of funds.

TYPES OF EXPENSES

CAPITAL EXPENDITURE REVENUE EXPENDITURE

CAPITAL EXPENDITURE
Capital expenditure is made when a business spends money either to
 Buy non-current assets for use in business and not for resale
 Add to the value of existing non-current assets by improvement in its earning capacity
 They are mentioned as non-current assets in statement of financial position (SOFP)

REVENUE EXPENDITURE

Revenue expenditures are expenditure incurred either

 In the ordinary course of the business i.e operational expenses

 To maintain the existing earning capacity of the business
 They are mentioned as “Expenses” in statement of profit or loss and other comprehensive income.

4) INCOMES
Income is increase in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decrease of liabilities that result in increases in equity, other than those relating
to contribution from equity participants.

EXAMPLES
Sales or Revenue Interest r on a bank deposit
Dividend on shares Rent received on property
Gain on revaluation of business Commission received
assets
TYPES OF INCOMES/REVENUES

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 OPERATING REVENUE NON-OPERATING REVENUE

OPERATING REVENUE

Operating revenue is revenue; you receive from your business main activities, like sales of goods or service

NON-PERATING REVENUE

Non-operating revenue is money earned from a side activity that is unrelated to your business day to day
activities, like dividend income or profits from investment.

BASIC IMPORTANT TERMS OF ACCOUNTING

In accounting, many technical words are commonly used. Therefore, it is essential to know their meaning for the
proper understanding of the accounting.

1) PROPRIETOR OR OWNER
The person who invests capital in the business and entitled to have all profit and loss of the business is called
proprietor or owner of the business.

2) CAPITAL OR OWNER’S EQUITY

The amount of cash, goods and assets which is initially invested or brought by proprietor while commencing
business is called capital. It is invested to earn profits.

3) DRAWINGS

The amount of cash or goods which is withdrawn by proprietor from business for its private uses is called
drawings. It reduces the capital of the business and also drawings are reduction in the liability of business to the
owner.

4) GOODS OR MARCHANDISE

In accounting the word “Goods” has a typical meaning. It refers to something which has been purchased by a
trader for resale purposes or anything which has been manufactured for selling purpose. It is called “Goods” in
accounting

TYPES OF GOODS

GOODS PURCHASED GOODS SOLD GOODS IN STOCK

OR MANUFACTURED

5) PURCHASES

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Goods bought for resale are called purchases. This may be in form of raw material or finished goods. Purchase of
assets is not called purchases because assets are not purchased for resale.

TYPES OF PURCHASES

CASH PURCHASES CREDIT PURCHASES

5.1) CASH PURCHASES

If goods are purchased from a supplier and payment is made to him at the same time, such purchases are
known as “Cash Purchases”.

5.2) CREDIT PURCHASES

When goods are purchased from a seller and payment is not made to him at the same time, rather the
payment is arranged to be made at some future date, such purchases are known as “Credit Purchases or
“Purchased on account”.

6) PURCHASES RETURN OR RETURN OUTWARD

Goods once purchased may subsequently be sent back to the seller for certain reasons, i.e goods are
defective, not according to specification, damage, below standard or any other reason. Such return of goods
to the seller is known as “Purchases Return” or “Return Outward” or “Return to Suppliers”.

7) SALES

We know that goods are purchases for selling purposes. When these goods are sold to customers at a
specific price, it is said that sales have been made.

TYPES OF SALES

CASH SALES CREDIT SALES

7.1) CASH SALES

If goods are sold to customers at a specific price and price of the goods is received from them at the time of
sale of goods, such sales are known as “Cash Sales”.

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7.2) CREDIT SALES

If goods are sold to a customer and he does not pay the price of goods at the same time but agrees to make
payment on some future date, the sales are called “Credit Sales” or “Sales on account”.

8) SALES RETURN OR RETURN INWARD

If a customer to whom goods have been sold finds that the goods are defective, unsatisfactory, below
standard, not according to specification or any other reason, he may return these goods to the seller. For
seller, such return of goods is known as “Sales Returns” or “Return Inwards” or “Returns from Customers”.

9) DISCOUNT

Discount is referred to as a deduction in price of goods and services. The seller deducts the discount from
the gross or total price, and buyer is supposed to pay the net amount.

TYPES OF DISCOUNT

TRADE DISCOUNT CASH / SETTLEMENT DISCOUNT

DISCOUNT ALLOWED

AND

DISCOUNT RECEIVED

9.1) TRADE DISCOUNT

A trade discount is a reduction in the list price of goods or services, given by a seller to the buyer. It is often
given in return for bulk purchase orders. It is allowed at a certain percentage of the listed or catalogue price.

9.2) CASH OR SETTLEMENT DISCOUNT

It is a reduction given by a seller to the buyer, if the amount due is paid by the buyer before the agreed due
date of payment. Or it is reduction in price offered by manufacturer or wholesaler (creditor) to encourage
customers (debtor) to pay their debts within a specified discounted period.

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10) DEBTORS OR RECEIVABLES

A person or an entity to whom the business has sold items and by whom the business is owed money. A
receivable is an asset of business (The right to receive payment is owned by the business)

E.g. Sale of any Non-current asset

11) TRADE RECEIVABLE OR DEBTORS

A person or an entity who owes the business money for debts incurred in the course of trading operations i.e
because the business has sold its goods or services.

E.g. Business is involved in producing medicine and sale of those medicines on credit to its customers.

NOTE: All Trade Receivables are current asset of the business

12) CREDITORS OR PAYABLES

A person from whom a business has purchases items and to whom a business owes money. An account
payable is a liability of the business.

E.g. Purchase of a plant and machinery on credit.

13) TRADE PAYABLES OR CREDITORS

A person or an entity to whom a business owes for debts incurred in the course of trading operations. The
term might refer to debts still outstanding which arise from the purchase from suppliers of materials,
components or goods for resale.

E.g. Purchase of stock of medicine for resale on credit.

NOTE: All Trade Payables are current liability of the business

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