Tamil Nadu HSE First Year Accountancy key terms

The process of identifying, measuring, recording, classifying and summarising money-based transactions of a business, then communicating the results to users who need them for decisions.

The routine clerical work of writing every business transaction in the books of account in a set order; it is one stage inside the wider activity of accounting.

The rule that every transaction has two sides, a receiving and a giving, so that total debits always equal total credits and the accounting equation stays balanced.

Only events that can be expressed in money value are recorded in the books; matters such as staff skill or a manager's health stay outside the accounts.

Accounts are prepared assuming the business will continue operating for the foreseeable future, so assets are shown at cost rather than at forced-sale value.

Transactions are recorded at the amount actually paid or received on the date they occur, and that figure normally stays in the books even if market prices change.

Income is recorded in the period it is earned and expense in the period it is incurred, whether or not cash has actually moved in that period.

The expenses of a period are set against the revenue earned in that same period so that profit is measured fairly rather than by cash timing.

A statement of the balance sheet relationship: assets equal liabilities plus capital. Every transaction changes it in a way that keeps both sides equal.

The owner's own money or assets invested in the business plus profits kept in it, less drawings; it represents the owner's claim on the net assets.

Money or goods taken out of the business by the proprietor for personal or household use; it reduces capital and is never treated as a business expense.

An amount the business owes to outsiders, such as a supplier, bank or lender, which must be settled in money, goods or services in future.

A resource owned or controlled by the business from which future benefit is expected, for example cash, stock, furniture, machinery or amounts owed by customers.

An asset expected to be converted into cash or used up within a year of the balance sheet date, such as cash, bank balance, stock and debtors.

A liability due for payment within a year of the balance sheet date, such as creditors, bills payable, bank overdraft and outstanding expenses.

The book in which transactions are first recorded in date order, each entry naming the accounts debited and credited with a short narration explaining the reason.

A single journal entry that debits or credits more than one account at the same time, used when one transaction affects three or more accounts.

A journal entry with only one account debited and one account credited, the simplest form of recording a two-sided transaction.

The principal book of accounts in which every account is kept on a separate page, showing debits and credits in one place and ending with a balance.

A statement listing the debit and credit balances of all ledger accounts on a given date to test whether total debits equal total credits.

A special book that records one class of transactions only, such as purchases, sales or cash, before the totals are posted to the ledger.

A subsidiary book recording only credit purchases of goods meant for resale, taken from the inward invoices in date order.

A subsidiary book recording only credit sales of goods in which the business deals, written up from outward invoices in date order.

A book that records all cash and bank receipts and payments; it acts as both a journal and a ledger account for cash.

A small cash book kept by a petty cashier for minor day-to-day payments such as postage, cleaning and stationery, usually under the imprest system.

A method of running petty cash where a fixed sum is given to the petty cashier and later reimbursed for what was spent, restoring the float.

An entry appearing on both sides of a cash book, made when cash is deposited into bank or withdrawn from bank for office use.

A statement prepared on a chosen date to explain why the cash book bank balance differs from the bank statement balance and to reconcile the two.

A written order on a bank to pay a stated sum to a named person or bearer; the payer's cash book records it at once, the bank only when it is cleared.

The bank's refusal to pay a cheque, for example because of insufficient funds; the party receiving it must reverse the earlier entry in its books.

A facility allowing the business to withdraw more than its bank balance, so the account shows a credit balance and is treated as a current liability.

Spending that creates or adds to a lasting asset or increases its earning capacity, such as buying machinery, land or furniture; it is shown in the balance sheet.

Spending on the routine running of the business whose benefit is used up within the year, such as rent, wages, power and repairs; it is charged to profit.

A large revenue-type outlay whose benefit extends over several years, such as heavy advertising; it is written off over those years instead of in one.

The permanent, gradual and continuing fall in the book value of a fixed asset from use, wear, time or obsolescence, charged against profit each year.

A depreciation method charging an equal amount every year, found by dividing cost less scrap value by the number of years of expected useful life.

A depreciation method charging a fixed percentage on the reducing book value of the asset, so the charge falls each year over its life.

An amount set aside out of profit for a known liability or loss whose exact figure cannot yet be measured, such as doubtful debts or repairs.

An appropriation of profit kept in the business to strengthen its financial position, not a charge against profit and not meant for a known liability.

Amounts owed by customers that have become irrecoverable and are written off as a loss, since the debtor cannot or will not pay.

The first part of the final accounts, showing gross profit or gross loss by setting cost of goods sold and direct expenses against net sales.

The second part of the final accounts, which starts with gross profit and deducts indirect expenses and losses to arrive at net profit.

A statement of the assets, liabilities and capital of the business on a particular date, showing the financial position rather than profit for a period.

The excess of net sales over the cost of goods sold, measured before any indirect expense of running the business is deducted.

What remains after all indirect expenses and losses are deducted from gross profit and other income is added; it is added to capital.

A written instrument in which one person directs another to pay a stated sum on demand or at a fixed future date to a named person or bearer.

A written promise by a debtor to pay a stated sum to a named person on demand or at a fixed future date, signed by the person making the promise.

Bills of exchange accepted by customers that the business holds and will collect on maturity; they are an asset in the balance sheet.

Bills the business has accepted in favour of its creditors and must pay on maturity; they are shown as a liability in the balance sheet.

Encashing a bill with a bank before its due date; the bank pays the amount less a discount and the drawer gets funds early.

Recording and processing business transactions with accounting software and computers instead of handwritten books, giving faster reports and automatic arithmetic.

A program that stores transactions in a database and produces ledgers, trial balance and final reports; Tally is the common example used in Indian practice.

Customers to whom goods or services have been sold on credit and who still owe money to the business on the reporting date.

An expense that has been incurred in the current period but not yet paid; it is added to the expense and shown as a liability.

An amount already paid in the current period for a benefit that will be used in a later period; it is an asset at the balance sheet date.