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    Explain each of the following accounting terms:
  1. Fixed assets
  2. Revenue
  3. Expenses
  4. Expenditure
  5. Profit
  6. Gain
  7. Loss
  8. Drawing
  9. Short-term liability
  10. Capital
Category : Accounting | Answer: 1 4 Months Ago

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  1. Fixed assets: Assets are economic resources of an enterprise that can be usefully expressed in monetary terms.Assets that are held for long term periods and enhance the earning capacity of the business, over various accounting periods. Fixed Assets are not meant for sale; for example, land, building, machinery, etc
  2. Revenue: Amounts earned by selling its products or providing services to customers, called sales revenue. Other items of revenue common to many businesses are: commission, interest, dividends, royalities, rent received, etc. Revenue is also called income..
  3. Expenses: 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. The usual items of expenses are: depreciation, rent, wages, salaries, interest, cost of heater, light and water, telephone, etc.
  4. Expenditure: It means any money spends or liability incurred for some benefit, service or property received. For example. Purchase of goods, purchase of machinery, purchase of furniture, etc. It can be bifurcated in two types 1. Revenue expenditure (If the benefit of expenditure is exhausted within a year) ; 2. Capital expenditure. (if the benefit of an expenditure lasts for more than a year)
  5. Profit: The excess of revenues of a period over its related expenses during an accounting year is profit. Profit increases the investment of the owners as net profit is added to the capital of the owner in balance sheet which increases the owner’s capital.
  6. Gains: Profit that arises from events or transactions which are incidental to business such as sale of fixed assets, winning a court case, appreciation in the value of an asset.
  7. Loss: if expenses exceeds the related revenues for the particular period then it is termed as Loss. It reduces the value of Owner’s equity as it is added to the owner capital in balance sheet. It also refers to money or money’s worth lost (or cost incurred) without receiving any benefit in return, e.g., cash or goods lost by theft or a fire accident, etc. It also includes loss on sale of fixed assets
  8. Drawings: Withdrawal of money and/or goods by the owner from the business for personal use is known as drawings. Drawings reduce the investment of the owners.
  9. Short-term liabilities: Liabilities are obligations or debts that an enterprise has to pay at some time in the future. Any liabilities that are payable within a year or has intention to be paid in one year is termed as short term liabilities. For example, bank overdraft creditors, bills payable, outstanding wages, short-term loans, etc.
  10. Capital: Amount invested by the owner in the firm is known as capital. It may be brought in the form of cash or assets by the owner for the business entity. Since business is treated separate or distinct from the owner therefore it is treated as obligation and a claim on the assets of business. Capital = Assets − Liabilities
4 Months Ago
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