HomeAccounting Basics


Accounting is the art art of recording, classifying and summarizing of business transactions. In this part lets understand some important terms of accounting.

What is Business Transaction

Transactions are the buying and selling of goods and services.It doesn’t require much much explanation.


Assets are economic resources which are owned by a business.or in other words Assets are things of value owned by a business.Asset may have definite physical character for example, building machinery etc or may not have physical character for example, amount due from creditors, patent right etc The first one is called tangible asset and the latter is intangible asset. Asset can be classified in to two.
  • Fixed Asset :- These type asset are purchased for longer run of business for example : Land an building, Machineries, these assets are not for re-sale but for the purpose of smooth running of the business.
  • Current Asset :-Assets That are held for a short period and are meant for converting in to cash. for example cash, stock, debtors etc.


Liabilities are debts.It is the amount which a business owes and has to be repaid.The liabilities are arising from purchase of goods or services on credit basis is called an Account payable, and the person to whom it is to be Paid is called creditor.


Capital refers to the amount invested by the owner of the business. it is also called Owner’s equity
Capital= Total Asset – Total Liabilities.
Capital is Liability to the business.Business owes money to the owner .Business has a seperate entity apart from its owner.As per accounting concept business and its ownership is distinct.


Debtor is a person who owes money to the business. Debtor is the customer to whom the goods/services are sold on credit. A group of debtors is called Sundry Debtors.


Creditor is a person to whom business owes money or creditor is any person who gives credit to the business.A group of creditors is called Sundry Creditors.


Expenses are cost incurred for generating revenue. examples of expenses are Transportation,salary to employee,Stationery Expense,Travelling. Expense are of two type direct expense and indirect expenses.


It refers income of recurring nature from any source related to business.


Recording of Transaction in a books of accounts is called entry.


Purchase is considered as the main expenses of a business. Purchase of goods for selling purposes to generate income is called purchase.Purchase of stationery, assets will not comes under the term “purchase”. Purchases may be cash purchase or credit purchases.

Purchase Return

Goods once purchased, returned to supplier due to damage, inferior quality etc. This is just opposite of Purchase ( for easy understanding purposes.Its almost similar to a sale, but not really.


Sales is the main income source of the business,a business generates income through sales. Goods sold for the purpose of making profit is called sales.

Sales Return

Goods once sold returned by customer due to damage, inferior quality etc. Sales return is just opposite of sale.

Accounts receivable

The amount of money owed by the debtors or the customers of the business as result of trading of goods of services.

Accounts Payable

The amount of money owed to a creditor or lender as result of buying of goods or services

Comments (6)

  • Very lucid and easy to start with the basic of the accountancy. Thanks alot sir that was a Great help to new comer like me!!

  • Thanks to keep us easily understand….!!

  • The lesson was so interesting. Thanks very much, keep it up. Now we can move to the next step.

  • To respected sir
    it is very nice but i have a question regarding about inventory of branch office.
    we have head office & branch office in same city an have same tin no. sir please guide me how many entries as to pass because we r have only one computer in our head office. with inventory example in tally . i hope u will do me needful.
    with regard

  • respected sir
    u have not show a branches entries in head office in above example .please show some example with tally



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