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Home Book-keeping Important Bookkeeping Terms

 

Important Bookkeeping Terms:

Before attempting to learn the art or science of bookkeeping it will be better to clarify some of the terms that will have to be used again and again.

Transaction:

Any dealing between two persons or things in a transaction. It may relate to purchase and sale of goods, receipt and payment of cash and rendering of services by one party to another. Transaction is of two kinds - cash transaction and credit transaction. When cash is paid or received as a result of an exchange, the transaction is said to be a cash transaction. When the payment or receipt of cash is postponed for future date, this transaction is said to be credit transaction.

Business:

It includes any activity undertaken for the purpose of earning profit e.g., banking business, and insurance business, a merchant business etc., etc.

Proprietor:

He is the owner of a business. He invests capital in it, gives his time and attention to it. He is entitled to receive the profit or bear loss arising out of it.

Drawings:

The cash or goods taken away by the proprietor from the business for his personal use are called has drawings.

Purchases:

Goods purchased are called purchases. When the goods purchased for cash they are called cash purchases but if they are purchased for which payment will have to be made at some future date it is known as credit purchases.

Purchases Returns:

If goods purchased are found defective or unsatisfactory, they are sometimes returned to the persons from whom they were purchased or to suppliers are called purchases returns or returns outwards.

Sales:

Goods sold are called sales. When goods are sold for cash they are called cash sales, but when they are sold without having received payment, they are credit sales.

Sales Returns:

If a person to whom goods have been sold finds that they are defective or unsatisfactory and returns them, are called sales returns or returns inwards.

Trade Discount:

It is rebate or allowance from the scheduled price granted by the seller to the buyer. Trade discount is usually granted in the following circumstances:
(a) When selling to a fellow trader.
(b) When the buyer is an old customer.
(c) When sales are made in bulk.
(d) As a custom of trade.

Cash Discount:

It is deduction or allowance allowed by creditor to a debtor. If a person pays his debit before the due date of payment the recipient may grant him an allowance for doing so. This allowance is known as cash discount

Commission:

It is a form of remuneration for services rendered by one person to another.

Expenditure:

An expenditure takes place when assets or service is acquired.

Expense:

It means an expenditure whose benefit is finished or enjoyed immediately such as salaries, rent etc. Difference between expense and expenditure is that the benefit of the former is consumed by the business in present whereas in latter case benefit will be available for future activities of the business.

Account:

A summarized record of transactions relating to person or thing is called an account.

Debtor (Account Receivable):

A person who owes money to another is a debtor. When we say that we owe Mr. Rahim $200, we mean that we have received from Mr. Rahim $200 which we have to repay. We stand as debtor to Mr. Rahim for $200. It is also termed as accounts receivable.

Creditor (Accounts Payable):

A person who pays out something or to whom money is owing is a creditor. It is also termed as accounts payable.

Assets:

These are the things of value possessed by a trader such as building, land, machinery, furniture, etc.

Liabilities:

They are the debt due by a business to its proprietor and others.

Voucher:

Any written evidence in support of a business transaction is called a voucher. When a ream of paper is bought from a stationer, he gives a cash memo. The cash memo is a voucher for the payment. When wages for the month are paid to the peon, receipt is taken from him. The receipt serves as a voucher for the payment.

Goods (Merchandise):

It includes all merchandise commodities which are purchased by the business for selling.

Stock (Inventory):

Goods or merchandise on hand, that is goods remaining unsold, is called stock, stock in trade, or inventory.

Equity:

A claim which can be enforced against the assets of the firm is called equity. In other words, the rights to properties are called equities. Equities are of two types: the right of creditors and the right of owners. The equities of creditors represent debts of the business and are called liabilities. The equities of the owner is called capital, proprietorship or owner's equity.

You may also be interested in other articles from "bookkeeping chapter" chapter:

  1. Definition and Explanation of Bookkeeping
  2. Important Bookkeeping Terms
  3. Double Entry System of Bookkeeping
  4. Single Entry Vs Double Entry System of Bookkeeping
  5. Definition and Explanation of Accounting
  6. Branches of Accounting
  7. Functions of Accounting
  8. Parties Interested in Accounting Information
  9. Systems of Accounting - Cash System of Accounting and Accrual System of Accounting
  10. Bookkeeping Vs. Accounting/Difference Between Bookkeeping and Accounting
  11. Accounting Cycle

 

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Managerial Accounting

 
Introduction to Managerial Accounting
Business and Quality Improvement Programs
Cost Terms, Concepts and Classification
Job Order Costing system
Process Costing System
Process Costing System - Addition of Materials & Beginning Inventory
Controlling and Costing Materials
Materials and Inventory Cost Control
By Products and Joint Products Costing
Cost-Volume-Profit-Relationship
Variable Costing System
Activity Based Costing System
Budgeting and Planning
Standard Costing and Variance Analysis
Gross Profit Analysis
Linear Programming Technique
Segment Reporting and Transfer Pricing
Capital Budgeting Decisions
Service Department Costing
Cash Flow statement
Financial statement Analysis
Pricing Products and Services
Managerial Accounting Terms and Definitions
Managerial / Cost Accounting Formulas

Financial Accounting

 
Bookkeeping and Bookkeeping Terms
Accounting Principles and Accounting Equation
Journal
Ledger
Accounting For Bills of Exchange
Subdivision of Journal
Final Accounts
Capital and Revenue Items
Single Entry System/Accounting From Incomplete Records
Accounting For Non-Trading Concerns
Accounting for Consignment / Consignment Accounts
Accounting for Joint Ventures
Accounting for Depreciation

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Home Book-keeping

You may also be interested in other relevant articles:

  1. Definition and Explanation of Bookkeeping

  2. Important Bookkeeping Terms

  3. Double Entry System of Bookkeeping

  4. Single Entry Vs Double Entry System of Bookkeeping

  5. Definition and Explanation of Accounting

  6. Branches of Accounting

  7. Functions of Accounting

  8. Parties Interested in Accounting Information

  9. Systems of Accounting - Cash System of Accounting and Accrual System of Accounting

  10. Bookkeeping Vs. Accounting / Difference Between Bookkeeping and Accounting

  11. Accounting Cycle

Difficulties Encountered in Process Costing Procedures:



Learning objectives of this article:

What are the difficulties or Limitations in a process costing procedure?

Certain difficulties likely to be encountered in actual practice should be mentioned with regard to process cost accounting procedures:

The determination of production quantities and their stage of completion presents problem. Every computation is influenced by these figures. Since the data generally come to the cost department from operating personnel often working under circumstances that make a precise count difficult, a certain amount of double counts and unreliable estimates are bound to exist. Yet, the data submitted from the basis for the determination of inventory costs.

Materials cost computations frequently require careful analysis In the illustrations materials are generally considered to the the cost of first department. In certain industries, materials costs are not even entered on production reports. When materials prices are influenced by fluctuating market quotations, the materials cost may be recorded in a separate report designed to facilitate management decisions in relation to the materials market.

The discussion of lost units by shrinkage, spoilage, or evaporation indicates that the time when the loss occurs influences the final cost calculation. Different assumptions concerning the loss would result in departmental unit costs, which, in turn effect inventory costs, the cost of units transferred, and the completed unit cost. Another consideration involves the possibility of treating cost attributable to avoidable loss as an expense of the current period. Industries using process cost procedures are generally of the multiple product type. Joint processing cost must be allocated the the products resulting from the processes. Weighted unit averages or other bases are used to prorate the joint cost to the several products. If units manufactured are used as a basis for cost allocation, Additional clerical expenses are necessary if the labor hour or machine hour basis is used for charging overhead to work in process. Management must decide whether economy and low operational cost are compatible with increased information based on additional cost computations and procedures.

It should be noted that some companies use both process costing and job order costing procedures for various purposes in different departments. This is particularly true when a parallel or selective cost flow format is required. Each system or method employed by a company must be based on reliable production and performance data which, when combined with output, budget, or standard cost data, will provide the foundation for effective cost control and analysis. 

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Managerial Accounting Articles
 
Business and Quality Improvement Programs
Cost Terms, Concepts and Classification
Job Order Costing system
Process Costing System
Process Costing System - Addition of Materials and Beginning Inventory
Controlling and Costing Materials
Materials and Inventory Cost Control
By Products and Joint Products Costing
Cost-Volume-Profit-Relationship
Variable Costing System
Activity Based Costing System
Budgeting and Planning
Standard Costing and Variance Analysis
Gross Profit Analysis
Linear Programming Technique
Segment Reporting and Transfer Pricing
Capital Budgeting Decisions
Service Department Costing
Cash Flow statement
Financial statement Analysis
Pricing Products and Services
Managerial Accounting Terms and Definitions
Managerial / Cost Accounting Formulas
Financial Accounting Articles
Bookkeeping and Bookkeeping Terms
Accounting Principles and Accounting Equation
Journal
Ledger
Accounting For Bills of Exchange
Subdivision of Journal
Final Accounts
Capital and Revenue Items
Single Entry System/Accounting From Incomplete Records
Accounting For Non-Trading Concerns
Accounting for Consignment / Consignment Accounts
Accounting for Joint Ventures
Accounting for Depreciation

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