Basic Terminology Capital Liabilities Drawings Assets Finance Essay

The proprietor ‘s involvement in the assets of the house, after paying off liabilities towards 3rd parties, is known as capital. Capital consists of proprietor ‘s part in start up of the house ‘s activities, subsequently on extra sum brought by him/her to the house, and besides the net income ( extra of income over disbursals ) retained in the house. It is known as capital on the day of the month of balance sheet. The capital is besides known as equity or net worth.

When proprietor invests financess in the concern on his or her ain, so such investing are recorded in an history carry the proprietor ‘s name and called as “ Capital Account ” . In instance of corporate, such history is merely known as Share Capital Account or Corpus Fund history or Equity Share Capital history. For illustration, Mr. Parshwa account balance ( booster of the house ) in the books of M/s Parshwa Associates, indicates the capital balance i.e. , adding of capital contributed at the clip of start up of house, new capital introduced, and maintained net income and reduced by backdowns by Mr. Parshwa over the period of clip from get down up of the house.

Equity word usually indicates of the right or claim or involvement in the assets of the house by proprietor and besides of the other parties.


Liability represents the claim or right to be paid off by the house, irrespective of the public presentation of the house. The jurisprudence recognizes the right of the party who own this right. If a house fails to pay its liabilities so jurisprudence gives the right to the party to coerce the house to sale of the assets of the house to procure the money due. For illustration, when M/s Parshwa has purchased the concern goods, i.e. , the goods in which house is by and large dealt with, from M/s Supra on recognition period of three months, in such instance from the day of the month of reception of goods till the day of the month Supra is paid away, is known as liability for the Parshwa. If M/s Parshwa avail the loan from bank or friends and associates, so besides it is known as liability of M/s Parshwa.


An proprietor invests the financess in the house usually to set about the net income motivated activities. The net income is earned over the period of clip say a twelvemonth or period of 12 months. Owner frequently withdraw a fixed sum each hebdomad or month for personal life disbursals or for other personal utilizations. These pulling or backdowns are non salary in the legal sense for the proprietor of the house. By drawings amount the both assets and capital of the house reduces. To exert the control over the drawings, a separate history in the name of individual and the word “ Drawings ” is used. For illustration, to enter the drawings of Mr. Parshwa proprietor of the M/s. Parshwa Associates, an history named as Parshwa Drawings history will be maintained in the books of M/s. Parshwa Associates. Drawings are besides known as backdowns.


Resources in the signifier of land, edifice, works and machinery, furnitures, vehicles, etc. , owned by the house with an purpose to utilize it in the operating activities of the house, are known as assets of the house. The assets may be in the touchable signifier, or intangible signifier. Assetss are the any type of things which are being of value. It is immaterial whether they are in physical and tangible signifier or non.

The assets those are in physical features are known as touchable assets, for illustration, land, works and machinery, etc. The intangible signifier of assets are characterized by the legal claims or right, for illustration, patents, good will, sum receivable from clients, etc.

Goods or Merchandise

A concern house earns gross by selling ware. Goods word indicates the sum of the points or trade goods or goods are used for sale it in the same signifier, or change over it into salable merchandises. For illustration, if Kunthu Furniture purchase the chairs for in bend sale to the client, so such chairs are known as Goods for Kunthu. But if the chairs are purchased by M/s Dharma Grocery Stores so it would be known as fixed assets procured. Let us take another illustration, that M/s Kunthu has purchased wooden pieces to do the dining tabular array, so said wooden pieces are besides known as goods for M/s. Kunthu. Hence in brief it can be concluded that, points are sold within a twelvemonth or one rhythm. Consequently, the ware unsold in reported as Inventory, and would be portion of current assets.

Grosss: Grosss are inflow of hard currency and hard currency equivalent received or receivable for goods and trade goods supplied, or services rendered or the right given to the other party for use of resources of the house. The gross generated by the house for the regular operating activities is known as the concern income. For illustration, food market store keeper earns the gross by sell of foodstuff points is known as sale income. In instance of a practicing chartered accountant the service fees charged from the client, is covered under the consultancy income, or service income. If the house is reassigning the right to utilize a store floor to 3rd party, and in bend earn the rental income, so it is known as the Other income or Rental income. The synonymous word of gross is turnover.


Whenever the grants in the sum collectible offered by marketer to the purchaser on the market monetary value or listed monetary value of the merchandise so it is known as price reduction. In commercial life, the price reduction allowed by house is of two types, i.e. , trade price reduction and hard currency price reduction.

a. Trade Discount: It is offered by marketer to the retail merchant on the listed or printed monetary value, to enable the retail merchant to gain the sum of net income. It is besides some clip offered by marketer to the client, with an purpose to keep the relationship or to sell of the majority measure in a one batch. As trade price reduction is offered as portion of gross revenues publicity position, it is ne’er recorded in the books of history. Trade price reduction is allowed in concern dealing irrespective whether it is hard currency or recognition dealing.

B. Cash Discount: It is one type of funding costs, go on to the marketer, with an purpose to retrieve the money at an early minute. It is one manner the tool to promote the prompt payment of money from client, so that support from bankers and fiscal establishments for funding is reduced, to boot it take the opportunities of bad debts. Bad debt means the failure to retrieve the financess from the clients ‘ from whom sum is due. As this is one type of funding costs, it is individually recorded in the books of history.

goods, debitors, equity, liabilities, creditors, gross, outgo, disbursal, loss, turnover