Basic Accounting Terms for Teenage Entrepreneurs
Tanishka Khokhar | Dec. 30, 2020, 6:28 a.m.
Accountancy, amongst various other fields of commerce, is an important aspect in creating a power-packed business idea that is financially, economically, and technically backed and supported. For accounting students in the entrepreneurial field, their knowledge of basic accounting terms and procedures gives them a headstart as compared to the other competitors coming from different fields. Thus, it is important to acknowledge the importance and relevance of this particular subject in businesses, in spite of the fact whether the business is just starting or has already formed a commendable market.
Here are some accounting terms that will come in handy when you start your own business.
- Assets: Assets are the economic resources of the business from which the business may profit in the future. For example, machinery for operations, building, cash in hand, etc.
- Liabilities: Liabilities are the dues of the business which the business has to pay. Liabilities may be internal (in form of capital, i.e., money due to the owner) or external (to creditors).
- Capital & Drawings: Capital refers to the amount contributed to the business to start it. It is an internal liability of the business as there is no knowledge of whether the business will profit or lose and thus the amount is payable to the owner of the business.
Drawings are the amount that is withdrawn from the capital invested into the business for personal use. For example, buying land for personal use with the capital.
- Debtors & Creditors: Debtors are the assets of the company and are the people which owe a specific amount to the business.
Creditors are the liability of the business and are people to whom a specific amount is payable by the business.
- Purchases & Purchase Returns: Purchases refers to the buying of goods in which the business deals. Goods which the business does not deal in but are bought often are not considered purchases.
Purchase return refers to the return of goods bought to the seller.
- Sales & Sales Returns: Sales refers to the selling of goods in which the business deals. Goods which the business does not deal in but are sold often are not considered sales.
Sales return refers to the return of goods sold from the buyer.
- Trade Receivables: Trade receivable is the amount (debtors + bills receivable) that the business is to receive for the sale of goods. Bills receivable is a bill of exchange that a drawer (the creditor) draws upon his debtor with the amount to be received.
- Trade Payable: Trade payable is the amount (creditors + bills payable) that the business has to pay for the purchase of goods. Bills payable is a bill of exchange that a drawee (the debtor) accepts with the amount to be paid to the drawer (the creditor).
- Bad Debts: Bad debts is the amount that becomes irrecoverable and was previously owed by a debtor to the business. It is an expense (loss) for the business.
- Depreciation: Depreciation refers to the decrease in the price or value of an asset such as machinery or building over time due to a mishappening/accident or simple usage.
