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The Important Terminologies of Accounting

Home Assignment Answers The Important Terminologies of Accounting

Nothing can be done without knowing the meaning of the process that is being carried out. There are many terms that are important to know in the process of accounting. The correct meaning of the specific terms will help the accountants to correctly post the entries according to the double entry system of bookkeeping.

Have a look at the following terms:

  1. Business entity

The organizations that work with the main motive of earning a profit is known as the business. A business entity is a commercial unit that is linked to the business transactions that must be recorded or maintained, concise and a report is created. The entity or the organization is considered separate from the business owners. The entity is expected to have its own property and own obligations. The main purpose of the accounting process is to provide useful and correct information and the data related to that particular business. This information is required by the people, the investors or the stakeholders require this information as they need to know about the financial performance. After knowing the exact and true position of the business, the investors will further invest in the amount to that particular business.

  1. Goods or merchandise

In the field of accounting, GOODS has a special meaning. The word GOODS refers to the things that the dealer has bought for the purpose to resale it and further earn a profit. Goods are the materials and the things that are prepared by the traders in order to fulfill the wants of the humans.

  1. Purchases

Purchases in the accounting field have a special meaning. When a possession of the given asset, property, item or right is taken by giving a specific amount of money, it is known as a purchase. In other words, purchase refers to the exchange of money for a specific good or a service.

Further, the purchases are categorized into two categories:

  • Cash purchases: when a purchase is done and the amount is paid in cash.
  • Credit purchases: when the goods are bought from the seller and the amount for the same is not paid at that particular time i.e. on credit.
  1. Purchase returns or the return outwards

There are chances that once the goods are purchased from a trader, there might be some goods that might be defected or damaged and hence, they have to be sent back to the same. Therefore, these goods that are returned back are known as the purchase returns.

  1. Allowances

There are chances that the products or the goods that the customer wants to buy, has some sort of defects in them or they might be damaged. In that case, sometimes, the seller agrees to deduct the amount of that particular good. Such a reduction in the price is known as the purchase allowance to the buyer and the sales allowance to the seller.

  1. Sales

When some goods or services are purchased with the aim to sell it and further, earn a profit is known as the sales. When the goods are sold to the consumers and the amount is taken in return, it is said that the sales have been made.

Further, the sales can be categorized into two categories:

  • Cash sales: when the goods are sold and cash is given at that particular time.
  • Credit sales: when the goods are sold but the amount is not taken at that point in

These are some of the most common terms that need to be known in the accounting field.

You may also like: Points of Differences Between “Accounting” and “Bookkeeping”

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