ACCOUNTING BASICS- THINK LIKE AN ACCOUNTANT

Non-Current assets

Any asset other than current asset is a non-current asset.

Current assets

Cash and cash equivalents, assets which are expected to be converted into cash within the companies accounting cycle which is usually twelve months. Example of current assets are inventories, accounts receivable, prepaid expanses etc.

Capital expenditures

Cost which is incurred to acquire assets and includes costs which increases earning capacity of assets.

Non-operating expenses

Expenses which are not related to day to day operations of business. Loss or gain from sale of fixed assets.

Loss

Expenses which doesn't generate any income.

Revenue expenditure

It is a cost which is incurred to generate revenue. These are the costs which are used up or expensed in the period in which they occur.

Expenditure

It is a payment which may be for acquiring assets, reduction of liability (i.e.-repayment of loans), or expenses (i.e.-purchase of goods).

Current liability

That portion of liability which is expected to be settled within next 12 months from the balance sheet date.

Liability

These are amounts that business owes to lenders of funds.

Operating expenses

These are the expenses related to day to day operations of business.

Non-operating income

These are the incomes earned form activities other than the main activities of a business.

Expense

This a cost which is expired, used up or incurred to earn revenue. Expenses decrease Owners' equity

Income statement

This is also called profit and loss statement. It contains all the incomes and expenses generated during an accounting period. The purpose of income statement is to identify profit or loss.

Capital/ Owner's equity

This is the amount contributed by owners in the business.

Operating income

This is the income generated from the main activities of a business such as selling of goods or rendering of services.

Revenue

This is the income which business earns by selling goods or providing services

Balance sheet

This reflects financial position of a company at any point of time. It contains Assets, liabilities and owner's equity.

Non-Current Liability

any liability other than current liability.

Financial statements

are end result of accounting. These includes Income statement, Balance sheet. changes in owners equity and cash flow statement.

Fixed Assets

are property, plant and equipment which helps to carry out day to day business operations.

Reserves

is an appropriation of profit for a specific purpose.

Cost

is an expenditure which can be either an asset or expense.

Provisions

is the estimated amount of expense recognized because of the unavailability of precise information.

Income

it is an inflow of economic benefits which results in the increase of owner's equity.

Assets

resources controlled by enterprise. These can be further classified as current and non-current assets.