Top 6 Important Concepts of Accounting and Important Terms :

  Important Concepts of Accounting  and  Important Terms :

There are many important concept which you need to clear :

Terms :

1.    Debtor:

Debtor is that person  from which you want to receive money . He might purchase something from you on credit basis and he might has  not pay you for your services. So, debtor is your assets. Debtor is also known as Accounts Receivable .In the transactions , name is given for Accounts receivable or debtor .

2.    Creditor :

Creditor means we purchased something on credit  or we would take loan and did not pay them so it is our liability to pay them . creditors is also known as Accounts Payable . Creditor is that person to whom we pay them.

3.    Drawings:

As you know that business and the owner are separate parties so whenever owner take or with draw any amount from personal or domestic use is called drawings. So , in simple words drawings is an personal expenses of the owner. For instance if owner withdraw RS/-2,000 for paying children fee. Children  fee is  personal expense .

 

Drawings Expense                          Debit with RS/-2,000.

      Cash Account                            Credit with RS/-2,000.

 

Drawings is debited because personal expense is increasing and whenever expense is increased, it will be debited and cash is decreasing so it is credited.

Concepts of Accounting :

1.    Separate entity:

According to this concept the owner and their business are two different or separate things or entity. Whenever we are recording our business transactions, you should always consider them as two things and recorded them separately.

2.    Dual effect:

As you know that every business transactions has double entry system. First oe is called Debit and the second one is called Credit. For instance received cash from customer o RS/-3,000. So, in this entry our assets is increased because we are receiving cash and on the other  side our assets is also decreasing due to reduction of Accounts receivable. Customer is our debtor.

             Cash Account                                             Debit with RS/-3,000.

         Customer Account                              Credit with RS/-3,000.

As you see this entry also has dual or double aspects.

3.    Going Concern:

Going concern means that  business is running continue for a longer period of time and it will have unlimited period .

4.    Cost Concept:

In Accounting, we are following this cost concept. In this concept, we should record only that price for which we purchased the assets. For instance if we purchased machine for RS/-4,000 and now its market value or price is RS/-9,000. Then we will record that 4,000 because we purchased it for 4,000 not 9,000. So, by following this concept we will record only that amount or cost in  which we purchased it.

 

5.    Matching Concept ;

In this matching concept we will only record those expenses which are followed or incurred by the revenues only. We will not record all the expenses.

6.    Monetary Concept:

According to this concept, we will record only those or that transactions which have  value in terms of wealth or money. It can be measurable.