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Book keeping

For recording financial information, an accountant has to enter information in accounts. Entering information about a financial transaction in accounts is called entry-making. There are two main systems for making  or passing entries in the accounts:  Single entry system and double entry system

Single Entry

Where only one effect or aspect of a financial transaction is recorded

Double Entry

An Entry-making technique or a system of recording financial information where two effects or aspects of every financial transaction are recorded in accounts

Example of Double Entry

Good sold for cash. In this case, the increase in sales (revenue) will be recorded in sales account and increase in cash will be  recorded in cash account. Therefore, there are two aspects or effects of this transaction first one is Increase in sales or revenue and second is increase in cash, both will be recorded.

Basic Terms of Accounting

In general term any activity undertaken for purpose of earning profit

Capital represents cash and resources introduced by the owner(s) of the business to set up or to run the business

Drawing represents cash and resources withdrawn by the owner of business for personal use

The person(s) who starts a business by introducing capital

Any dealing between two persons that can be measured in money. For example sale of good by business is a transaction

A record or log used to record the transactions of business

Any written evidence of occurrence of a transaction like invoice for purchase of goods on credit

Trade discount
A discount given by seller to buyer on listed price of good

Cash discount
A discount for quick or prompt payment of credit. For example a company has purchased goods on credit and if it makes payment of credit within specific period time, the seller would give the  company cash discount on quick payment

Goods or commodities remaining unsold at the end of accounting period (Generally 1 year)

Creditor or Account payable
A person, business or an organization from which the business has purchased goods or services on credit

Debtor or Account receivable
A person, business or an organization to which the business has sold goods or services on credit