| Assets |
Assets are the tangible and intangible wealth
of the business. We can split them into
2 groups, namely Fixed Assets
and Current Assets. |
| |
Fixed
Assets |
These
are assets that have been acquired or leased
for a period of more than one financial
year. Also known as long-term assets, these
include land and buildings, plant and machinery,
motor vehicles etc. This group also includes
intangible assets such as investments and
goodwill. |
| |
Current Assets |
These
are assets acquired by the business for
the ongoing financial year, i.e. short-term
period. Stock of goods in the form of raw
material, work in progress, and finished
goods are all included. Cash at bank and
in hand, held for short-term dispensation
and trade debtors (customers) are examples. |
| Liabilities |
These
consist of money or goods owed to anyone,
inside or outside the business. These can
also be divided into 2 distinct groups of
Long-term Liabilities and
Current Liabilities. |
| |
Long-term Liabilities |
These
include business loans that are payable
after more than one financial year. |
| |
Current Liabilities |
Amounts
payable to suppliers of goods (trade creditors),
employees, and against expenses accrued
during the financial year. |
| Capital |
The
amount of money or asset representation
that the business owes to its owners (shareholders).
This is the initial investment made by the
shareholders, plus any profits/losses made
during the subsequent financial years. Technically,
this is also a long-term liability, but
does not bear any cost of borrowing, as
in business loans, and merely require a
distribution of profits as and when they
are available for distribution among shareholders. |
| Revenue |
Proceeds
from sale of goods and/or services that
have been acquired or produced by the business
for resale purposes, during the financial
year. Under special circumstances, revenue
can include amounts received in the form
of interest, rent, investment returns etc. |
| Expenditure |
Generally
referred to amounts expended as part of
on-going business activity. This can be
divided into Revenue Expenditure
and Capital Expenditure. |
| |
Revenue Expenditure |
Includes
amounts expended as part of routine business
activity, throughout the financial year.
For example, rent, insurance, depreciation
of fixed assets, repair and maintenance
costs etc. |
| |
Capital Expenditure |
Amounts
expended for the acquisition of fixed assets
for the long-term use in the business. |
| Working Capital |
The
capital available for short-term investment
in Current Assets and paying of Current
Liabilities during the financial year, calculated
as: Current Assets less
Current Liabilities. |
| Debit & Credit |
These
are the two sides of a dual-sided ledger
account. Traditionally, a Debit represents
money coming in (the left side), and Credit
represents money going out (the right side).
Since not all accounts or ledgers record
cash transactions, the exact definition
may be altered in the following manner:
a Debit represents an increase in Assets,
whereas a Credit represents an increase
in Liability. This stands true for all dual
entry ledge accounts maintained in the company's
books. For example, a Debit balance in the
company's cash account shows that it has
cash as reserves, whereas a Credit balance
is shown when it owes the amount back as
it has run out of its reserves. |
