Any physical thing or property that has a money value is an asset. In other words, an asset is that expenditure that results in acquiring some property or benefit of a lasting nature. Assets can be classified as:
- i) Fixed Assets: Fixed assets are those assets that are purchased for the purpose of operating the business and not for resale. E.g. land, building, machinery, furniture, etc.
- Tangible Assets: Assets that have physical existence are called Tangible Assets i.e. can be seen and touched. Land, Building, Furniture, etc.
- Intangible Asset: Assets that do not have physical existence are called Intangible Assets i.e. cannot be seen and touched. Computer Software, Goodwill, Trademarks, Patents, etc.
- ii) Current Asset: Current assets are those assets of the business which are kept for the short term for converting into cash. E.g. debtors, bills receivables, bank balance, etc.
A person who owes money to the firm, generally on account of credit sale of goods is called a debtor.
For e.g. When goods are sold to a person on credit that person pays the price in the future. He is called a debtor because he owes the amount to the firm.
The term receivables are used for the amount that is receivable by the firm, other than the amount due from the debtors. It is also called Bills Receivable.
A person to whom the firm owes the money is called a creditor. For e.g. Mr. M is a creditor of the firm when goods are purchased on credit from him.
The term payables are used for the amount payable by the firm, other than the amount due to creditors. It is also
called as Bills Payable.
Stock or Inventory is a tangible asset held by an enterprise for the purpose of sale in the ordinary course of business as on the end of Accounting Year.
They are of two types:-
- Opening Stock – It is the inventory at the beginning of the accounting year.
- Closing Stock – It is the inventory at the end of the accounting year.
Any written document in support of a business transaction is called a voucher. It is objective evidence in support of a transaction.
When customers are allowed any type of reduction in the prices of goods by the businessman, that is called discount. It is of two types:-
- Trade Discount – offered at the time of purchase of goods due to quantity or value.
- Cash Discount – allowed for timely payment of the due amount.