Basic terms II

Revenue is what the business earns: from sales, and from commission, interest, dividends or rent received. Expenses are what it spends to earn that revenue: rent, wages, salaries, electricity, and depreciation, the wearing out of things like machinery.

Expenditure means spending money to get a benefit. If the benefit is used up within a year (wages, rent), it is revenue expenditure and counts as an expense. If the benefit lasts for years (buying a machine), it is capital expenditure and becomes an asset.

Profit is revenue minus expenses. A gain comes from something that is not the main business, like selling an old machine for more than it cost. Mr. Sunrise, a stationery seller, sells machinery that cost ₹40,000 for ₹45,000: a gain of ₹5,000. A loss is when expenses are more than revenue. Losing value for nothing in return, through theft or fire, is also a loss.

Two kinds of discount. A trade discount is taken off the list price when goods are sold. A cash discount is a reward for paying quickly. A voucher is the paper proof of a transaction: a cash memo, an invoice, a receipt.

• Goods are the things the business buys and sells. Furniture is goods for a furniture dealer, but an asset (furniture) for a stationery shop that uses it.
• Drawings are money or goods the owner takes out for personal use.
• Debtors owe money to the business. They are an asset.
• Creditors are owed money by the business. They are a liability.
• Stock (inventory) is the goods on hand at a point in time.