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8. Accounts maintained under single entry system is not accepted by court of law
and income tax but accounts maintained under double entry system is accepted
by court of law and income tax as authentic financial document.
Basic Accounting Terminologies

Capital: Capital is the sum of all assets with which a trader starts the business. It is the
amount actually invested in the business at any given time.

Assets: All the properties, things, stock of materials having monetary value in business
are known as assets. Assets can be classified as follows:

i. Fixed assets: Those assets which have life of more than one accounting year are
known as fixed assets. Machinery, furniture, land and building, vehicles are the
examples of fixed assets.

ii. Tangible assets: Those assets which have their physical form and can be seen and
felt. Land and buildings, furniture, plant and machinery, etc. are tangible assets.

iii. Intangible assets: Those assets which do not have any physical existence but give
benefit to the firm are called intangible assets. Patents, copyrights, goodwill, etc.
are intangible assets.

iv. Fictitious assets: Fictitious assets are assets that do not exist. These are the assets,
such as pre-payments, that do not have a resale value or cannot be converted into
cash but are entered as assets on a company's balance sheet. Fictitious assets are
written off against the earning of firm. Non-physical assets such as preliminary
expenses, underwriting commission, loss on issue of shares or debentures, etc. are
the examples of fictitious assets.

v. Current assets: Cash and those assets which can be converted into cash within one
accounting year are current assets. They are cash, bank balance, prepaid expenses,
stocks, etc.

Liabilities: Capital and the debts which are due by the firm to other parties are
collectively known as liabilities. Bank loan, debentures, bills payable, advance income,
creditors, outstanding expenses, profit are the examples of liabilities.

Revenue: Revenue is the total earning collected by the business through the supply
of goods or services. It is also called income of business. Income from sales of goods,
income from investments, commission received, dividend received, etc. are revenue.

Cash: Cash is asset in business. In addition to coins and currency, cash also includes
bank balance, cheque, money orders, etc.

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