By Shweta Goyal 
Accounting Made Easy: A Quick Guide to Key Terms + Journal Entries
Whether you’re a student, startup founder, or a finance enthusiast, understanding the fundamental accounting terms is key to interpreting business health and compliance. Here’s a simplified guide to 15 basic yet essential accounting concepts:
1. Salary Payable 🔁
Type: Liability
💼 Amount due to employees for services rendered, but not yet paid.
Appears as an outstanding expense on the balance sheet.
2. Rent Receivable 💰
Type: Asset
🏠 Rent income that is earned but not yet received.
It’s recorded under current assets as accrued income.
3. Purchase 📦
Type: Expense
🛒 Cost of acquiring goods meant for resale or manufacturing.
Impacts the trading account.
4. Sales 💸
Type: Revenue
🧾 Income earned from selling goods or services.
Recorded in the income statement and increases business income.
5. Purchase Return 🔄
Type: Contra Expense
📤 Goods returned to suppliers due to defects or errors.
Reduces the total purchases.
6. Sales Return 🔄
Type: Contra Revenue
📥 Goods returned by customers after sale.
Deducted from gross sales to find net sales.
7. Capital Introduced 🧾
Type: Owner’s Equity
💼 Funds invested by the owner into the business.
Boosts the capital account in the balance sheet.
8. Drawings ➖
Type: Reduction in Capital
🏠 Cash or goods withdrawn by the owner for personal use.
Reduces owner’s equity in the business.
9. Cash Deposited/Withdrawn 💵
Type: Bank vs. Cash Entry
🏦 Funds moved between cash and bank.
Recorded in the cash book and impacts cash flow.
10. Bad Debt ❌
Type: Expense
💸 Amount due from customers that is written off as irrecoverable.
Recorded in the profit & loss account.
11. Provision for Bad Debts (PBD) 🛡
Type: Estimated Loss
📊 Expected future loss from non-recoverable debts.
Shown as a deduction from sundry debtors in the balance sheet.
12. Verification of Balance Sheet Item 🧮
Type: Audit Process
🔍 Cross-checking balances through documentation and confirmations.
Ensures accuracy and reliability of financial reports.
13. Cash Flow Statement 💼
Type: Financial Statement
🔄 Summarizes the movement of cash across operating, investing, and financing activities.
Important for assessing liquidity and solvency.
14. Schedule III Balance Sheet 🏛
Type: Regulatory Format
📚 Prescribed format under Companies Act, 2013 for presenting financial statements.
Standardizes reporting for companies in India.
15. Depreciation as per Companies Act, 2013 ⏳
Type: Non-Cash Expense
⚙️ Systematic reduction in the value of tangible fixed assets.
Calculated as per useful life and residual value norms given in the Act.
Basic Accounting Concepts with Journal Entries
| S. No. | Account Name | Type | Meaning / Use | Journal Entry Example |
|---|---|---|---|---|
| 1️⃣ | Salary Payable | Liability | Amount due to employees not yet paid | Salary A/c Dr To Salary Payable A/c |
| 2️⃣ | Rent Receivable | Asset | Rent income earned but not yet received | Rent Receivable A/c Dr To Rent Income A/c |
| 3️⃣ | Purchase | Expense | Buying goods for resale or production | Purchase A/c Dr To Cash/Bank/Creditor A/c |
| 4️⃣ | Sales | Revenue | Income from goods/services sold | Cash/Bank/Debtor A/c Dr To Sales A/c |
| 5️⃣ | Purchase Return | Contra Expense | Goods returned to supplier | Creditor A/c Dr To Purchase Return A/c |
| 6️⃣ | Sales Return | Contra Revenue | Goods returned by customer | Sales Return A/c Dr To Debtor A/c |
| 7️⃣ | Capital Introduced | Owner’s Equity | Owner’s investment into the business | Cash/Bank A/c Dr To Capital A/c |
| 8️⃣ | Drawings | Reduction in Capital | Withdrawal of cash or goods by owner for personal use | Drawings A/c Dr To Cash/Bank/Stock A/c |
| 9️⃣ | Cash Deposit/Withdrawal | Bank ↔ Cash Adjustment | Movement of funds between bank and cash | Bank A/c Dr To Cash A/c (for deposit) Cash A/c Dr To Bank A/c (for withdrawal) |
| 🔟 | Bad Debt | Expense | Irrecoverable debtor balance written off | Bad Debts A/c Dr To Debtor A/c |
| 1️⃣1️⃣ | Provision for Bad Debts (PBD) | Estimated Loss / Reserve | Estimate of likely bad debts | P&L A/c Dr To Provision for Bad Debts A/c |
| 1️⃣2️⃣ | Verification of B/S Items | Audit Procedure | Confirming accuracy of assets, liabilities | Not a journal entry – an audit/check procedure |
| 1️⃣3️⃣ | Cash Flow Statement | Financial Report | Statement showing inflow/outflow of cash | Prepared – not recorded via journal |
| 1️⃣4️⃣ | Schedule III B/S Format | Regulatory Presentation | Format prescribed under Companies Act, 2013 | Not a journal entry – reporting standard |
| 1️⃣5️⃣ | Depreciation (Companies Act) | Non-cash Expense | Reduction in value of fixed assets over time | Depreciation A/c Dr To Accumulated Depreciation A/c Then: P&L A/c Dr To Depreciation A/c |
📌 Final Thoughts:
Understanding these basic terms helps in preparing accurate accounts, interpreting financial statements, and ensuring regulatory compliance.