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C H A P T E R

Basic Accounting Terms

The Accounting Terms prescribed in the Syllabus are discussed hereunder:
1. Event. Event is a business event that impacts the Ledger account balances.
‘Event’ means happening or occurrence as a result of transaction or transactions and which
brings change in the financial position of the entity. Some examples of event are: inventory,
gross profit, and net profit, etc.
2. Transaction. It is exchange of money, goods and/or services by an entity.
‘Transaction’ is a financial event entered into by the entity having monetary impact on the
financial statements and recorded in the books of account. It brings change in the financial
position of an enterprise. Some examples of transactions are: sale of goods, purchase
of goods, receipts from debtors, payments to creditors, purchase or sale of fixed assets,
payment of dividend, etc.
Characteristics of a Transaction
(i) It is for a financial value, i.e., for an amount.
(ii) It is supported by a source voucher (document) e.g., sale invoice, purchase bills,
receipts, debit note, credit note, etc.
(iii) It has two fold effect in accounting.

(iv) It brings change in the financial position (assets and liabilities) of the entity.
A transaction is a cash transaction if the amount is transacted immediately on entering into
a transaction. It is a credit transaction if it is settled at a later date.
If a transaction is settled partly in cash immediately and partly later, part of transaction for
which cash is received is cash transaction and other part is credit transaction.
3. Vouchers.
Source Voucher. An evidence of transaction having taken place.
Voucher is a document which establishes that a transaction has taken place. It is an evidence
on the basis of which an entry is recorded in the books of account. Some examples of
vouchers are: Cash Memo, Invoice or Bill, Receipt, Debit/Credit Notes, etc. They are also
known as Source Vouchers.
Accounting Voucher. It is prepared on the basis of source vouchers showing account or accounts
that are debited and credited.
Based on the source vouchers, an accounting voucher is prepared which shows the accounts
debited and credited.