Page 19 - ISCDEBK-XI

2.6 Double Entry Book Keeping—ISC XI
Other Important Terms
The following Accounting Terms are not prescribed in the Syllabus but are important to
understand:
1. Cost.

It is the amount of expenditure incurred on or attributable to a specified article or product
or activity.

2. Gain. Profit earned from transactions incidental to business.
It is a profit that arises from transactions which are incidental to business such as sale of
investment or fixed asset at a price that is higher than its book value.
3. Expenditure. Amount incurred and includes both capital and revenue expenditure.
Expenditure is the amount spent or liability incurred for the value received. An expenditure
may be categorised into:

(i) Capital Expenditure. Amount spent on acquiring fixed assets.
Capital Expenditure is the amount spent on purchasing assets which will give benefits
over a number of accounting periods. It means expenditure incurred on acquiring fixed
assets or for their improvement. Examples are: purchase of machinery to manufacture
goods, purchase of furniture or computers to conduct business. Capital expenditure is
shown on the assets side of the Balance Sheet.
(ii) Revenue Expenditure. Cost that is charged as expense.
Revenue Expenditure is the amount spent to purchase goods and/or services that are
consumed during the accounting period. Revenue expenditure does not increase the
earning capacity but maintains it in the current year.

4. Discount. Reduction in the price of goods or in amount.
Discount is reduction in the prices of goods or amount due by the seller of goods and/or
services.

5. Trade Discount. Reduction in price of goods by the seller.
Trade Discount is discount allowed by the seller of goods for goods being purchased in
quantity. It is not accounted under a separate head but sale is accounted at net value.
Similarly, purchases is recorded at net amount, i.e., net of trade discount by the purchaser
of goods.

6. Cash Discount. Reduction in the amount due.
Cash Discount means discount allowed by the seller for making timely payment. It is
debited/credited to a separate head of account.
7. Rebate. Discount allowed for reasons other than for which Trade Discount is allowed.
It is reduction in price allowed by the seller of goods after the goods have been sold. It is
allowed for the reasons other than for which trade discount and cash discount are allowed.
For example, discount because of poor quality of goods.