 Hello everyone. I welcome you to this session. In this session, we will discuss the third part of Unit 1, Introduction to Accounting or Financial Accounting of BICOM for Semester. The focus point of our discussion in this session will be on certain terms that are used in accounting. These terms are very frequently used and therefore, it is very important to know the meaning of these terms. So first of all, let us have a discussion on the term capital. Capital generally means the amount that we invest in the business. If you are starting your business, if you invest an amount of rupees, for example, 50,000, then the capital of your business will be rupees 50,000. But the term capital not only indicates the money only that we have invested, it may be some other assets also. For example, if you bring a table and a chair from your house to be used in business, that will also be considered as a capital for the business. So the money that you have invested in your business plus any other assets that you have invested in business. All these together will be termed as capital for the business. So capital will be in the business till the business is closed down. So it will continue till the end of the business. In other words, we can define capital as total assets minus total outside liabilities. The assets including the money that you have invested, any other loan or any credit that you have taken from outside parties, from bank and other non-bank financial institutions, anything that we have taken as loan. After detecting all your liabilities, the residual amount is known as capital. Then another important term used in accounting is asset. Asset means the properties of the business. Assets, these are the resources, these are owned by the business. Resources are used in the business for supporting operations. It may be for production, providing service, etc. So assets, we can classify it as fixed assets and current assets. Fixed assets are used in the business for a very longer period of time. They are purchased with the objective of supporting the operation of the business. A machine that is used in production will be considered as a fixed asset for the business. So that asset will not be sold out for a longer period of time. It will be used in the business. At the end of the business or when the machine is not able to give the required output, then it will be sold out. But it will be for a very longer period of time. May be for 15 years, may be for 20 years. So this is fixed. It will be used permanently in the business. So the examples are land, building, machinery, office furniture, etc. All these will be used for a very longer period of time. So next, current assets. Current assets are those which are converted into cash within an accounting period. So this will easily be converted into cash. It will take the form from one kind asset to another kind asset. Cash is also a kind asset. So it will change the form and therefore it is known as kind assets. For example, a debtor will discuss this particular term debtor. It can be easily converted into cash or you can take another example, raw material. So raw material, when it is processed, it becomes finished product and the finished product will be sold in the market against cash. So that raw material is converted into cash. So this kind asset that is the raw material is converted into cash within one accounting period. So this will be termed as current assets. So accounting period generally consists of 12 months. That is the period for which we record the transactions in our books of accounts. For tax purposes in businesses, generally the financial year is considered as accounting period. So that starts from 1st April and ends on 31st March on the next year. So this is the period within which all accounting records will be prepared, tax will be paid and that is known as accounting period. However, for managerial purpose, that accounting period may be subdivided. Suppose we can prepare our accounts for a period of 3 months, for a period of 6 months for managerial purpose. But for tax purposes or for any other legal purposes, it is the accounting period consisting of 12 months. Then liabilities, just opposite to assets. Assets are resources whereas liabilities are debts. Obligations of the business means the business, your business have to pay it, have to return it. If you have taken loan from bank for your business, then you have to return it. That is the liability of the business. That is the obligation that you have to repay, your business have to repay. Again we can classify the liabilities as fixed liabilities and current liabilities. Fixed liabilities which are not required to be paid within one accounting period, that is a long term bank loan. So these are not required to pay within one year. So the loan may be for 5 years, for 7 years etc. for a comparatively longer period of time. Then current liabilities, these are required to be paid within one accounting period. So within the 12 months, the business have to prepare the liabilities. For example, if goods are purchased by your business on credit, you have to pay within 2 months. So that is the current liability that you have to pay within a very short period of time, that is within the accounting period. So these are termed as current liabilities. Then another term that we have already mentioned is debtor. Means the person or entity who will pay money to the business in future on account of a debt. Let us take an example. Suppose goods sold to Mr. X for Rs. 5000 on credit. Means our business has sold goods to a person named as Mr. X and the amount of that sale is Rs. 5000 and this is a credit transaction. Means we are not getting the cash immediately, we will get the cash at a later period in future period. Suppose after 3 months. So now Mr. X is the debtor of our business because that person means the X will pay money to the business, pay money to our business at a future period of time within the accounting period. So debtor is a current assets. When Mr. X will pay that amount Rs. 5000 in our example, it will be converted into cash within the accounting period that we have already discussed. So debtor is a current asset. Cash is also a kind of asset. Debtor is converted into cash. So one kind of asset is converted to another kind of asset in the accounting period that is known as current asset. And debtor the person who is liable to pay to our business. So let us discuss another term, creditor. Creditor means the person or the entity to whom your business is liable to pay money at a future date. Let us take an example. Purchase goods from Mr. X for Rs. 5000 on credit. Means your business has purchased goods from Mr. X. The amount is Rs. 5000. The transaction is a credit transaction. Means you have not paid the cash at a time of purchase but you will pay to Mr. X at a future time. So at a future time means you have to pay it within the accounting period. Suppose within three months we have to pay. So when you purchase goods you get the goods but you have a liability to pay this amount Rs. 5000 to Mr. X. So Mr. X is your creditor. Means Mr. X is the creditor of your business. So your business have to pay Rs. 5000 to Mr. X at a particular date. So again creditor is the current liability means we have to pay it within the accounting period. Another term is prepaid expenses. These expenses are related to future. Means we paid the money, we paid the cash right now but the services or the benefits from that expense will be received in the future. So right now we have paid it and the services against that payment will be received in the future period. For example prepaid insurance. We paid some money in the form of premium and these services will be received in the future. So this is prepaid. Outstanding expenses. Outstanding expenses means expenses incurred in a particular accounting period but not paid in that accounting period. Means the expenses related to a particular accounting period. The expenses incurred but we have not paid the cash to meet the expense. So cash will be paid in some other accounting period in the next accounting period. For example the salary for the month of March will be paid in the month of April. So in the month of March there is the end of one accounting period. In that case the expense of salary that is incurred in the month of March will be treated as outstanding expenses. So that expense will be paid in the next month but for accounting this will be the next accounting period. So similarly we can pay outstanding rent, outstanding salary etc. So in this way we can take another example of outstanding rent. So these are the terms generally used in accounting and we will use these terms in recording our business transactions in various books of accounts. Thank you. Thank you very much.