Important Terms that Confuse Commerce Students
As new students enter class 11 they encounter such problems of new meaning of words they already know.
Not only in the beginning, but during the session also they come to know about such confusing words. Many such words or terms are there in class 12 also. Confusion of some terms have been removed in this article.
Good/ Goods
- As against ‘Good,’
- Goods are the articles in which the business deals. Like in case of furniture dealer, goods are furniture to be sold.
Plant/ Plant & Machinery
- As against ‘Plant’ that is a living organism having leaves,
- Plant here means the place where the actual production takes place, like Milk Plant, Car Plant.
- Plant & Machinery means immovable property attached to the earth and machines that can be moved out of the factory on a short notice.
Expenses/ Expenditure
- Expenses are the costs incurred to earn revenues, e.g. salaries, wages, rent etc.
- Expenditure is the cost spent on purchasing or growing fixed assets i.e. amount spent for the long-term on an asset, e.g. purchase of furniture, machinery, vehicles etc.
Equity/ Equity Share Capital
- Equity as used in Business Studies is the fair and impartial treatment with other persons.
- Equity in Accountancy means the capital of the company, which is Total Assets less Total Outside Liabilities.
- Equity Share Capital means only that part of Capital that is in the form of Equity Shares, the other part being the Preference Share Capital.
Important Terms that Confuse Commerce Students
Premium
- The periodic amount to be paid for a contract of insurance i.e. insurance premium.
- Premium is the extra price charged or paid for a service or product. It is in this sense this term is used in Accountancy:
- Firstly, when New partner brings his share of Goodwill in cash or in kind, it is called Premium for Goodwill.
- Secondly, when Shares or Debentures are issued at extra price, it is called Securities Premium.
Premium for Goodwill/ Goodwill
- When Share of Goodwill is brought by new partner in Cash or in Kind, 'Premium for Goodwill' is used.
- In all other cases of treatment of Goodwill i.e. When Goodwill is valued/ raised/ written off, 'Goodwill' is to be used.
Security/ Securities
- Security deposit/payment is used as a measure of security to pay for damages or loss to the property.
- Securities are financial instruments used to raise funds like Shares, Debentures etc.
Financial Decisions/ Financing Decision
- Financial decisions are the decisions taken by managers w.r.t the finances of a company and include Financing Decision along with Investment Decision and Dividend Decision.
- Financing Decision is a type of Financial Decisions, concerned with proportion of equity and debt capital in the capital structure of the company.
Capital/ Reserve/ Revenue/ Capital Reserve/ Revenue Reserve
- Capital is the investment by the owner in his business, in any form.
- Reserve is the amount that a business sets aside out of profits for strengthening the financial position of the business.
- Revenue is the Total Receipts out of sale of goods and services.
- Capital Reserve is the type of Reserve created out of Capital Profits, used for meeting some long term expenditure.
- Revenue Reserve is the Reserve created out of Revenue Profits , used for meeting unforeseen contingencies.
Similarly, There can be Capital Receipt/ Revenue Receipts/ Capital Gain/ Capital losses etc.
More such confusing terms will come soon...