Account 3 Marks Question

Stock (inventory) is a measure of something on hand-goods, spares and other items in a business. It is called Stock in hand. In a trading concern, the stock on hand is the amount of goods which are lying unsold as at the end of an accounting period is called closing stock (ending inventory). In a manufacturing company, closing stock comprises raw materials, semi-finished goods and finished goods on hand on the closing date. Similarly, opening stock (beginning inventory) is the amount of stock at the beginning of the accounting period.

Asset created by an accounting entry (and included under assets in the balance sheet) that has no tangible existence or realizable value but represents actual cash expenditure. The purpose of creating a fictitious asset is to account for expenses (such as those incurred in starting a business) that cannot be placed under any normal account heading. Fictitious assets are written off as soon as possible against the firm's earnings.

Capital is the amount invested in an enterprise by the proprietor (in case of proprietorship) or by partners (in partnership business). It may be in the form of money or assets having a monetary value. It is a liability of the business towards the proprietor or partners which increases with further investments made in the business and the amount of profit earned. On the other hand, it decreases when it is withdrawn (drawings) or loss is incurred by the business.

The term 'Business Transaction' means a financial transaction or economic event entered into by two parties that initiates the accounting process of recording it in the books of account of an enterprise. It is a financial event expressed in terms of money which brings a change in the financial position of an enterprise. Stating differently, it is an agreement between two parties involving transfer or exchange of goods or services.
Examples of business transactions are: Sales of goods, purchases of goods, receipt from debtors, payment to creditors, purchase or sale of fixed assets, payment of interest, payment of dividend, etc.