Revision: Financial Accounting 1 >> Theoretical Frame Work Accountancy Commerce (English Medium) Class 11 CBSE

A credit transaction is a commercial arrangement in which a customer obtains goods or services with the agreement to make payment at a future date.

Profits are defined as the difference between the revenue that the firm earns from selling its output and the cost of producing that output, i.e.,

π = TR − TC

where, Greek letter π (pi) shows total profits,

TR denotes total revenue.

TC indicates total costs.

Anything valuable the business owns or controls, measured in money. 

Money the business still needs to pay. 

Money the business still needs to pay. 

Anything valuable the business owns or controls, measured in money. 

A discount is a reduction in price given by a seller to a buyer

Prof. Robert N. Anthony has defined accounting as “Nearly every business enterprise has an accounting system. It is a means of collecting, summarizing, analyzing and reporting in monetary terms information about the business transactions."

In the words of Kohler: “Accounting standards are codes of conduct imposed by customs, laws or professional bodies for the benefit of public accountants and accountants generally.” 

• A credit transaction allows customers to receive goods or services now and pay later, based on trust.
• Credit encourages customer spending and helps businesses stay competitive in the market.
• To ensure payment and avoid disputes, businesses use credit instruments like Bills of Exchange and Promissory Notes.
• In India, such credit instruments have existed for a long time and are traditionally called Hundies.
• These written promises are legally valid, accepted by banks, and can be transferred to others as negotiable instruments.