Accounting Equations Class 11 Notes

An accounting equation is a formula of accounting that shows that the assets of a business are always equal to the total capital and liabilities. Here are the accounting equations class 11 notes.

Fundamental Accounting Equation: Assets = Liabilities + Capital

Basic Purposes of Accounting Equation

• Since the accounting equation is always equal, it ensures accuracy in the recording of business transactions.
• It helps in the preparation of the balance sheet.

Debit

When an amount is entered on the left-hand side of an account, it is a debit and the account is said to be debited.

Credit

When an amount is entered on the right-hand side of an account, it is a credit and the account is said to be credited.

Rules of Debit & Credit

In order to decide when to write on the debit side of an account and when to write on the credit side of an account. There are two approaches:

1. American approach or Modern approach
2. English approach or Traditional approach

American Approach

The rules of debit and credit depend on the nature of an account. For this purpose, all the accounts are classified into the following five categories in the American Approach:

• Assets
• Liabilities
• Capital
• Revenue
• Expenses

Categories of American Approach

1) Assets Accounts

When there is an increase in the amount of an asset, such an increase is recorded on the debit side of the asset account and if there is a reduction in the amount of an asset, such reduction is recorded on the credit side of the asset account.

2) Liabilities Account

When there is an increase in the amount of liability, such an increase will be recorded on the credit side of the liability account. On the contrary, if there is a reduction in the amount of a liability, it will be recorded on the debit side of the liability account.

3) Capital Account

An increase in the capital is recorded on the credit side and the decrease in the capital is recorded on the debit side.

4) Revenue or Income Account

All increases in the gains and incomes are recorded on the credit side of the concerned income account as it leads to increase in the capital.

Accounting Principles Class 11 Notes

5) Expenses or Losses Account

All increases in the losses and expenses are recorded on the debit side of the concerned expenses account as it leads to a decrease in capital.

All Rules

• Debit the increase in assets and credit the increase in assets.
• Credit the increase in liabilities and debit the decrease in liabilities.
• Credit the increase in capital and debit the decrease in capital.
• Credit the increase in incomes and debit the decrease in incomes.
• Debit the increase in expenses and credit the decrease in expenses.