Basic Accounting Terms Class 11 Notes

This chapter includes all the accounting terms that frequently come up while learning anything. You can easily solve practical questions if you understand these basic terms thoroughly. Here are the basic accounting terms class 11 notes.

Business Transaction

A business transaction is an economic activity of the business that changes its financial position.
For example: Kamakshi bought machinery from Chetan for Rs. 23,00,000.

Account

An account is a ledger record in a summarised form of all the transactions that have taken place with a particular person.
For example: Shivam Rana A/c, Harish A/c, etc.

Capital

It refers to the amount invested by the proprietor in a business enterprise.
For example: Pawan started a business with cash of Rs. 1,00,000.

Drawing

Any cash or value of goods withdrawn by the owner for personal use or any private payments made out of business funds is called drawings.
For Example: Renu took furniture from the business for her personal use.

Liability

It refers to the amount that the firms owe to the outsiders. Liabilities are further divided as:

• Non-Current Liabilities: Amount that firms had to pay after 1 year.
• Current Liabilities: Amount that firms had to pay within a year.

For example: Creditors, Bank loans, etc.

Assets

Assets are valuable resources owned by a business enterprise that can be measured in terms of money. Assets may be classified as:

• Non-Current Assets: Assets that provide benefits for more than 1 year. For example: Machinery, Goodwill, etc.
• Current Assets: Assets whose benefits exhaust within 1 year. For example: Prepaid expenses, debtors, etc.
• Fictitious Assets: Those assets which do not have physical existence and market value. For example: Advertisement Suspense A/c

Non-current assets are further divided into tangible and intangible assets.

1. Tangible Assets: Assets that can be seen, touched, and felt are known as tangible assets. For example: Plant and Machinery, Buildings, etc.
2. Intangible Assets: Assets that cannot be seen and touched but only there presence can be felt are known as intangible assets. For example: Goodwill, Copyrights, etc.

Capital Receipts and Revenue Receipts

Revenue receipts are shown on the credit side of Trading and Profit and Loss A/c whereas Capital receipts are shown in the balance sheet.

Expenditure

Expenditure is the amount spent for acquiring assets, goods & services. Expenditures are classified as:

• Capital Expenditure
• Revenue Expenditure
• Deferred Revenue Expenditure

Expenses

Expense is the cost incurred in producing and selling the goods & services.

Income

Excess of revenue over expenses is called income.

Profit

It is the excess of total revenue over total expenses of a business enterprise for an accounting period.

Gain

Gains arise from events or transactions that are incidental to business such as the sale of fixed assets.

Loss

When total expenses exceed the total revenue of a business enterprise then it is termed as loss.

Purchases

The term purchases is used for buying goods for resale or for use in the manufacturing process.

Sales

The term sale is used for the amount of sale of goods & services rendered.

Stock

The term stock includes the value of those goods that are purchased for reselling & which are lying unsold at the end of the accounting period.

Inventory

In the case of a manufacturer, there can be opening & closing inventory of 4 types:

1. Inventory of Raw Material
2. Inventory of Work-in-Progress
3. Inventory of Finished Goods
4. Inventory of Stock-in-Trade

Meaning and Objectives of Accounting Class 11 Notes

Trade Receivable

It refers to the amount of receivables on account of the sale of goods or services rendered by the company. Trade receivables include debtors and bills receivable.

Debtors

It represents those persons or firms to whom goods have been sold or services rendered on credit & payment has not been received from them.

Bills Receivable

A bill of exchange becomes a bill receivable for the person who draws it (drawer) and gets it back after its acceptance from the drawee.

Trade Payable

Trade payables are the amount payable on account of goods purchased or services taken in the normal course of business. Trade payables include creditors & bills payable.

Creditors

It represents those persons or firms from whom goods have been purchased or services procured on credit & payment has not been made to them.

Bills Payable

A bill of exchange becomes a bill payable to the person who accepts it (drawee) and returns it to the drawer.

Goods

Goods include all those things which are purchased for reselling or which are used for producing finished products.

Cost

Cost can be termed as the amount of resources given up in exchange for some goods or services.

Voucher

A voucher is a document based on which transactions are first recorded in the books.

Discount

It is the allowance given by the seller to the buyer. It is of two types:

• Trade Discount
• Cash Discount

Goods & Services Tax (GST)

All indirect taxes have been merged into a single tax known as GST.

Bad debts

It is the amount that has become irrecoverable from a debtor.

Insolvent

A person or an enterprise that is not in a position to pay its debts is known as insolvent.

Solvent

A person or an enterprise which is in a position to pay its debts.

Revenue

Revenue is the income of a recurring nature such as receipts from the sale of goods, rent, etc.

Turnover

Turnover means total sales made in a particular period.

Livestock

Domestic animals such as cattle or horses are known as livestock.

Investments

It refers to the deployment of funds in the shares or debentures of companies to earn a return.

Merchandise

These are the goods for resale.