Basic Accounting Terms Class 11
In accounting, an asset refers to any resource that a company or individual owns or controls, which is expected to provide future economic benefits. These resources can be both tangible and intangible.
Thus assets are those sources which provide benefits in future. For example,
Machine, Land, Building, Truck, Cash, etc. These are shown in the assets section of the balance sheet.
Types of Assets : There are two types of assets
1. Non current Assets -- Tangible Assets -- Intangible Asset
2. Current Assets -- Liquid Asset
Liabilities :
The money that the business enterprise owes to others is called a liability; Such as creditors, bills payable, loans and overdrafts, etc. Thus, "liabilities are liabilities, these are amounts that are payable to creditors in the future." In other words, liabilities are financial liabilities that do not involve owner's funds.
Capital :
That amount of money or goods is called capital which the owner of the business invests in the business. Business is started with this amount. Capital is the liability and claim of the owner on the assets of the business. Hence, it is shown in the liabilities side of the balance sheet.
1. Basic Accounting Terms Class 11
Basic Accounting Terms Class 11
Assets :
In accounting, an asset refers to any resource that a company or individual owns or controls,
which is expected to provide future economic benefits. These resources can be both tangible
and intangible.
Thus assets are those sources which provide benefits in future. For example,
Machine, Land, Building, Truck, Cash, etc. These are shown in the assets section of the
balance sheet.
Types of Assets : There are two types of assets
Asset
1. Non current Assets — Tangible Assets — Intangible Asset
2. Current Assets — Liquid Asset
Liabilities :
The money that the business enterprise owes to others is called a liability; Such as creditors,
bills payable, loans and overdrafts, etc. Thus, “liabilities are liabilities, these are amounts that
are payable to creditors in the future.” In other words, liabilities are financial liabilities that do
not involve owner’s funds.
Assets – Capital = Liabilities
Capital :
Basic Accounting Terms Class 11
Basic Accounting Terms Class 11
That amount of money or goods is called capital which the owner of the business invests in
the business. Business is started with this amount. Capital is the liability and claim of the
owner on the assets of the business. Hence, it is shown in the liabilities side of the balance
sheet.
Thus,
Capital = Total Assets – Total External Liabilities.
Classification of Capital —- Capital can be divided into two parts:
1. Fixed Capital — The amount that is used to acquire fixed assets is called fixed capital,
such as purchase of machinery and plant, purchase of land and building.
2. 2. Working Capital — That part of the capital which is used for the day-to-day operations of
the business is called working capital. The excess of current assets over current liabilities is
called working capital.
Current Assets – Current Liabilities = Working Capital
Expenses :
Basic Accounting Terms Class 11
Basic Accounting Terms Class 11
The cost of goods and services used for the receipt of income is called expenditure. In fact,
the cost incurred in producing and selling goods or services is called ‘expense’ in the
language of accounting.
Example of Expenses
(i) Cost of goods sold,
(ii) Salaries, rent, printing and stationery,
(iii) Advertising expenses, commission,
(iv) Interest, depreciation, etc. Capital decreases due to expenditure
Income :
Income is an increase in economic benefits in an accounting year in the form of (i) inflow of
assets or (ii) decrease in liabilities, thereby increasing internal equity.
Revenue – Expenses = Income
Expenditure :
Any payment made to acquire property, goods or services or transfer of property is called an
expense.
Types of Expenses
1. Capital Expenditure
2. Revenue Expenditure
1. Capital Expenditure — made for the purpose of purchasing fixed assets or increasing their
value
Non-recurring expenditure is called capital expenditure.
Example — The expenditure incurred for the purchase of land, building, machine,
equipment, etc. or for its construction is capital expenditure. capital expenditure long term
provides benefits.
3. 2. Revenue Expenditure — Revenue expenditure is that expenditure which is recurring in
nature and its benefit is received in one accounting period only. All input costs (or expenses)
are debited to the Trading and Profit and Loss Account. Revenue expenses are helpful in
maintaining the current profit earning capacity.
Revenue :
Revenue refers to the income of the business. It also means income received regularly or
income of recurring nature. Income increases capital.
Examples of revenue are receipts from sale of goods, interest earned, commission earned,
rent earned, dividend earned, discount earned, etc.
Debtors :
The person, institution, firm, company or corporation, etc., from whom money is to be
recovered or to whom the amount of the institution is due, are called debtors.
Creditors :
The person, institution, firm, company or corporation, etc., to whom money is payable by the
merchant for credit purchases or for loans, are called creditors of the merchant.
Goods :
The things that a trader deals in are called his ‘goods’; For example, if a trader deals in
wheat, then wheat will be called his ‘goods’; If he deals in furniture, then the furniture will be
called his ‘goods’. When an item is manufactured or purchased for the purpose of sale, then
that item is called a ‘goods’. ‘Goods’ has also been defined in section 2(7) of the Sale of
Goods Act, 1930. According to this, “floating asset of every kind except actionable claim and
money are ‘goods’.
Cost :
Cost is the amount spent or to be spent on a particular item, product or activity
Stock :
Unused or unsold goods, spares and other items that remain with the business organisation
on a given date are called rahatiya, skandha or stock. Stocks are divided into two classes
(i) Opening Stock – The value of unsold goods with the business at the beginning of the
accounting year is called opening stock.
(ii) Closing Stock – The value of unsold goods with the business enterprise at the end of the
accounting year is called closing stock.
4. Inventory – Tangible assets held for sale in the course of the normal course of business or
property held in the process of production, supply maintenance and consumables for such
sale, except machine spares, are called inventory. Thus it is a list of goods.
Purchases :
Buying of the goods with which the trader does business is called purchase. If the purchase
is made in cash, it is called cash purchase and if the purchase is made on credit, it is called
credit purchase.
Purchases Returns – After purchasing the goods, if it is found that the goods are not as per
the sample received or there is a defect in it or for any other reason, then that much goods
are returned, it is called Purchases Return. Returns (P/R)]. Purchase returns are also called
Returns Outward (R/O).
Sales :
The sale of the goods in which the merchant deals is called sales. If this sale is for cash then
it is called cash sale and if it is on credit then it is called credit sale.
According to Section 4 of the Sale of Goods Act, 1930, a contract of sale is a contract
according to which the seller transfers the ownership of goods to the buyer for a fixed price.
The sale may be unconditional or conditional.
(Sales Returns) – After the goods have been sold, if the buyer of the goods understands that
he was not sold the goods of the kind that he was promised to sell, then he shall be entitled
to Will return There may be other reasons for returning merchandise. Therefore, the goods
that are returned after sale are called Sales Returns (S/R). Sales return is also known as
Returns Inward (R/I).
Profit :
In accounting, profit is the amount of money a business makes after deducting all its
expenses from its revenue. It is also known as net income or earnings. Profit is an essential
financial metric because it indicates the financial health of a company and its ability to
generate income.
Losses :
Losses are used in many senses, such as:
(i) Excess of expenditure over revenue or income is called loss. For example, if the income
from various sources is ₹ 2,00,000 and the expenditure is ₹ 2,50,000, then in such a
situation there will be a loss of ₹ 50,000.
(ii) Losses reduce capital. Therefore, the ‘decreasing’ in capital due to incidental transactions
is ‘loss’.
5. (iii) Loss of money or money equivalent without any consideration, such as loss of cash due
to theft, loss of goods due to fire, compensation paid to others, etc.
Types of Losses –
Losses can be of two types- (i) Operating Losses, and
(ii) Non-operating Losses. Losses can be normal losses or abnormal losses.
Gain :
The term ‘Gain’ is used for gains of irregular nature, such as capital gains. Example – The
cost of the machine is ₹ 1,00,000. If it is sold for ₹ 1,25,000 then ₹ 25,000 will be considered
as profit
Vouchers :
When goods are bought and sold or money is transacted, the documents that are prepared
to prove it Yes, they are called Vouchers.
Discount :
Sometimes the traders do not take the full value of the goods from their customers and leave
some value i.e. they give some concession in the value of the goods. Therefore, the lesser
value taken is called discount; For example, if goods worth ₹ 1,000 are sold and only ₹ 900
is taken from the customer as full payment, then ₹ 100 will be called a deduction.
(‘Trade Discount’) – This discount is written in the list of prices and is given to all those
customers who deal in the same item. The purpose of this reduction is only that the
customers increase. Transactions that have a trade discount are accounted for after
deducting the trade discount.
(Special Discount) – This deduction is given by some businessmen only to those customers
who become permanent customers. Its purpose is to make the customer a permanent
customer. This type of deduction has brought great benefits to the business, but often this
deduction is not given to new persons.
(Cash Discount) – This discount is given to those traders who pay the price before a certain
date. It may also happen that a permanent customer will get all these three types of
deductions, because business deduction is given to everyone, so the permanent customer
will also get it and if he makes the cash payment by a certain date, he will also get the cash
deduction. And he will have the right to get special deduction because he is a permanent
customer.
Transactions :
A transaction is an event in which an exchange is made between two or more persons. So it
is a kind of ‘deal’ or deal. Business Transactions – The purchase, sale, exchange or
6. transaction of an item is called ‘Business Deal’ or ‘Transaction’ or ‘Business Transaction’.
The deal may be cash or credit; For example, sold goods worth ₹ 500 to Mohan, it is a deal.
Features of Transactions –
(i) It is related to economic activities measurable in money.
(ii) It is related to purchase and sale or other exchange value.
(iii) It affects the accounting equation of the business.
(iv) It has two sides or aspects, namely, receipt of profit (debit) and giving of profit (credit).
Drawings :
The goods or cash that the owner of the business takes out of the business for his personal
use are called ‘draws’.
Entity :
(Business Entity) – Business entity refers to specially identified business ventures, such as
Alankar Jewellers, Singhal Traders, SBPD Publications, etc.
Equity :
The term equity refers to capital and liabilities. It is of two types- (i) Owner’s Equity, eg-
capital. (ii) Outsiders Equity, such as creditors, loans, due sons, etc. These are also called
‘outside liabilities’.
Bed Debts :
When the money lent is not recovered in any way, then the amount of money that could not
be recovered is called bad or unrecoverable debt. The amount of credit sale which cannot be
recovered is also called bad debt.
Doubtful Debts :
Those debts (or such debtors) whose chances of recovery are questionable or doubtful are
called doubtful debts.
Solvent :
A businessman is said to be solvent when he is fully capable of paying all his liabilities.
Accounts :
When the deals related to any item, service or particular person are sorted and kept at one
place, then it is called the account of that particular item or person; For example, accounting
7. of all the transactions related to a person at one place is called his account. Similarly, when
all the transactions related to property are written in one place, it is called property account,
and so on. Every account has two sides – one left and the other right. The left side is called
debit and the right side is called credit. There are two types of accounts – personal and
impersonal
(Personal Account) – Personal or personal account means the account which is opened for
transactions related to a particular person, firm, institution, company, corporation, etc.; For
example, Sharad’s account, Sunderlal & Sons’ account, Swadeshi Limited’s account,
Financial Corporation’s account, etc.
(Impersonal Account)- These accounts are not in the name of any person, firm, institution,
company or corporation but are related to business, they are called impersonal accounts. It
has two parts – real account and account.
(Real Account) – The account related to property or rights is called real account; Such as
Building Account, Cash Account, Furniture Account, Plant and Machinery Account,
Investment Account, etc.
(Nominal Account) – All accounts related to profit-loss and income-expenditure are called
nominal accounts; For example, Salary Account, Deduction Account, Rent Account, Interest
Account, Wages Account, etc.
Debit :
In accounting, debit refers to an entry made on the left side of a ledger account. Debits and
credits are used to record transactions in double-entry accounting, which is the system used
by most businesses to track their financial activities.
Credit :
In accounting, credit refers to an entry made on the right side of a ledger account. Credits
and debits are used to record transactions in double-entry accounting, which is the system
used by most businesses to track their financial activities.
Entry :
When every transaction or transaction is written in the books of accounts according to the
rules and principles of bookkeeping, it is called an entry.
Books of Accounts :
Accounting books refer to the journal and ledger in which business transactions are
recorded.
Trade Receivables :
8. The term ‘trade receivables’ includes both ‘trade debtors’ and ‘bills receivable’. The
combined amounts of these two are shown in ‘Account Receivables’. Trade receivables are
‘assets’ for the firm.
Thus,
Debtors + Bill Receivables = Trade Receivables
Trade Payables :
‘Trade Creditors’ and ‘Bills Payable’ are collectively referred to as ‘Trade Liabilities’.
Thus,
Creditors + Bills Payable = Trade Pay bill
Accounts Payables are prepared for liabilities. Trade liabilities are liabilities for the entity.
Insolvent :
Insolvent refers to a person whose assets are insufficient to meet all his liabilities (or debts)
Net Worth :
Net worth means the value of total assets of the firm less current liabilities, debt capital, long
term debt and provisions.
Thus,
Net worth = owner’s equity
Frequently Asked Questions
Qs 1. Who is the father of accounting?
Ans.. Luca Pacioli
Qs 2. What are the 3 golden rules of accounting class 11
Ans.. Golden rules of accounting
Rule 1: Debit all expenses and losses, credit all incomes and gains.
Rule 2: Debit the receiver, credit the giver.
9. Rule 3: Debit what comes in, credit what goes out.
Qs 3. What are 3 types of accounts ?
Ans.. Different types of Accounts in accounting are
Real Account
Personal Account
Nominal Account
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