Accountancy

NCERT Class 11 Accountancy Chapter 1 introduces accounting as the process of identifying, measuring, recording and communicating economic information to interested users, covering its meaning, objectives, role, qualitative characteristics, and basic terms.

• 1Accounting is defined as the process of identifying, measuring, recording and communicating required economic information of an organisation to interested users.
• 2The four core steps of accounting are: identification (selecting financial events), measurement (quantifying in monetary terms), recording (in chronological order), and communication (through reports to users).
• 3Users of accounting information are classified as internal (Chief Executive, managers, supervisors) and external (investors, creditors, tax authorities, regulatory agencies, customers, competitors).
• 4The four qualitative characteristics of useful accounting information are reliability, relevance, understandability and comparability.
• 5The three branches of accounting are financial accounting (recording transactions, preparing financial statements), cost accounting (ascertaining product costs, fixing prices) and management accounting (providing information for planning and decision-making).

Chapter 2 of NCERT Class 11 Accountancy explains the theory base of accounting — covering Generally Accepted Accounting Principles (GAAP), thirteen basic accounting concepts, double and single entry systems, cash and accrual bases, accounting standards issued by ICAI, and an introduction to GST.

• 1GAAP refers to the rules or guidelines adopted for recording and reporting of business transactions in order to bring uniformity in the preparation and presentation of financial statements; the various terms — principles, concepts, conventions, postulates — are used interchangeably.
• 2Business Entity Concept: A business has a distinct and separate entity from its owners; personal assets, liabilities, and transactions of the owner are not recorded in the books of the business.
• 3Dual Aspect Concept: Every transaction has a two-fold effect and must be recorded at two places; the duality principle is expressed as Assets = Liabilities + Capital and forms the core of the Double Entry System.
• 4Matching Concept: Expenses incurred in an accounting period should be matched with the revenues earned during that same period; an expense is recognised when an asset or service has been used to generate revenue, not when cash is paid.
• 5Conservatism (Prudence): Profits should not be recorded until realised, but all losses — even those with a remote possibility — are to be provided for; examples include valuing closing stock at cost or market value, whichever is lower, and creating provisions for doubtful debts.

Recording of Transactions — I, Chapter 3 of NCERT Class 11 Accountancy, explains source documents, accounting vouchers, the accounting equation (A = L + C), rules of debit and credit for five account types, journalising, and posting to the ledger.

• 1Source documents such as cash memos, invoices, cheques, pay-in-slips, and salary slips provide evidence of business transactions and are the basis for all recording in books of account.
• 2Accounting vouchers are classified as transaction vouchers (one debit, one credit), compound vouchers (debit voucher or credit voucher), and journal or complex vouchers (multiple debits and multiple credits).
• 3The accounting equation A = L + C, also called the Balance Sheet Equation, must always remain balanced after every transaction.
• 4All accounts belong to five categories — assets, liabilities, capital, revenues/gains, and expenses/losses — each with distinct rules for debit and credit.
• 5In double entry accounting, every transaction is recorded in at least two accounts and the total amount debited must equal the total amount credited.

NCERT Class 11 Accountancy Chapter 4 introduces special purpose books — including the cash book, purchases book, sales book, purchases return book, sales return book, and journal proper — used to sub-divide the journal for quick and efficient recording of large volumes of business transactions.

• 1Special purpose books (subsidiary books or daybooks) sub-divide the journal to record repetitive transactions of a similar nature efficiently and make division of labour possible in accounting work.
• 2The cash book records all cash receipts on the debit side and all cash payments on the credit side; it serves as both a journal and a ledger cash account, so no separate cash account is needed in the ledger.
• 3The single column cash book has one amount column on each side; the double column cash book adds a bank column on each side, eliminating the need for a separate bank account in the ledger.
• 4Contra entries (marked 'C' in the L.F. column) arise when cash is deposited into the bank or withdrawn from the bank; these entries are not posted to the ledger. A credit balance in the bank column indicates a bank overdraft.
• 5The petty cash book records small payments under the imprest system: a fixed imprest amount is given to the petty cashier and replenished by the head cashier for the exact amount spent at the end of each period.

Chapter 5 of NCERT Class 11 Accountancy explains the Bank Reconciliation Statement — a statement prepared to reconcile the difference between the bank balance shown by the cash book and the balance shown by the bank passbook or bank statement.

• 1A Bank Reconciliation Statement reconciles the bank balance as per the cash book with the balance as per the passbook or bank statement, listing all items causing the difference.
• 2Differences arise from two causes: timing differences in recording transactions, and errors committed by the business firm or by the bank.
• 3Timing differences include cheques issued but not yet presented for payment — recorded in the cash book immediately but debited by the bank only when actually paid.
• 4Cheques deposited but not yet collected by the bank are recorded on the debit side of the cash book but not yet credited in the passbook, reducing the passbook balance relative to the cash book.
• 5Direct debits (bank charges, interest on overdraft, dishonoured cheques) and direct credits (interest, dividends, direct deposits by debtors) made by the bank without the firm's knowledge also cause differences.

Chapter 6 of NCERT Class 11 Accountancy covers Trial Balance and Rectification of Errors — explaining how a trial balance is prepared to verify arithmetical accuracy of ledger accounts and how different types of accounting errors are identified and rectified.

• 1A trial balance is a statement of the debit and credit balances of all ledger accounts; under the double entry system its two column totals must agree.
• 2Three methods of preparation are described: Totals Method, Balances Method (most widely used in practice), and Totals-cum-Balances Method.
• 3Three objectives: (i) verify arithmetical accuracy of ledger accounts; (ii) help locate errors; (iii) assist in preparing financial statements (Profit and Loss Account and Balance Sheet).
• 4Errors are classified into four types: errors of commission (wrong recording, posting, casting, or balancing), errors of omission (complete or partial), errors of principle (wrong capital/revenue classification), and compensating errors (two or more errors whose net debit-credit effect is nil).
• 5Errors of principle and compensating errors do not affect trial balance agreement; one-sided errors such as partial omissions and wrong-side postings do.

NCERT Class 11 Accountancy Chapter 7 explains depreciation — the permanent, continuing decline in book value of fixed assets due to use, time, or obsolescence — and covers the meaning, accounting treatment, and types of provisions and reserves.

• 1Depreciation is a permanent, continuing, and gradual decline in the book value of a fixed asset due to use, passage of time, or obsolescence; it is a non-cash expense and is charged against revenue.
• 2Causes of depreciation include wear and tear due to use or passage of time, expiration of legal rights (patents, leases), obsolescence from technological changes, and abnormal factors such as accidents, fire, or floods.
• 3Three factors determine the amount of depreciation: original cost of the asset (including installation and freight), estimated net residual (salvage) value, and estimated useful life.
• 4Under the straight line method, a fixed and equal amount is charged every year — computed as (Cost minus Estimated net residual value) divided by Estimated useful life; this method is simple and suitable for assets with low repair charges and low obsolescence risk.
• 5Under the written down value method, a fixed percentage is applied to the book value at the beginning of each year, so depreciation is higher in early years and declines gradually; this method is recognised by the Income Tax Act and suits assets requiring increasing repairs over time.