These basic accounting terms are critical for any student who wants to develop a deeper understanding of the subject and pursue further studies in this stream. These terms and their definitions are as follows:

basic accounting terms class 11 notes

Business Transaction :- A business transaction is a financial event between two or more parties. It involves an exchange of goods, services or money and gets recorded in the books of accounts for the organisations involved.

Capital :- Capital is a critical component of any business to run its daily operations and help its future growth. The capital for a business comes either from its owners or from outsiders (shares, debentures or bonds).

Drawings :- Drawings refer to the withdrawals made by the owners of a business for personal use. It gets deducted from the Owner’s Capital in the Liabilities side of a Balance Sheet.

Liabilities

Non-Current Liabilities:- Non Current Liabilities are the long-term obligations of a company that are not due for payment before a year

Current Liabilities:- Current Liabilities are the amount due to the creditors of a business that has to be paid back within twelve months..

Assets

Current Assets:- Current Assets are the assets that a firm can liquidate within twelve months.

Non-Current Assets :- Non-Current Assets are the long-term investments of a business that they cannot liquidate within a year.

Fixed assets

Tangible Fixed assets :- Tangible Fixed Assets are the long-term investments of a business that have a physical existence.

Intangible Fixed assets :-Intangible Fixed Assets are the long-term investments made by a company that doesn’t have a physical existence.

Current Assets:-These are assets of a company which are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business Such assets include cash, sundry debtors, bill receivable, short-term investments, government bonds, inventories and prepaid expenses.

Fictious Assets:- Those assets wich do not have physical form and also do not have any real value are known as fictitious assets. These assets are also known as deferred revenue expenditure.

Expenditure

Capital Expenditure:- The payment madefor the purchase of asset from wich the benefit will be derived in future is called capital expenditure. it is non recurring in nature.

Revenue Expenditure:- An expense incurred on purchase of gods and services that are consumed during the accounting period is called revenue expenditure.

Deferred Revenue Expenditure:- A heavy expenditure of revenue nature the benefit of which is likely to extend beyond current year in which it is incurred is called as 'Deferred revenue expenditure.' For instance, aheavy expenditure on advertisement may be incurred at the time of launching a new product in the market or for boosting the sales level.

Expense :- Expenses in accounting refer to the cost incurred or money the business owners spend to generate revenue. A business must keep its expenses under control to generate profits both in the short and long run.

Prepaid Expenses:- A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. When the asset is eventually consumed, it is charged to expense. If consumed over multiple periods, there may be a series of corresponding charges to expense.

Outstanding Expenses:- Outstanding expenses refer to the expenses that a company has incurred but has not yet paid for. These expenses are typically recorded in the company's financial records as a liability, which means that the company owes money to its creditors or suppliers for goods or services that have already been received but not yet paid for.

Income:- Income is the revenue that a business earns from the sale of its goods or services. It is essential for the survival and growth of any enterprise, and the failure to generate revenue can lead to a shutdown of the business.

Profit

Profit:- Profit is the positive difference between the income generated from selling goods or services and the Expenses incurred to perform that business activity. Profit is the excess of revenues over the expenses.

Gross profit It is the difference between the selling price and the cost of goods sold.

That is :

Gross Profit= Sales- Cost of goods Sold

Net profit The profit that remains after deducting all the expenses incurred by the besiness from gross profit. That is

Net Profit= Gross Profir - Indirect Expenses

or

Net Profit = Sales - Direct Expenses - Indirect Expenses

Gain :- A Gain is an increase in the total value of an asset of a business. It takes place when the current price of the asset exceeds its original purchase price. It can occur at any time during the useful life of an asset.

Loss :- Loss is the excess of the Expenses incurred from selling goods or services over the income generated to perform that business activity. Sustained losses over time can lead to the shutdown of a business organisation.

Purchase :- Purchase is the activity of buying an item to either use it in the production of goods and services or resell it to another entity.

Sales :- Sales is an economic activity where a business exchanges goods or services with another entity for money. It is the primary source of revenue for any organisation.

Goods :- Goods are the items that a company manufactures to sell to another entity in exchange for money. When an organisation buys goods, it is known as purchases, and when it sells goods, it is known as sales.

Stock :- A stock is a financial instrument that represents the part ownership of a company. Organisations use this instrument to raise capital for their business.

Debtor :- A debtor is an individual or entity that owes money to a business. Companies treat it as an asset because they will get money from them in the near or distant future.

Creditor :- A creditor is an individual or entity to whom a business owes money. Companies treat it as a liability because they will have to pay them in the near or distant future.

Voucher :- A Voucher is an internal document that a company uses as supporting evidence for accounting entries. Businesses treat it as a redeemable transaction bond as it has a monetary value and is helpful in specific cases.

Discount

Discount (Trade Discount and Cash Discount) :- A Trade Discount is a discount that a seller can offer to the buyer by reducing the price of an item. It helps to increase sales of a product, and it doesn’t get recorded in the accounting books. A Cash Discount is a discount that a seller can offer to the buyer at the time of payment by reducing the invoice price of an item. It helps to ensure timely payment for a product, and it gets recorded in the accounting books.

Proprietor:- It is that person who initiates to start a business by investing money and money's worth. He also bears the risk of business. in sole proprietorship it also known as owner but in case of partnership concerns all the partners who contributes amount in the busines are the real owners of the business.

Entity:- An organizational unit foe which accounting records are kept and about which accounting  reports are prepared.

basic accounting terms class 11 notes

Objective Type Questions / Answers

One Word to On Sentence Questions

1. What is meant by Cash transaction?

Ans. When payment for Goods and services between the Business and outsider is made immediately on the spot.

2. What is ment by Credit transaction?

Ans. When the payment for goods and services is deferred at some future date.

3. Explain in one sentence the term 'Capital'?

Ans. An amount invested by the owner in his business is known as Capital.

4. Which term is used, when the Goods are purchased from another country.

Ans. Import.

5. What are the main classes of Liabilities?

Ans. 1. Non-Current Liabilities  2. Current Laibilities.

6. What is revenu ?

Ans. It is the income of a recurring nature. For example Rent, Sale of Good etc.

7. Give any two examples of revenu Expenditure.

Ans. (1) Rent paid              (2) Salary paid

8. Which concern has stock of raw material at the and of accounting year.

Ans. Manufacturing concern.

9. What is voucher?

Ans. On the basis of which, transations are to be recorded in the books ag accounts.

10. Which discount is offered by the seller, when buyer busy the goods in large or Bulk Quantity.

Ans. Trade Discount.

11. What constitute.

Ans. Creditors and bills payable.

12. Debtors and bills receivable.

Ans. Debtors and bills receivable. 

Multiple Choice Questions

1. Trade Discount is Given to the buyer to encourage them to :

    (a) Purchase Goods on Cash

    (b) purchase Goods on Bulk Quantity

    (c) Purchase all the goods offered by seller

    (d) Make payment at an early date.

2.  Which one is not a fixed asset:

    (a) Land & Building

    (b) plant & Machinery

    (c) Furniture & Fixture

    (d) Closing Stock

3. Drawing Account is a:

    (a) Real Account

    (b) Personal Account

    (c) Nominal Account

    (d) Expense Account.

4. Expenses paid on the installation of new machinery is:

    (a) Revenue Expenditure

    (b) Deferred revenue expenditure

    (c) Capital Expenditure

    (d) None of these.

5. Cash discount is allowed at the time of:

    (a) Receiving early payment of few amount

    (b) Sale of goods in bulk quantity

    (c) Both at the time of sale of goods and receiving the payment

    (d) Making payment for purchase of goods.

6. Profit Earned by proprietor:

    (a) Increases the Capital 

    (b) Decreases the Capital

    (c) No effect on capital 

    (d) None of these.

7. Capital is the :

    (a) Excess of  liabilities over assets

    (b) Excess of assets over the external liabilities

    (c) Excess of external liabilities over fixed assets

    (d) Excess of assets over internal liabilites.

Answers

1. (b)     2. (d)     3. (b)     4. (c)     5. (a)     6. (a)     7. (b)

True or False Questions

1. live-stock is a Fictitious asset.                                                                    False

2. Drawings is the amount introduced by owner.                                           False

3. Commission paid is a Nominal Account.                                                   True

4. Debtor is a person to whom business owes an amount.                             False

5. Current Assets are kept in the business for use over a long period.            False

6. Trade Discount is given on the list price of goods.                                    True

7. There is no difference between expense and expenditure.                          False

8. Trade discount is a rsduction granted by a supplier from the list price of goods or services on business consiness consideration for prompt payment.                                   False

Fill in the Blanks

1. Normal loss arises due to........................ in nature.

2. Those articles which are purchase for the purpose of resale is known as..............................

3. Suspense Account is a ................. Account.

4.  ............ discount is given on prompt payment.

5.  .............. will surely lose their value because of use.

6. Personal account deals with natural persons, artificial persons and ......... personal Account.

7.  ............. Assets will never have any market value.

Answers

1. inherent        2. Goods        3. Tempoaray        4. Cash        5. Wasting Assets        6. Representative        7. Fictitious

More reed :- meaning and objectives of accounting