Learning objectives
- Explain accounting’s role as an information system and identify users and their decisions.
- Distinguish assets, liabilities, capital, revenue, expenses, income, profit and gains.
- Apply the business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition, matching, consistency, conservatism, materiality and objectivity concepts.
Concepts and terminology
Accounting identifies, measures, records, classifies and communicates financial information. Useful information should be relevant, reliable, comparable and understandable. Under the business entity assumption, the owner and firm are accounted for separately. The going concern assumption treats the business as continuing unless evidence indicates otherwise. Capital is the owner’s claim; liabilities are claims of outsiders. A trade discount reduces the invoice price before recording; a cash discount rewards prompt settlement and is recorded.
The accounting equation is Assets = Capital + Liabilities. Revenue increases capital; expenses and drawings reduce it. Every transaction must preserve the equality.
Worked example
The owner contributes ₹1,00,000 cash, buys furniture for ₹20,000 cash and purchases goods on credit for ₹15,000. Cash ₹80,000 + furniture ₹20,000 + inventory ₹15,000 = assets ₹1,15,000; creditors ₹15,000 + capital ₹1,00,000 = claims ₹1,15,000. Both sides agree.
Check: Analyse the effect on accounts before choosing debit and credit. An equation check catches arithmetic or classification mistakes early.
GST in the Class XI scope
CBSE includes GST characteristics, advantages and simple calculations in transaction recording. For an intra-state taxable supply, GST is commonly split into CGST and SGST; for an inter-state supply, IGST applies. In exercises, follow the stated rate and facts. A sample purchase of goods ₹10,000 plus 18% intra-state GST gives Purchases Dr ₹10,000, Input CGST Dr ₹900, Input SGST Dr ₹900, To Supplier ₹11,800, assuming the purchase is taxable and input credit is eligible.
Practice and revision
- Classify prepaid rent, bank loan, drawings, sales revenue and office equipment.
- A proprietor contributes ₹50,000 cash and buys goods for ₹8,000 cash. Show the accounting equation.
- Explain why depreciation is charged even though no cash is paid when the expense is recorded.