Class 11 Accountancy Notes

Chapter Overview

This chapter explains how business transactions are identified, analyzed, recorded, and posted into accounting books. It introduces source documents, accounting vouchers, accounting equation, debit-credit rules, journal, and ledger.

1. Business Transactions

Meaning

A business transaction is an economic event that affects the financial position of a business and can be measured in money.

Features

Involves exchange of value.
Has monetary effect.
Affects at least two accounts.
Can be recorded in accounting books.

Example

Purchase of goods
Sale of goods
Payment of rent
Receipt of cash

Dual Aspect Concept

Every transaction has two aspects:

Giving aspect
Receiving aspect

Example:
Purchase of furniture for cash:

Furniture received
Cash given

2. Source Documents

Meaning

Documents that provide evidence of business transactions are called source documents.

Examples

Cash Memo
Invoice
Sales Bill
Cheque
Pay-in-slip
Salary Slip
Receipt

Importance

Proof of transaction
Basis of recording
Helps in auditing
Provides authenticity

3. Voucher

Meaning

A voucher is a written document supporting a transaction.

Types of Vouchers

A. Transaction Voucher

Used when:

One account is debited
One account is credited

B. Debit Voucher

Used when:

Multiple accounts are debited
One account is credited

C. Credit Voucher

Used when:

One account is debited
Multiple accounts are credited

D. Journal Voucher

Used for complex transactions involving:

Multiple debits
Multiple credits

4. Essential Elements of a Voucher

A voucher should contain:

Name of business
Voucher number
Date
Debit account
Credit account
Amount
Narration
Signature of preparer
Signature of authorized person

5. Accounting Equation

Meaning

Accounting Equation shows the relationship between Assets, Liabilities and Capital.

Formula

Assets = Liabilities + Capital

Alternative Forms

Capital = Assets – Liabilities

Liabilities = Assets – Capital

Importance

Basis of double-entry system.
Helps in preparing Balance Sheet.
Always remains balanced.

6. Elements of Accounting Equation

Assets

Resources owned by business.

Examples:

Cash
Bank Balance
Furniture
Machinery
Building
Debtors

Liabilities

Amounts payable by business.

Examples:

Creditors
Bank Loan
Outstanding Expenses

Capital

Owner’s investment in business.

Examples:

Cash introduced by owner
Additional capital introduced

Effect of Transactions on Accounting Equation

Transaction 1

Owner starts business with ₹5,00,000 cash.

Effect:

Assets increase ₹5,00,000
Capital increase ₹5,00,000

Transaction 2

Cash deposited into bank.

Effect:

Cash decreases
Bank increases
Total assets unchanged

Transaction 3

Furniture purchased by cheque.

Effect:

Furniture increases
Bank decreases

Transaction 4

Goods purchased on credit.

Effect:

Assets increase
Liabilities increase

Transaction 5

Goods sold at profit.

Effect:

Debtors/Cash increase
Capital increases due to profit

7. Debit and Credit

Meaning

Debit (Dr.)	Credit (Cr.)
Left side of account	Right side of account

T-Account Format

Account Name

Debit Side | Credit Side

8. Rules of Debit and Credit

Asset Accounts

Change	Treatment
Increase	Debit
Decrease	Credit

Examples

Cash received → Debit Cash
Cash paid → Credit Cash

Liability Accounts

Change	Treatment
Increase	Credit
Decrease	Debit

Examples

Loan taken → Credit Loan
Loan repaid → Debit Loan

Capital Accounts

Change	Treatment
Increase	Credit
Decrease	Debit

Examples

Capital introduced → Credit Capital
Drawings → Debit Capital

Revenue/Gain Accounts

Change	Treatment
Increase	Credit
Decrease	Debit

Examples

Sales → Credit Sales
Commission Received → Credit Commission

Expense/Loss Accounts

Change	Treatment
Increase	Debit
Decrease	Credit

Examples

Rent Paid → Debit Rent
Salary Paid → Debit Salary

Quick Memory Chart

Account Type	Increase	Decrease
Assets	Debit	Credit
Liabilities	Credit	Debit
Capital	Credit	Debit
Revenue	Credit	Debit
Expenses	Debit	Credit

9. Books of Original Entry

Meaning

Books where transactions are recorded first are called Books of Original Entry.

Examples

Journal Proper
Cash Book
Purchase Book
Sales Book
Purchase Return Book
Sales Return Book
Bills Receivable Book
Bills Payable Book

10. Journal

Meaning

Journal is the book of original entry where transactions are recorded in chronological order.

Process

Recording transactions in journal is called Journalising.

Format of Journal

Date	Particulars	L.F.	Debit (₹)	Credit (₹)

Important Terms in Journal

Date

Date of transaction.

Particulars

Accounts affected.

L.F. (Ledger Folio)

Ledger page reference.

Narration

Brief explanation of transaction.

Rules of Journal Entry

Debit account written first.
Credit account written second with “To”.
Narration written below.
Debit amount equals credit amount.

Simple Journal Entry

Meaning

Entry involving one debit and one credit account.

Example:

Goods purchased on credit ₹30,000

Purchases A/c Dr.      30,000
   To Creditor A/c             30,000

Compound Journal Entry

Meaning

Entry involving more than two accounts.

Example:

Furniture purchased ₹25,000.
₹5,000 paid in cash and balance on credit.

Furniture A/c Dr.      25,000
   To Cash A/c                  5,000
   To Creditor A/c             20,000

11. Ledger

Meaning

Ledger is the principal book containing all individual accounts.

Purpose

Classifies transactions account-wise.
Shows balance of each account.
Helps in preparation of Trial Balance.

Format of Ledger

Date	Particulars	J.F.	Amount

Debit side and Credit side are maintained separately.

Utility of Ledger

Shows account balances.
Provides classified information.
Helps locate customer balances.
Helps prepare final accounts.

12. Posting

Meaning

Transferring entries from Journal to Ledger is called Posting.

Steps in Posting

Locate account in ledger.
Enter date.
Write corresponding account name.
Enter journal folio number.
Enter amount.
Repeat for credit side.

Classification of Ledger Accounts

Permanent Accounts

Remain open year after year.

Examples:

Assets
Liabilities
Capital

Shown in Balance Sheet.

Temporary Accounts

Closed at year-end.

Examples:

Expenses
Revenues

Transferred to Trading and Profit & Loss Account.

Difference Between Journal and Ledger

Basis	Journal	Ledger
Meaning	Book of original entry	Principal book
Recording	First recording	Second recording
Order	Chronological	Account-wise
Process	Journalising	Posting
Purpose	Record transactions	Classify transactions

Important Exam Definitions

Business Transaction

An economic event affecting business finances and recorded in books.

Source Document

Documentary evidence of a business transaction.

Voucher

A document supporting a transaction.

Accounting Equation

Assets = Liabilities + Capital.

Journal

Book of original entry.

Ledger

Principal book containing all accounts.

Posting

Transfer of journal entries to ledger.

Narration

Brief explanation of a transaction in journal.

Debit

Left side of an account.

Credit

Right side of an account.

One-Page Revision

Accounting Equation

Assets = Liabilities + Capital

Debit-Credit Rules

Account	Increase	Decrease
Asset	Dr	Cr
Liability	Cr	Dr
Capital	Cr	Dr
Revenue	Cr	Dr
Expense	Dr	Cr

Flow of Recording

Transaction → Source Document → Voucher → Journal → Ledger

Key Terms

Journalising = Recording in Journal
Posting = Transfer to Ledger
Journal = Book of Original Entry
Ledger = Principal Book

Comprehensive Question Bank

Part A: Multiple Choice Questions (MCQs)

Business Transactions & Source Documents

Which of the following is a business transaction?
a) Owner’s birthday celebration
b) Purchase of furniture for office
c) Family picnic
d) Personal shopping

Answer: b

A transaction must be expressed in:
a) Goods
b) Services
c) Money
d) Labour

Answer: c

Which document is prepared by the seller for credit sales?
a) Debit Note
b) Invoice
c) Voucher
d) Receipt

Answer: b

Cash Memo is issued when goods are sold:
a) On credit
b) For cash
c) On approval
d) On consignment

Answer: b

A cheque counterfoil serves as:
a) Receipt
b) Source document
c) Ledger
d) Voucher

Answer: b

Accounting Equation

The accounting equation is:
a) Assets = Capital
b) Assets = Liabilities + Capital
c) Capital = Assets + Liabilities
d) Assets – Capital = Profit

Answer: b

Which of the following increases capital?
a) Loss
b) Drawings
c) Additional Capital
d) Expenses

Answer: c

Drawings reduce:
a) Assets
b) Capital
c) Liabilities
d) Sales

Answer: b

Purchase of machinery for cash:
a) Increases assets and liabilities
b) Decreases capital
c) Changes composition of assets
d) Increases capital

Answer: c

Credit purchase of goods increases:
a) Capital
b) Assets and liabilities
c) Assets only
d) Liabilities only

Answer: b

Rules of Debit and Credit

Increase in an asset account is:
a) Credited
b) Debited
c) Ignored
d) Adjusted

Answer: b

Increase in liability is:
a) Debited
b) Credited
c) Closed
d) Adjusted

Answer: b

Increase in expenses is:
a) Credited
b) Debited
c) Adjusted
d) Transferred

Answer: b

Increase in income is:
a) Debited
b) Credited
c) Closed
d) Ignored

Answer: b

Rent paid is:
a) Income
b) Asset
c) Expense
d) Liability

Answer: c

Journal

Journal is known as:
a) Principal Book
b) Book of Original Entry
c) Ledger
d) Cash Book

Answer: b

Recording transactions in Journal is called:
a) Posting
b) Balancing
c) Journalising
d) Casting

Answer: c

Which column contains debit amount?
a) Particulars
b) Date
c) L.F.
d) Debit Amount

Answer: d

Narration is written:
a) Above entry
b) Below entry
c) Side of entry
d) Last page

Answer: b

Compound Journal Entry affects:
a) One account
b) Two accounts
c) More than two accounts
d) No account

Answer: c

Ledger

Ledger is known as:
a) Book of Final Entry
b) Book of Original Entry
c) Voucher
d) Source Document

Answer: a

Transfer of journal entries into ledger is called:
a) Posting
b) Journalising
c) Balancing
d) Recording

Answer: a

Ledger contains:
a) Accounts
b) Vouchers
c) Bills
d) Receipts

Answer: a

Ledger Folio stands for:
a) Ledger page reference
b) Cash balance
c) Debit amount
d) Credit amount

Answer: a

Personal Account belongs to:
a) Person
b) Property
c) Expense
d) Income

Answer: a

Part B: Fill in the Blanks

A business transaction must be measurable in ________.
Answer: Money
The accounting equation is Assets = ________ + Capital.
Answer: Liabilities
Journal is the book of ________ entry.
Answer: Original
Recording transactions in Journal is called ________.
Answer: Journalising
Transfer of entries from Journal to Ledger is called ________.
Answer: Posting
An increase in assets is ________.
Answer: Debited
An increase in liabilities is ________.
Answer: Credited
Drawings decrease the owner’s ________.
Answer: Capital
A ________ note is issued for goods returned.
Answer: Debit
Ledger is the book of ________ entry.
Answer: Final

Part C: True or False

Every event is a business transaction.
False
Cash memo is a source document.
True
Drawings increase capital.
False
Journal is the book of original entry.
True
Ledger is the principal book of accounts.
True
Debit means increase in all accounts.
False
Capital account has a credit balance.
True
Posting is done from Journal to Ledger.
True
Narration explains a journal entry.
True
Assets are resources owned by the business.
True

Part D: Match the Following

Column A	Column B
Journal	Book of Original Entry
Ledger	Book of Final Entry
Invoice	Credit Sale
Cash Memo	Cash Sale
Posting	Journal to Ledger
Debit Note	Purchase Return
Credit Note	Sales Return
Drawings	Reduction in Capital
Asset	Resource
Liability	Obligation

Part E: One Word Answers

Book of Original Entry → Journal
Book of Final Entry → Ledger
Return of goods to supplier → Purchase Return
Money withdrawn by owner → Drawings
Resources owned by business → Assets
Amount payable to outsiders → Liabilities
Explanation below journal entry → Narration
Recording in journal → Journalising
Transfer to ledger → Posting
Proof of transaction → Voucher

Part F: Very Short Answer Questions

Define a business transaction.
What is a source document?
What is a voucher?
What is an invoice?
What is a cash memo?
Define asset.
Define liability.
What is capital?
What is drawings?
What is a journal?
What is journalising?
What is narration?
What is ledger?
What is posting?
State the accounting equation.

Part G: Short Answer Questions

Explain the meaning of source documents.
Discuss the importance of vouchers.
Explain the accounting equation with examples.
Differentiate between assets and liabilities.
Explain the rules of debit and credit.
Describe the format of a journal.
Explain the process of journalising.
What is posting? Explain its steps.
Differentiate between Journal and Ledger.
Explain compound journal entries.

Part H: Long Answer Questions

Explain the accounting equation and its significance with examples.
Describe different source documents used in accounting.
Explain the rules of debit and credit with illustrations.
Explain the format and preparation of Journal.
Describe the process of posting journal entries into ledger accounts.
Differentiate between Journal and Ledger in detail.
Explain the classification of accounts with suitable examples.

Part I: Practical Journal Entry Questions

Journalise the following:

Started business with cash ₹1,00,000.
Purchased goods for cash ₹20,000.
Purchased furniture on credit from Mohan ₹10,000.
Sold goods for cash ₹15,000.
Sold goods on credit to Ramesh ₹12,000.
Paid rent ₹2,000.
Received commission ₹1,500.
Withdrew cash for personal use ₹3,000.
Paid Mohan ₹5,000.
Received cash from Ramesh ₹10,000.

Part I: Practical Journal Entry Questions – Complete Answers

1. Started business with cash ₹1,00,000

Particulars	Debit (₹)	Credit (₹)
Cash A/c Dr.	1,00,000
To Capital A/c		1,00,000
(Being business started with cash)

2. Purchased goods for cash ₹20,000

Particulars	Debit (₹)	Credit (₹)
Purchases A/c Dr.	20,000
To Cash A/c		20,000
(Being goods purchased for cash)

3. Purchased furniture on credit from Mohan ₹10,000

Particulars	Debit (₹)	Credit (₹)
Furniture A/c Dr.	10,000
To Mohan A/c		10,000
(Being furniture purchased on credit from Mohan)

4. Sold goods for cash ₹15,000

Particulars	Debit (₹)	Credit (₹)
Cash A/c Dr.	15,000
To Sales A/c		15,000
(Being goods sold for cash)

5. Sold goods on credit to Ramesh ₹12,000

Particulars	Debit (₹)	Credit (₹)
Ramesh A/c Dr.	12,000
To Sales A/c		12,000
(Being goods sold on credit to Ramesh)

6. Paid rent ₹2,000

Particulars	Debit (₹)	Credit (₹)
Rent A/c Dr.	2,000
To Cash A/c		2,000
(Being rent paid)

7. Received commission ₹1,500

Particulars	Debit (₹)	Credit (₹)
Cash A/c Dr.	1,500
To Commission A/c		1,500
(Being commission received)

8. Withdrew cash for personal use ₹3,000

Particulars	Debit (₹)	Credit (₹)
Drawings A/c Dr.	3,000
To Cash A/c		3,000
(Being cash withdrawn for personal use)

9. Paid Mohan ₹5,000

Particulars	Debit (₹)	Credit (₹)
Mohan A/c Dr.	5,000
To Cash A/c		5,000
(Being amount paid to Mohan)

10. Received cash from Ramesh ₹10,000

Particulars	Debit (₹)	Credit (₹)
Cash A/c Dr.	10,000
To Ramesh A/c		10,000
(Being cash received from Ramesh)