INTRODUCTION TO ACCOUNTING

Class 11 CBSE | TS Grewal — Double Entry Book Keeping (Vol. 1), Chapter 1
Quick Revision Notes — explained super simply, with examples

✅ Topic Checklist — Everything You Must Cover

• 1. Meaning of Accounting (and how it's different from Book-Keeping & Accountancy)
• 2. The Accounting Process (steps from a transaction to a report)
• 3. Objectives of Accounting
• 4. Advantages of Accounting
• 5. Limitations of Accounting
• 6. Qualitative Characteristics of Accounting Information
• 7. Types of Accounting Information
• 8. Users of Accounting Information (Internal & External) and their needs
• 9. Basic Accounting Terms (the BIG list — asked almost every year, 1-3 marks each)
• 10. Important formulas & quick-fire differences (exam favourites)

1. What is Accounting? 🧾

🧸 Imagine this:
You have a small piggy bank shop selling lemonade. Every day you write in a little diary: 'Today I got ₹50 from selling
lemonade, I spent ₹20 on lemons and sugar.'
At the end of the month, you read your diary and say: 'I made ₹300 profit this month, and I still have ₹500 left with me.'
That diary-keeping + figuring out how much you earned/owe = ACCOUNTING.

Formal definition (as given by the American Institute of Certified Public Accountants - AICPA):
Accounting is the art of recording, classifying and summarising, in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.

Break the definition into 5 simple parts:

• Recording: Writing down every transaction (in a book called the Journal).
• Classifying: Sorting similar transactions together (in Ledger accounts) — e.g. all 'cash' entries in one place.
• Summarising: Making short reports from all that data (Trial Balance, Financial Statements).
• In terms of money: Only events that can be measured in rupees are recorded — not 'the shopkeeper is honest'.
• Interpreting: Explaining what the numbers mean — e.g. 'profit went up because sales increased'.

2. Book-Keeping vs Accounting vs Accountancy

🧸 Imagine this:
Book-keeping = writing your diary every day (just the writing part).
Accounting = reading the whole diary at month-end and telling your mom 'I earned ₹300 profit' (writing +
understanding).
Accountancy = the rulebook/subject that teaches you HOW to keep the diary and HOW to understand it correctly.

Term What it means

Book-Keeping Only recording & classifying transactions in books (Journal, Ledger). It is routine, clerical
Term What it means

work — the first step.

Accounting Book-keeping PLUS summarising, analysing, interpreting and communicating results to

users. It begins where book-keeping ends.

Accountancy The entire body of knowledge/theory that explains WHY and HOW accounting is done — it
guides both book-keeping and accounting.

3. The Accounting Process (Step-by-Step Journey)

🧸 Imagine this:
Think of it like making juice: you first pick fruits (identify), then wash & cut them (record & classify), then blend
everything (summarise), then taste it and decide if it's sweet enough (analyse & interpret), and finally you serve it to your
family (communicate).

1. Identifying — Spot which events are 'business transactions' (measurable in money).

2. Recording — Write the transaction in the Journal (day-book), in order of date.
3. Classifying — Post journal entries into Ledger accounts (grouping similar items).
4. Summarising — Prepare Trial Balance, then Trading A/c, Profit & Loss A/c and Balance Sheet.
5. Analysing & Interpreting — Study the figures to understand what they really tell us.
6. Communicating — Share the final reports with owners, banks, government, etc.

4. Objectives of Accounting 🎯

🧸 Imagine this:
Why do YOU keep a diary of your pocket money at all? So you know how much you have, how much you spent, and
whether you can afford that new toy. Businesses keep accounts for the exact same reasons — just bigger!

• To maintain a systematic record of all business transactions.

• To ascertain (find out) the profit or loss of the business for a period.
• To depict (show) the financial position of the business — what it owns and owes.
• To provide accounting information to interested users (owners, banks, government) so they can make good
decisions.
• To protect the business's assets/property by keeping a proper record of them.

5. Advantages of Accounting 👍
• Maintains systematic records — nothing is left to memory.
• Helps prepare financial statements (Trading A/c, P&L A/c, Balance Sheet).
• Facilitates comparison — this year's profit vs last year's profit, or with other firms.
• Acts as evidence in legal matters (courts accept properly kept books).
• Helps in settling taxation matters with the tax department.
• Helps in valuing a business, e.g. when it is being sold or a new partner joins.
• Helps management take rational, informed decisions.
6. Limitations of Accounting 👎

🧸 Imagine this:
Your diary can tell your mom how much money you have, but it CANNOT tell her how happy you were while earning it,
or whether your best friend who helped you is trustworthy. Numbers can't capture everything!

• Records only monetary transactions — non-monetary/qualitative things (staff skill, employee morale, quality of
management) are ignored.
• Based on historical cost — assets are shown at what they originally cost, not their current market value.
• Affected by personal judgement — e.g. choice of depreciation method or stock valuation method differs person to
person.
• Some accounting information is based on estimates, which may not be fully accurate.
• Can be manipulated (window dressing) to show a better/worse picture than reality.

7. Qualitative Characteristics of Accounting Information

🧸 Imagine this:
If you tell your mom about your pocket money, she'll trust you more if: (1) you're truthful (Reliable), (2) you tell her NOW
not next year (Relevant), (3) you explain it simply (Understandable), (4) she can compare it with last month's report
(Comparable).

Characteristic What it means

Reliability Information must be verifiable, free from bias and error, and faithfully represent what really
happened.

Relevance Information must be available in time and must help users predict future outcomes or
confirm past decisions.

Understandability Information must be presented in a simple, clear way so users can understand it easily.

Comparability Information should allow comparison — with the firm's own past years (intra-firm) or with
other firms (inter-firm).

8. Types of Accounting Information

• Information relating to Profit or Surplus — shown through the Trading and Profit & Loss Account (Income
Statement).
• Information relating to Financial Position — shown through the Balance Sheet (what the business owns and owes).
• Information relating to Cash Flow — shown through the Cash Flow Statement (how cash moved in and out).

9. Users of Accounting Information 👥

🧸 Imagine this:
Your school report card is read by different people for different reasons: YOU want to know if you passed, your
PARENTS want to know if you need a tutor, and your SCHOOL wants to know if you deserve a scholarship. Same report,
different users, different questions!
Internal Users (inside the business):
User Why they need it

Owners To know how much profit was earned on the capital they invested.

Management To plan, control costs, and take day-to-day business decisions.

Employees & Workers To judge job security, and for bonus/wage negotiations.

External Users (outside the business):

User Why they need it

Banks & Financial Institutions To decide whether to lend money, based on the firm's ability to repay.

Investors / Potential Investors To decide whether it's safe and profitable to invest their money.

Creditors & Suppliers To check whether the business can pay for goods bought on credit.

Government To assess taxes and to check whether laws (like labour laws) are being followed.

Consumers To check if they are being charged a fair price.

Researchers / Public To study business trends and the economy in general.

10. Basic Accounting Terms — The BIG List 📚
(This is the most important, most-asked section. Learn every term with its example!)

Term In simple words (like you're 5) Exam definition Example

Business Any time money or something An economic event/activity of the Buying furniture for ₹5,000;
Transaction valuable moves in or out of the business, measurable in terms of selling goods for ₹2,000.
business because of business activity. money, which changes its financial
position.

Capital The money/toys the owner brings from The amount invested by the owner in Ramesh puts in ₹1,00,000 of his
their OWN pocket to start the business. the business; also equals Assets − own savings to start a shop.
Liabilities.

Drawings When the owner takes OUT money or Cash or goods withdrawn by the owner Owner withdraws ₹2,000 from
goods from the business for from the business for personal use; it the shop to buy his own
personal/home use. REDUCES capital. groceries.

Liabilities Everything the business OWES to Amounts owed by the business to A loan taken from a bank;
others — like a promise 'I will pay you outsiders (excluding the owner's money owed to a supplier.
back'. capital).

Non-Current Debts you will repay after a LONG Liabilities that are payable after more Bank loan repayable in 5 years;
(Long-term) time (more than 1 year) — like a big than 12 months. Debentures.
Liabilities loan for a house.

Current (Short- Debts you must repay SOON (within 1 Liabilities payable within 12 months. Creditors, Bills Payable, Bank
term) Liabilities year) — like pocket money you Overdraft.
borrowed from a friend to return next
week.

Contingent A 'maybe' debt — you only have to A possible obligation that may or may A pending court case where the
Liability pay it IF something specific happens in not arise depending on a future business might have to pay
the future. uncertain event; not shown as a damages if it loses.
liability, only as a note.

Assets Everything the business OWNS or is Properties/economic resources owned Cash, building, machinery,
OWED — its valuable belongings. by a business, which can be measured stock, money owed by
in money and are expected to give customers.
future benefit.

Non-Current Things the business owns that you can Assets with physical existence, used Land, Building, Machinery,
Assets — TOUCH and that stay for a long time. for more than a year (not meant for Furniture.
Tangible resale).

Non-Current Valuable things the business owns that Assets with no physical existence but Goodwill, Patents, Trademarks.
Assets — you CANNOT touch, but are still having value, e.g. reputation or legal
Intangible worth money. rights.

Current Assets Things the business owns that will turn Assets held for a short period, meant to Cash, Bank balance, Stock,
into CASH quickly (within a year) — be converted into cash or consumed Debtors, Bills Receivable,
like using up your snacks soon. within 12 months. Prepaid expenses.

Expenditure Money SPENT to get something, big The amount spent to acquire goods, ₹50,000 spent on buying a
or small. services, or assets. machine; ₹500 spent on
stationery.

Capital Money spent on something BIG that Expenditure incurred to acquire a fixed Buying a delivery van;
Expenditure will help the business for many years asset or increase its earning capacity; constructing a building.
— like buying a bicycle that lasts benefit lasts more than a year.
years.

Revenue Money spent on DAILY running costs Expenditure whose benefit is Paying rent, salaries, electricity
Expenditure — like buying juice for one day only, consumed within the same accounting bills.
benefit gets over quickly. year; incurred to run day-to-day
business.
Term In simple words (like you're 5) Exam definition Example

Deferred Revenue A big one-time expense whose benefit Revenue expenditure whose benefit Heavy advertisement cost for
Expenditure you enjoy over a FEW years, not just extends to more than one accounting launching a new product, benefit
one — so you split the cost. year, so it is written off over that spread over 3 years.
period.

Expense The cost of USING something up to Costs incurred by a business in the Rent, salaries, electricity,
run the business — money that leaves process of earning revenue. depreciation.
and doesn't come back.

Revenue The money a business EARNS from its Amount received/receivable from the Sales of goods; commission
normal, everyday work (like selling sale of goods or rendering services, received.
lemonade every day). and other business receipts like rent or
interest received.

Income What's left after you subtract what you Income = Revenue − Expense; the Revenue ₹50,000 − Expenses
spent from what you earned — your increase in the net worth of business ₹30,000 = Income ₹20,000.
real 'gain'. (excluding owner's own investment).

Profit The extra money left over after paying The excess of revenue over expenses A shop earns ₹80,000 revenue
ALL costs of running the business. of a business during an accounting and spends ₹60,000 → Profit =
period. ₹20,000.

Gain Extra money earned from something A profit arising from events or Profit made on selling an old
UNUSUAL, not the everyday business transactions incidental to the business, machine that is no longer used.
— a nice surprise! i.e. not from regular operations.

Loss The opposite of profit — when you The excess of expenses over revenue; Goods worth ₹5,000 destroyed
spend MORE than you earn. also, money/goods lost without any in a fire; expenses exceed
benefit in return. revenue by ₹10,000.

Purchases Buying goods that the business will Buying of goods (or raw material) by a A cloth shop buying cloth to sell
RESELL to earn profit (not for own trader for resale or by a manufacturer to customers.
use). for production.

Purchases Return Sending goods BACK to the person Goods returned to the supplier out of Returning 10 defective shirts to
(Return you bought them from, because they the total goods purchased. the wholesaler.
Outwards) were faulty etc.

Sales Goods the business SOLD to Total revenue earned by selling goods A cloth shop selling shirts to
customers — its main way of earning or services that the business deals in. customers for ₹20,000.
money.

Sales Return When a CUSTOMER sends goods Goods returned by customers out of A customer returns a shirt that
(Return Inwards) back to the business. the total goods sold to them. didn't fit.

Stock / Inventory The goods sitting on the shelf, not yet Goods lying unsold with the business Opening Stock = goods at the
sold — like sweets still left in the jar. on a particular date. start of the year; Closing Stock
= goods left at year end.

Trade Receivables All the money that customers OWE to The sum of Debtors and Bills ₹10,000 owed by a customer
the business (people who bought on Receivable — amount receivable from who bought goods on credit.
credit). customers for credit sales.

Debtors A customer who took goods but hasn't A person or entity who owes money to Mohan bought goods worth
PAID yet — they owe the business the business on account of credit sale ₹5,000 on credit; Mohan is a
money. of goods/services. debtor.

Bills Receivable A written, signed promise (like an A bill of exchange accepted by a A customer signs a bill
IOU) that a customer will pay you on a debtor, whose amount is receivable on promising to pay ₹8,000 after 3
fixed future date. a specified future date. months.

Trade Payables All the money the BUSINESS owes to The sum of Creditors and Bills Payable ₹6,000 owed to a supplier for
its suppliers (bought on credit). — amount payable to suppliers for goods bought on credit.
credit purchases.

Creditors A supplier the business owes money to A person or entity to whom the Business buys goods worth
— the business hasn't paid them yet. business owes money on account of ₹4,000 on credit from Suresh;
credit purchase of goods/services. Suresh is a creditor.

Bills Payable A written, signed promise the A bill of exchange accepted by the Business accepts a bill to pay a
Term In simple words (like you're 5) Exam definition Example

BUSINESS gives, agreeing to pay a business, whose amount is payable on supplier ₹8,000 after 2 months.
supplier on a future date. a specified future date.

Goods The actual items a business buys and Products/articles in which a business For a stationery shop, goods =
sells as part of its main trade. deals — bought for resale or for use in pens, books, notebooks.
production.

Cost The total amount spent to make or buy The amount of expenditure incurred on Cost of manufacturing one shirt
something. a particular article, product, or activity. = ₹150 (cloth + stitching +
labour).

Voucher A paper 'proof' that a transaction really A documentary evidence in support of A cash memo received after
happened — like a bill or receipt. a business transaction (bill, receipt, buying stationery.
cash memo, invoice).

Trade Discount A price cut given right at the time of A rebate/reduction given by a seller to A wholesaler gives 10% off the
selling, to encourage buying in bulk — the buyer on the list price, usually for listed price to a retailer buying
it's NEVER written in the books bulk purchase; deducted before 100 pieces.
separately. recording the sale.

Cash Discount A reward for paying QUICKLY / on A reduction given for prompt payment 2% discount if a debtor pays
time — this one IS recorded separately of the amount due, recorded as an within 10 days instead of 30
in the books. expense/income in the books. days.

Insolvent A person or business that cannot pay A person/firm whose liabilities are A trader owing ₹5,00,000 but
back what they owe, because their more than its assets, and is thus unable owning assets worth only
debts are more than what they own. to pay off its debts in full. ₹3,00,000.

Goodwill The extra 'good name' value of a The value of the reputation of a firm, A famous, trusted bakery can be
business — people trust it and keep which enables it to earn higher profits sold for more than just the value
coming back, and that's worth money than a normal/new business. of its ovens and shop, because
too! of its reputation.

Entry One single line/record written in the A record made in the books of account Recording 'Cash A/c Dr.
accounting books for a transaction. in respect of a transaction or event. ₹2,000, To Sales A/c ₹2,000' is
one entry.

Account A page/summary that collects ALL A summarised record of all The 'Cash Account' shows every
transactions related to one particular transactions relating to a particular rupee received and paid in cash.
thing (like a diary page just for 'Cash'). person, asset, liability, expense, or
income.

Balance Sheet A snapshot photo of the business on A statement showing the financial Balance Sheet as on 31st March,
ONE day — showing everything it position of a business (assets, liabilities 2026 shows Assets = ₹5,00,000
owns and everything it owes. and capital) as on a particular date. and Liabilities + Capital =
₹5,00,000.
11. Must-Know Formulas 🧮
Formula Meaning

Assets = Liabilities + Capital The famous Accounting Equation — everything the business owns is financed either by
outsiders (liabilities) or the owner (capital).

Capital = Assets − Liabilities What truly belongs to the owner, after paying off all outsiders.

Income = Revenue − Expense What's really earned, after subtracting the cost of earning it.

Profit = Revenue (Income) − Expenses The overall surplus of the business for the period.

Trade Receivables = Debtors + Bills Total amount customers owe the business.
Receivable

Trade Payables = Creditors + Bills Payable Total amount the business owes to suppliers.

12. Exam Favourites — Quick-Fire Differences ⚡

These 'differentiate between' questions are asked almost every year — learn them in pairs!

Compare Key difference to remember

Capital vs Drawings Capital is brought INTO the business by the owner; Drawings is taken OUT of the business
by the owner.

Debtors vs Creditors Debtors OWE money to the business (business will receive); Creditors are OWED money by
the business (business will pay).

Trade Discount vs Cash Discount Trade discount is for bulk buying, given on the invoice itself, never recorded separately;
Cash discount is for quick payment, and IS recorded in the books.

Capital Expenditure vs Revenue Capital expenditure buys a long-term asset (benefit for years); Revenue expenditure is a
Expenditure routine cost (benefit within the same year).

Book-Keeping vs Accounting Book-keeping is just recording & classifying; Accounting also summarises, analyses,
interprets and communicates.

Profit vs Gain Profit comes from regular, day-to-day business activities; Gain comes from an incidental,
one-off event.

Goods vs Assets Goods are bought to be RESOLD for profit; Assets are bought to be USED in the business,
not resold.

🧸 Last-minute revision tip:

Cover the 'Exam definition' column with your hand and try to explain each term in the 'simple words' style to a friend or
even to a teddy bear. If you can explain it simply, you truly know it!