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Class 11 Introduction to Accounting: cheat sheet
CBSE Accountancy. What accounting is and who uses it, the qualities of useful information, the basic terms (assets, liabilities, capital, drawings), and trade and cash discount.
Key ideas
- Accounting identifies, measures in money, records and communicates the economic events of a business to the people who use the information.
- Book keeping is only the recording; accounting also classifies, summarises, analyses and reports the results.
- Owners and management use accounts inside the business; banks, suppliers, investors, employees and the tax authorities use them from outside.
- Useful accounting information is reliable, relevant, understandable and comparable.
- Assets are what the business owns, liabilities what it owes to outsiders, capital what the owner has invested, and drawings what the owner takes out for personal use.
- Current assets (stock, debtors, cash, bank) turn into cash within a year; non-current assets (land, buildings, machinery, furniture, vehicles) are kept for long-term use.
- Trade discount is a cut in the list price and is never recorded; cash discount is allowed for prompt payment and is recorded as discount allowed or received.
Remember
| Capital | Assets − Liabilities |
| Profit | Revenue − Expenses |
| Closing capital | Opening capital + Additional capital + Profit − Drawings |
| Profit from two capitals | Closing capital − Opening capital + Drawings − Additional capital |
| Invoice (net) amount | List price − trade discount (list price × rate) |
| Cash received | Invoice amount − cash discount (worked on the invoice amount) |
Watch out
- Working the cash discount on the list price instead of on the amount after trade discount.
- Recording trade discount in the books.
- Treating drawings as a business expense: they reduce capital, not profit.
- Forgetting to add back drawings when finding profit from opening and closing capital.
Worked example
Capital was ₹2,55,000 at the start of the year and ₹3,11,000 at the end. Drawings during the year were ₹18,000, and no capital was added. Find the profit.
Working: Profit = Closing capital − Opening capital + Drawings = ₹3,11,000 − ₹2,55,000 + ₹18,000
Answer: ₹74,000
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