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Class 11 Theory Base of Accounting: cheat sheet
CBSE Accountancy. GAAP and the basic accounting concepts, the cash and accrual bases, accounting standards, and GST charged as CGST and SGST or as IGST.
Key ideas
- GAAP and accounting standards are the agreed rules that keep the accounts of different firms uniform and comparable.
- Business entity: the business is separate from its owner, so the owner’s personal bills paid by the business are drawings and capital is owed to the owner.
- Money measurement records only what can be valued in money; going concern assumes the business carries on, so assets are shown at cost less depreciation.
- Cost concept: an asset is recorded at what was paid for it, including carriage and installation, not at its market value.
- Dual aspect: every transaction has two equal effects, which is why assets always equal liabilities plus capital.
- Revenue is recorded when earned, and the expenses of the same period are matched against it, whether paid or not.
- Conservatism provides for every likely loss but records no expected profit, so stock is valued at cost or market price, whichever is lower.
- GST on a sale within a state is split equally into CGST and SGST; on a sale to another state the full rate is charged as IGST.
Remember
| Cost of an asset | price + carriage + installation |
| Profit, cash basis | income received − expenses paid |
| Profit, accrual basis | income earned − expenses incurred |
| Expense of the year (matching) | monthly amount × 12, whatever was paid in advance or left unpaid |
| Sale within a state | CGST = SGST = (GST rate ÷ 2) × value |
| Sale to another state | IGST = GST rate × value |
| Invoice total | value + GST |
Watch out
- Recording an asset at its market value instead of its cost.
- Splitting IGST into halves, or charging IGST on a sale within the same state.
- Counting only the cash received as income under the accrual basis.
Worked example
A consultant earned fees of ₹1,35,000 in a year but received ₹50,000. Expenses incurred were ₹35,000, of which ₹15,000 were paid. Find the profit under (a) the cash basis (b) the accrual basis.
Working: Cash: ₹50,000 − ₹15,000; accrual: ₹1,35,000 − ₹35,000
Answer: (a) ₹35,000; (b) ₹1,00,000
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