CBSE Class 11 Accountancy: Basic Accounting Terms – Easy Notes

CBSE Class 11 Accountancy – Basic Accounting Terms

If you are studying CBSE Class 11 Accountancy, understanding the basic accounting terms is very important. Terms such as Capital, Drawings, Assets, Liabilities, Revenue, Expense, Profit, Loss, Debtor, Creditor, Purchase, Sales, Stock and Discount are used throughout Accountancy.

Students often find these terms confusing because some of them look similar. This chapter explains all the important Basic Accounting Terms in simple and student-friendly language, with easy examples and tables.

These notes are useful for CBSE Class 11 Accountancy, NCERT preparation, school examinations, revision and competitive practice.

📚 Table of Contents

Entity
Business Transaction
Capital
Drawings
Liabilities
Assets
Expenditure
Expense
Revenue
Income
Profit
Gain
Loss
Purchase
Sales
Goods
Stock
Debtor
Creditor
Voucher
Discount
Trade Discount
Cash Discount
Important Differences
Quick Revision Table
Important Exam Questions
Frequently Asked Questions

1. Entity

An entity means a separate unit or organisation for which accounting records are maintained.

In accounting, the business is treated as a separate entity from its owner.

Example

Suppose Rahul starts a business with ₹5,00,000.

Rahul and his business are treated separately for accounting purposes.

Rahul = Owner
Business = Entity

Therefore, transactions of the business are recorded in the books of the business.

Easy Definition

Entity means a separate unit or organisation for which accounting records are maintained.

2. Business Transaction

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

Examples

Purchased goods for ₹20,000
Sold goods for ₹30,000
Paid rent ₹10,000
Received cash from a customer ₹15,000
Purchased machinery for ₹50,000

All these transactions have a financial effect and can be measured in money.

Important Point

Not every event is a business transaction.

For example:

Manager is happy with the performance of employees.

This may be important for the business, but it cannot normally be measured in money and therefore is not recorded as a business transaction in the books.

3. Capital

Capital is the amount invested by the owner in the business.

It represents the owner's claim or interest in the business.

Example

Aman starts a business by investing ₹2,00,000.

Therefore:

Capital = ₹2,00,000

If the owner brings additional money into the business, capital increases.

Easy Formula

Capital = Assets − Liabilities

Example

If:

Assets = ₹5,00,000
Liabilities = ₹2,00,000

Then:

Capital = ₹5,00,000 − ₹2,00,000 = ₹3,00,000

4. Drawings

Drawings are cash, goods or other assets withdrawn by the owner from the business for personal use.

Example 1: Cash

The owner withdraws ₹10,000 from the business for personal expenses.

This is called drawings.

Example 2: Goods

The owner takes goods worth ₹5,000 from the business for personal use.

This is also drawings.

Important Point

Drawings reduce the owner's capital.

Remember

Capital → Money/Assets brought into business

Drawings → Money/Assets taken out for personal use

5. Liabilities

A liability is an amount owed by the business to outsiders.

In simple words:

Liabilities are the obligations or debts that a business has to pay in the future.

Examples

Bank Loan
Creditors
Outstanding Expenses

Liabilities are broadly classified into:

Non-Current Liabilities
Current Liabilities

5.1 Non-Current Liabilities

Non-current liabilities are liabilities that are generally payable after a period of more than twelve months from the reporting date.

Examples

Long-term bank loan
Long-term borrowings

Example

A business takes a five-year bank loan of ₹10 lakh.

The loan is generally a non-current liability.

5.2 Current Liabilities

Current liabilities are liabilities that are expected to be settled within the normal operating cycle or within twelve months, as applicable.

Examples

Trade Creditors
Bills Payable
Outstanding Expenses
Short-term Borrowings

Example

A business purchases goods on credit for ₹50,000 from Rohan.

The amount payable to Rohan is a current liability.

6. Assets

An asset is a resource controlled by a business as a result of past events from which future economic benefits are expected.

In simple language:

Assets are valuable resources owned or controlled by a business.

Examples

Cash
Building
Machinery
Furniture
Inventory/Stock
Debtors
Bank Balance

Assets are broadly classified into:

Non-Current Assets
Current Assets

6.1 Non-Current Assets

Non-current assets are assets that are not expected to be realised, sold or consumed within the normal operating cycle or within twelve months, as applicable.

They are generally held for long-term use in the business.

Examples

Land
Building
Machinery
Furniture
Long-term investments

Example

A company purchases machinery for ₹8,00,000 to use in its factory.

Machinery is generally a non-current asset.

6.2 Current Assets

Current assets are assets expected to be realised, sold or consumed within the normal operating cycle or within twelve months, as applicable.

Examples

Cash
Bank balance
Trade receivables/debtors
Stock/Inventory
Short-term investments

Example

Goods worth ₹40,000 are held for sale in the business.

These goods are current assets and are called stock/inventory.

7. Expenditure

Expenditure means the amount spent or liability incurred for acquiring an asset, receiving a service or obtaining a benefit.

Expenditure can be classified mainly as:

Capital Expenditure
Revenue Expenditure

8. Capital Expenditure

Capital expenditure is expenditure incurred to acquire or improve a non-current asset or to increase its earning capacity.

Examples

Purchase of machinery
Purchase of building
Purchase of furniture
Installation cost of machinery
Major improvement that increases the earning capacity of an asset

Example

A business purchases machinery for ₹5,00,000.

This is generally capital expenditure because machinery provides benefit for more than one accounting period.

Easy Trick

Long-term benefit → Capital Expenditure

9. Revenue Expenditure

Revenue expenditure is expenditure incurred for the normal day-to-day operations of the business or for maintaining its earning capacity.

Examples

Rent
Salaries
Electricity expenses
Repairs
Office expenses
Insurance
Telephone expenses

Example

A business pays ₹20,000 as office rent.

This is revenue expenditure.

Easy Trick

Routine/regular business expenses → Revenue Expenditure

10. Expense

An expense is the cost incurred or resources consumed in the process of earning revenue.

Examples

Salary
Rent
Electricity
Insurance
Depreciation
Advertising

Simple Example

A business pays ₹30,000 salary to employees.

The salary is an expense of the business.

Remember

Expenditure is a broader term, while expense generally refers to the portion of expenditure charged against revenue for the period.

11. Revenue

Revenue is the income generated from the ordinary activities of a business.

Examples

For a trading business:

Sales of goods

For a service business:

Fees received
Service charges

Example

A business sells goods worth ₹1,00,000 in the normal course of business.

₹1,00,000 is revenue from sales.

Remember

Normal business activity → Revenue

12. Income

Income is a broad term that includes revenue and other gains arising during an accounting period.

In simple language:

Income is the increase in economic benefits during an accounting period that increases the owner's equity, other than contributions from the owner.

Examples

Sales revenue
Commission received
Interest received
Rent received
Gain on sale of an asset

Easy Understanding

Revenue is generally earned from ordinary business activities, while income is a broader concept.

13. Profit

Profit is the excess of total revenue/income over the expenses incurred during an accounting period.

Formula

Profit = Revenue − Expenses

Example

Revenue = ₹5,00,000
Expenses = ₹3,50,000

Therefore:

Profit = ₹5,00,000 − ₹3,50,000

Profit = ₹1,50,000

The business has earned a profit of ₹1,50,000.

14. Gain

A gain is an increase in equity arising from transactions or events other than revenue from the ordinary activities of the business.

Example

A business sells an old machine for ₹1,20,000.

Its book value is ₹1,00,000.

Therefore:

Gain = ₹1,20,000 − ₹1,00,000 = ₹20,000

The ₹20,000 is a gain.

Easy Difference

Revenue → Normal business activity

Gain → Other transaction/event resulting in increase in equity

15. Loss

A loss is a decrease in economic benefits or equity arising from events or transactions other than distributions to owners.

Example

A machine having a book value of ₹1,00,000 is sold for ₹80,000.

Therefore:

Loss = ₹1,00,000 − ₹80,000 = ₹20,000

The business suffers a loss of ₹20,000.

Other Examples

Loss due to fire
Loss on sale of machinery
Loss due to theft

16. Purchase

Purchase means acquiring goods or services for business purposes.

For a trading business, purchase generally refers to goods bought for resale.

Example

A furniture dealer purchases 20 tables for ₹1,00,000 for resale.

This is a purchase of goods.

Important

Purchase of goods for resale is recorded as a purchase.

Purchase of an asset such as machinery is not treated as purchase of goods.

17. Sales

Sales means selling goods or services in the normal course of business.

Example

A trader purchases goods for ₹50,000 and sells them to customers for ₹70,000.

₹70,000 is the sales value.

Remember

Purchase → Goods coming into business for resale

Sales → Goods going out of business to customers

18. Goods

In accounting, goods are articles purchased by a business for resale.

Example

Suppose a stationery shop purchases:

Pens
Notebooks
Pencils
Files

These items are goods for the stationery business because they are purchased for resale.

Important Point

The same item may be goods for one business and an asset for another business.

Example

A computer shop purchases computers for resale.

For the computer shop → Computers are goods.

An office purchases a computer for its own use.

For the office → Computer is an asset.

19. Stock

Stock means goods remaining unsold at a particular date.

It is also called inventory.

Example

A trader purchases 100 units of goods.

During the year, 70 units are sold.

The remaining 30 units are stock.

Types of Stock

Opening Stock
Closing Stock

Opening Stock

Goods available at the beginning of the accounting period.

Closing Stock

Goods remaining unsold at the end of the accounting period.

Important Point

Closing stock is generally shown as a current asset.

20. Debtor

A debtor is a person or entity who owes money to the business, usually because goods or services have been sold on credit.

Example

A business sells goods worth ₹20,000 on credit to Amit.

Amit has to pay ₹20,000 to the business.

Therefore:

Amit = Debtor

Easy Trick

Debtor = Person who has to pay us.

21. Creditor

A creditor is a person or entity to whom the business owes money, usually because goods or services have been purchased on credit.

Example

A business purchases goods worth ₹30,000 on credit from Ravi.

The business has to pay Ravi ₹30,000.

Therefore:

Ravi = Creditor

Easy Trick

Creditor = Person to whom we have to pay.

⭐ Debtor vs Creditor

Basis	Debtor	Creditor
Meaning	Person who owes money to the business	Person to whom business owes money
Position	Asset	Liability
Reason	Usually credit sale	Usually credit purchase
Easy Rule	He has to pay us	We have to pay him

Remember Forever:

Debtor → Due to us

Creditor → Due from us

22. Voucher

A voucher is a document that provides evidence or support for a business transaction.

It helps establish that a transaction has taken place.

Examples

Cash memo
Invoice
Receipt
Payment voucher
Debit note
Credit note

Example

A business purchases goods and receives an invoice from the supplier.

The invoice acts as documentary evidence of the transaction.

Importance of Voucher

Vouchers help:

Support accounting entries
Verify transactions
Maintain proper records
Reduce chances of errors
Provide documentary evidence

23. Discount

Discount means a reduction in the price or amount payable.

In accounting, discounts are mainly of two types:

Trade Discount
Cash Discount

24. Trade Discount

A trade discount is a reduction in the listed or catalogue price of goods, usually given by a seller to a buyer because of trade or business considerations.

Example

List price of goods = ₹1,00,000

Trade discount = 10%

Trade discount = ₹10,000

Amount payable = ₹90,000

Important Accounting Point

Trade discount is generally not recorded separately in the books of account.

The transaction is recorded at the net amount after deducting trade discount.

Example

List Price = ₹1,00,000
Less: Trade Discount = ₹10,000
Net Price = ₹90,000

Accounting records generally use ₹90,000.

25. Cash Discount

A cash discount is a discount allowed for making payment within a specified period or according to agreed payment terms.

It encourages customers to make payment promptly.

Example

Amount due = ₹10,000

Cash discount = 5% for prompt payment

Discount = ₹500

Cash paid = ₹9,500

Important Point

Cash discount is recorded in the books of account.

It may be:

Discount Allowed
Discount Received

Discount Allowed

When a business gives discount to its customer for prompt payment.

Discount Received

When a business receives discount from its supplier for prompt payment.

⭐ Trade Discount vs Cash Discount

Basis	Trade Discount	Cash Discount
Meaning	Reduction in listed price	Reduction for prompt payment
Purpose	Trade/business consideration	Encourage early payment
Recording	Generally not recorded separately	Recorded in books
Timing	Usually given at the time of sale/purchase	Given at the time of payment
Example	10% discount on list price	5% discount for payment within 10 days

26. Capital vs Drawings

Capital	Drawings
Amount introduced by owner into business	Amount/asset withdrawn by owner for personal use
Increases owner's capital	Decreases owner's capital
Business receives resources	Business resources are withdrawn

Example

Owner brings ₹2,00,000 → Capital

Owner withdraws ₹20,000 for personal use → Drawings

27. Capital Expenditure vs Revenue Expenditure

Capital Expenditure	Revenue Expenditure
Provides long-term benefit or relates to acquisition/improvement of non-current asset	Relates to normal operations or maintenance
Generally not incurred regularly	Often recurring
Example: Purchase of machinery	Example: Salary
Generally creates or improves an asset	Generally does not create a long-term asset

28. Revenue vs Income

Revenue	Income
Generally arises from ordinary business activities	Broader concept
Example: Sales revenue	Example: Sales revenue, interest income, certain gains
Forms an important component of income	May include revenue and gains

Easy Rule

Revenue is narrower; Income is broader.

29. Profit vs Gain

Profit	Gain
Excess of revenue/income over expenses	Increase in equity from transactions/events other than ordinary revenue
Generally relates to overall business performance	Often arises from non-routine transactions
Example: Business earns ₹2 lakh profit	Gain on sale of machinery

30. Profit vs Loss

Profit	Loss
Increases owner's equity	Decreases owner's equity
Revenue/income exceeds expenses in determining profit	Expenses/losses exceed relevant revenue/income
Example: Profit from business operations	Loss on sale of machinery

31. Purchase vs Sales

Purchase	Sales
Goods are acquired for resale	Goods are sold to customers
Goods come into business	Goods go out of business
Example: Goods purchased for ₹50,000	Goods sold for ₹70,000

32. Assets vs Liabilities

Assets	Liabilities
Resources controlled by the business	Obligations of the business
Provide future economic benefits	Require settlement in the future
Examples: Cash, Machinery, Stock	Examples: Loan, Creditors

Easy Trick

Assets = What the business has/controls

Liabilities = What the business owes

33. Non-Current Assets vs Current Assets

Non-Current Assets	Current Assets
Held for long-term use or benefit	Expected to be realised/sold/consumed in the short term as applicable
Generally not held for immediate sale	Generally related to operating cycle or short-term realisation
Example: Machinery, Building	Example: Cash, Stock, Debtors

34. Non-Current Liabilities vs Current Liabilities

Non-Current Liabilities	Current Liabilities
Generally payable after more than 12 months	Generally settled within 12 months or normal operating cycle, as applicable
Long-term obligations	Short-term obligations
Example: Long-term loan	Example: Creditors, Outstanding Expenses

📝 Basic Accounting Terms – Quick Revision Table

Term	Easy Meaning
Entity	Separate unit for which accounts are maintained
Business Transaction	Financial event measurable in money
Capital	Amount invested by owner
Drawings	Amount/assets withdrawn by owner for personal use
Liability	Amount owed by business
Asset	Resource controlled by business
Expenditure	Amount spent or liability incurred to acquire an asset, service or benefit
Expense	Cost incurred/consumed in earning revenue
Revenue	Income from ordinary business activities
Income	Broader increase in economic benefits
Profit	Excess of revenue/income over expenses
Gain	Increase in equity from non-ordinary transactions/events
Loss	Decrease in economic benefits/equity from transactions/events other than owner distributions
Purchase	Goods acquired for resale
Sales	Goods/services sold in normal business
Goods	Items purchased for resale
Stock	Unsold goods at a particular date
Debtor	Person who owes money to business
Creditor	Person to whom business owes money
Voucher	Documentary evidence of a transaction
Trade Discount	Reduction in list price
Cash Discount	Discount for prompt payment

🧠 Super Easy Memory Tricks

Debtor and Creditor

Debtor → Due to us

Creditor → Due from us

Capital and Drawings

Capital → Owner brings money in

Drawings → Owner takes money out

Purchase and Sales

Purchase → Goods come in

Sales → Goods go out

Assets and Liabilities

Assets → Business has/controls

Liabilities → Business owes

Trade and Cash Discount

Trade Discount → Price reduction

Cash Discount → Payment reduction

🎯 Important CBSE Class 11 Exam Questions

Very Short Answer Questions

What is an entity?
Define business transaction.
What is capital?
What are drawings?
Define an asset.
What is a liability?
What is a debtor?
What is a creditor?
What is a voucher?
What is trade discount?
What is cash discount?
What is stock?
Define revenue.
What is capital expenditure?
What is revenue expenditure?

Short Answer Questions

Q1. Explain capital and drawings with examples.

Answer: Capital is the amount invested by the owner in the business, whereas drawings are cash, goods or other assets withdrawn by the owner for personal use. Capital increases owner's interest in the business, while drawings reduce it.

Q2. Differentiate between debtor and creditor.

A debtor is a person who owes money to the business, generally because of a credit sale. A creditor is a person to whom the business owes money, generally because of a credit purchase.

Q3. Explain trade discount and cash discount.

Trade discount is a reduction in the listed price of goods and is generally not recorded separately in the books. Cash discount is allowed for prompt payment and is recorded in the books of account.

Q4. Distinguish between capital expenditure and revenue expenditure.

Capital expenditure is incurred to acquire or improve a non-current asset or obtain a long-term benefit, whereas revenue expenditure is incurred for normal business operations or maintenance of earning capacity.

Q5. What is the difference between goods and assets?

Goods are items purchased by a business for resale, whereas assets are resources controlled by the business that provide future economic benefits.

📌 One-Page Revision Formula

Capital = Owner's Investment

Drawings = Owner's Personal Withdrawal

Assets = Resources of Business

Liabilities = Obligations of Business

Debtor = Has to Pay Us

Creditor = We Have to Pay

Purchase = Goods Bought for Resale

Sales = Goods Sold

Stock = Unsold Goods

Profit = Revenue − Expenses

Trade Discount = Price Reduction

Cash Discount = Prompt Payment Discount

Frequently Asked Questions (FAQs)

Q1. What are basic accounting terms?

Basic accounting terms are the words commonly used in accounting, such as capital, drawings, assets, liabilities, revenue, expense, profit, loss, purchase, sales, debtor, creditor, stock and discount.

Q2. What is capital in Class 11 Accountancy?

Capital is the amount invested by the owner in the business. It represents the owner's interest in the business.

Q3. What are drawings?

Drawings are cash, goods or other assets withdrawn by the owner from the business for personal use.

Q4. What is the difference between debtor and creditor?

A debtor owes money to the business, whereas a creditor is a person to whom the business owes money.

Q5. What is the difference between trade discount and cash discount?

Trade discount is a reduction in the listed price and is generally not recorded separately. Cash discount is allowed for prompt payment and is recorded in the books.

Q6. What are current assets?

Current assets are assets expected to be realised, sold or consumed within the normal operating cycle or within twelve months, as applicable.

Q7. What are current liabilities?

Current liabilities are obligations expected to be settled within the normal operating cycle or within twelve months, as applicable.

Q8. What are goods in accounting?

Goods are articles purchased by a business for resale. An item is considered goods only when it is purchased for resale in the normal course of business.

Q9. What is stock?

Stock means goods remaining unsold at a particular date. It is also called inventory.

Q10. What is a voucher?

A voucher is documentary evidence supporting a business transaction, such as an invoice, receipt or payment voucher.

Conclusion

Understanding Basic Accounting Terms is the foundation of Class 11 Accountancy. Once you clearly understand terms such as capital, drawings, assets, liabilities, expenditure, expense, revenue, income, profit, loss, purchase, sales, goods, stock, debtor, creditor and discount, topics such as Journal, Ledger, Trial Balance and Financial Statements become much easier.

Remember:

Understand the meaning first, learn the example second, and then practise accounting questions.

These simple concepts will help you build a strong foundation for CBSE Class 11 Accountancy and future Commerce studies.