Accountancy · Class 11 Commerce

Ch 3Recording of Transactions - I — Class 11 Accountancy, concept-first.

Chapters 1 and 2 built the foundation: what accounting is, and the theory base — the principles and concepts — that guide how transactions get recorded. Both of those chapters made one thing clear about the accounting process itself: it involves identifying and analysing business transactions, recording them, classifyi…

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Concepts

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Accounting Equation

Imagine you start a small business. You put in ₹1,00,000 of your own money. The business now has ₹1,00,000 in cash. But where did that cash come from? It came from you, the owner. So the business owes you ₹1,00,000.

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Chapter contents

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Introduction

Chapters 1 and 2 built the foundation: what accounting is, and the theory base — the principles and concepts — that guide how transactions get recorded.

3.1

Business Transactions and Source Document

A business transaction is any event that involves an exchange of economic consideration between two parties.

3.1.1

Preparation of Accounting Vouchers

Every business transaction must be supported by a written document before it can be recorded in the books of account. That supporting document is called an accounting voucher.

3.2

Accounting Equation

The accounting equation is the foundation of double-entry bookkeeping. It states that the assets of a business are always equal to the total of its liabilities and the owner’s capital.

3.3

Using Debit and Credit

Every transaction has two sides — a give and a take. In double-entry accounting, this means every transaction affects at least two accounts.

3.3.1

Rules of Debit and Credit

2 Q

Before you can apply debit and credit rules, you must first understand that all accounts are classified into five categories:

+Illustrationsi1 question

Illustration 1Analyse the effect of each transaction on assets and liabilities and show that the both sides of Accounting Equation (A = L + C) remains equ…Preview

+Test Your Understandingi1 question

Q11. Double entry accounting requires that: (i) All transactions that create debits to asset accounts must create credits to liability or capi…Preview

3.4

Books of Original Entry

You now understand debits and credits, and you know how to analyse a transaction and directly record its effect in the relevant accounts.

3.4.1

Journal

5 Q

The journal is the first place where every business transaction is recorded. It is called the book of original entry because the transaction enters the accounting system here for the first time.

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+Test Your Understandingi1 question

Q1State the title of the accounts affected, type of account and the account to be debited and account to be credited: | No. | Transaction | Am…Preview

3.5

The Ledger

The ledger is the principal book of an accounting system. While the journal records transactions in the order they happen (chronologically), the ledger organises them by account.

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