This GSEB Class 11 Commerce Accounts Notes Part 1 Chapter 1 Accounting and its Terminology covers all the important topics and concepts as mentioned in the chapter.

Accounting and its Terminology Class 11 GSEB Notes

Thousands of years ago men used to live wondering life but with the passage of time they settled on the river bank. With his intellectual skills and knowledge they started doing different works or activities. The work was divided and according to the necessity exchanging of goods, i. e., Barter System started. But Barter System had many practical / operative limitations.

Limitation of Barter System (i.e., Exchange of goods) were removed with the help of invention of money. Nature and scope of the trade expanded. Because of the industrial revolution, scale of business transactions increased with increased production and variety in the goods. Trade expanded and its transactions increased in numbers.
At present for any kind of service, selling or buying coins, paper money or plastic money are used. Product purchases money and money purchases product.

When the number of transactions are in more quantity, it is almost difficult, these summarised or non-summarised transactions correctly and precisely. Thus with increased numbers of transactions the need for bookkeeping arose.
Income and expense play a very important role in the life of a human-being or in the management of a business unit. Every one always tries to increase individual income or to reduce the expense. This requires the information of incomes and expenses which leads to beginning of its recording.

Thus, the transactions which involves the person, company or institute or transactions which have resulted into form of money or which can be measured in terms of money should be recorded precisely so that at the end of particular period, a businessman is able to get the idea of business results as well as the assets and liabilities of the business.
The system of keeping accounts is known as Accounting or Nama.

→ In present time coins, currency notes and now even plastic currency is used in the form of money.

→ For such a system, where money is used as medium of exchange, it is known as Monetary Economy.

→ Western historians have given credit for the significance of accounting to the mathematician named Mr Luca Pacioli of Italy.

→ Accounting is an art of recording, classifying and summarizing 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.

→ Quantitative information means numerical information.

→ Accounting is known as a language of business.

→ Accounting provides information of accounts. Thus, it works as a language.

→ Accounting is mainly categorized into three categories : (1) Financial Accounting, (2) Cost Accounting and (3) Management Accounting.

→ Business transaction means exchange of product or service of business between two or more persons in the form of cash and/or on credit.

→ Amount payable by the business to the owner is internal liability. .

→ Asset means any such tangible or intangible product or item which is of ownership of business and has economic value.

→ To produce any product or to provide any service whatever expenses are required, the sum of these expenses is cost.

→ A Depreciation is non-cash expense of the business.

→ Bad debts is not an expense of business but it is a loss.

→ To prepare accounts under Double Entry System, three different bases are used :

• Accrual or Mercantile base
• Cash or Receipt base and
• Mixed base.

→ Steps to prepare accounts : Voucher → Identification of transactions Journal → Subsidiary books → Ledger (posting) → Trial balance and adjustments → Final accounts.

→ There are two main types of discounts :

1. Trade discount and
2. Cash discount.

→ Debtors are treated as current assets while creditors are treated as current liabialities.

→ Stock means surplus of goods from purchase.

→ Receipts are categorized into two categories:

1. Revenue receipts and
2. Capital receipts.

→ Expenses are also classified into two categories :

1. Revenue expenditures and
2. Capital expenditures.

→ Event means situation or result created from transaction.

→ A businessman does the business of goods, purchase of that goods is treated as purchase while sales of that goods is treated as sales in accouting.

→ Bills receivable emerges from debtors while Bills payable emerges from creditors.

→ Debit and Credit are two important words of accounting. Every transaction has two effects in Double Entry System – Debit and Credit.

→ There are two types of accounting systems:

1. Deshi Nama System and
2. Double Entry System.

→ Voucher is the first step of a business transaction while annual accounts is the last and final step.

→ A person who is capable of paying his past and present debts, is called solvent while a person who is unable to pay his debts, is called insolvent.

→ There are two important aspect in business:

1. Liabilities and
2. Assets.

→ Owner gives capital to business and business gives drawing to owner.

→ Internal liability means liability towards owners while External liability means liability towards third parties.

→ Current liability = Liability payable within period of less than one year. While, Non-current liability = Liability payable during the period of more than one year.

→ Non-current assets are also known as long-term or fixed assets.

→ Non-current assets can categorized into two categories :

1. Tangible assets and
2. Intangible assets.

→ Current assets can be converted into cash quickly.

→ Real assets means assets that have value in reality.

→ Fictitious assets are also known as spread revenue expenses or differed revenue expenses.

→ Profit and Gain are popular as synonyms.