CBSE Class 11 Chapter 2 Basic Accounting Terms - Part 2

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 Basic Accounting Terms

Introduction:

In this article, you will find simple and easy-to-understand explanations of the important basic accounting terms prescribed in the CBSE Class 11 Accountancy syllabus. Understanding these terms will help you grasp accounting concepts more effectively and prepare for your examinations with confidence.

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👉 Download One Mark Notes

👉 Download Questions & Answers Notes

👉 Click Here to Watch YouTube Video (MCQs & Short Answer Questions)

👉 Click Here to Watch YouTube Video - CBSE Chapter 2 Basic Accounting Terms


Assets:

  • Assets are the valuable resources or properties owned by a business. They help the business carry out its activities and generate income. 
  • Assets may be tangible (physical) or intangible (non-physical).

Examples: 

Land, Building, Machinery, Furniture, Stock, Debtors, Cash, Bank Balance, Goodwill, Trademarks, Copyrights, and Patents.

Characteristics of Assets:

  • Owned by the business.
  • Can be tangible or intangible.
  • Have economic value.
  • Can be measured in monetary terms.

Types of Assets

a) Non-Current Assets:

Non-current assets are long-term assets that are not purchased for resale. They are used in the business for a long period or held as investments.

Examples:

  • Fixed Assets
  • Non-current Investments
  • Long-term Loans and Advances
  • Other Non-current Assets

Fixed Assets:

Fixed assets are long-term assets used to carry on business operations and increase the earning capacity of the business. They are not meant for resale. 
They are further classified into:

(i) Tangible Assets:

Tangible assets are physical assets that can be seen and touched.

Examples: Land, Building, Machinery, Computer, Furniture, etc.

(ii) Intangible Assets:

Intangible assets do not have a physical form but have value for the business.

Examples: Goodwill, Patents, Trademarks, Copyrights, Computer Software, etc.

b) Current Assets:

Current assets are assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business.

Examples: Cash, Bank Balance, Stock, Debtors, Bills Receivable, Short-term Investments, etc.

c) Fictitious Assets:

Fictitious assets are not real assets. They represent expenses or losses that have not been completely written off in the year they were incurred and are carried forward to future accounting periods.

Example: Deferred Revenue Expenditure, such as Advertisement Expenditure.

Receipts:

Receipts are the amounts of money received by a business from different sources.
Receipts are classified into:

  • Revenue Receipts 
  • Capital Receipts 

a) Revenue Receipts:

Revenue receipts are amounts received during the normal course of business from its regular operating activities. They are recurring in nature and are recorded in the Trading Account or Profit and Loss Account.

Examples

  • Cash received from the sale of goods. 
  • Fees received for services rendered. 
  • Commission received. 
  • Interest received on bank deposits. 

Example:

A stationery shop sells notebooks and receives ₹25,000 in cash.
The amount received is a revenue receipt.

b) Capital Receipts:

Capital receipts are amounts received that are not related to the normal business operations. They either increase the business's liabilities or reduce its assets and are shown in the balance sheet.

Examples:

  • Capital introduced by the owner. 
  • Loan taken from a bank. 
  • Sale of machinery. 
  • Sale of building. 

Example:

A business sells an old machine for ₹80,000.
The amount received is a capital receipt.

Expenditure:

Expenditure is the amount spent or liability incurred for acquiring assets, goods, or services for the business.
Expenditure is classified as the following:

a) Capital Expenditure

Capital expenditure is money spent on acquiring or improving long-term assets that provide benefits for more than one accounting year.
It is shown on the assets side of the balance sheet.

Examples:

  • Purchase of machinery. 
  • Purchase of furniture. 
  • Purchase of computers. 
  • Construction of a factory building. 

Example:

A business purchases a new machine for ₹3,00,000.
This is a capital expenditure because the machine will be used for several years.

b) Revenue Expenditure:

Revenue expenditure is money spent on the day-to-day running of the business. Its benefit is used up within the current accounting year.
It is recorded in the Trading Account or Profit and Loss Account.

Examples: Salaries, Rent, Electricity Bills, Wages, Repairs, and Printing Expenses. 

Example: A company pays ₹12,000 for electricity charges.

This is also a revenue expenditure.

c) Deferred Revenue Expenditure:

A deferred revenue expenditure is a revenue expenditure whose benefit extends over more than one accounting period. 
Therefore, it is written off over several years instead of charging the full amount in one year.

Example:

A company spends ₹2,00,000 on a major advertising campaign that is expected to benefit the business for the next four years.
This is treated as a deferred revenue expenditure.

Expense:

An expense is the cost incurred by a business to earn revenue or carry out its day-to-day operations. Expenses reduce the profit of the business and are recorded in the Trading Account or Profit and Loss Account.
Expenses may arise in different ways, such as:

  • Cash payments like salaries, wages, rent, electricity, and insurance. 
  • Depreciation (writing off a part of a fixed asset over its useful life). 
  • Bad Debts (amount written off from debtors that cannot be recovered). 
  • Decline in the value of assets, such as investments. 
  • Cost of Goods Sold (COGS). 

Note: Expenses are transferred to the debit side of the Trading Account or Profit and Loss Account.

a) Prepaid Expense

A prepaid expense is an expense that has been paid in advance, but its benefit relates to the next financial year or future accounting periods.

Example:

  • A business pays an insurance premium of ₹20,000 on 1st October 2026 for one year.
  • The financial year ends on 31st March 2026. 
  • Premium for 1st April 2026 to 30th September 2026 (6 months) amounts to ₹20,000. 
  • This ₹20,000 is treated as a prepaid expense because its benefit belongs to the next financial year. 

b) Outstanding Expense:

An Outstanding Expense is an expense that has been incurred but has not yet been paid.

Example:

  • A business receives an audit service, and the salary of ₹15,000 is still unpaid.
  • The expense has already been incurred. 
  • Since payment has not been made, it becomes an outstanding expense. 
  • It is recorded as an expense in the profit and loss account and also shown as a current liability in the balance sheet until it is paid. 

Conclusion:

Carefully rewrite all the important MCQs to clarify your concepts of basic accounting terms.

Print the below MS Word practice sheet and revise and practice offline anytime.

Repeat watching the video explanation to get more clarity and to revise fast before exams.

The PDF notes download link is available for you to download for free.

👉 Download Theory Notes

👉 Download One Mark Notes

👉 Download Questions & Answers Notes

👉 Click Here to Watch YouTube Video (MCQs & Short Answer Questions)

👉 Click Here to Watch YouTube Video - CBSE Chapter 2 Basic Accounting Terms

Reference Book:
TS Grewal's Double Entry Bookkeeping Class 11 Accountancy (for educational purposes only for concept building).

Disclaimer:
The content is designed for educational purposes as per the CBSE class 11 syllabus in accountancy. It is not a copy of any textbook.

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