CBSE Class 11 Chapter 2 Basic Accounting Terms - Part 4
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.
👉 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
What You Will Learn:
1) Trade Receivables
Trade receivables are the amounts that a business has to receive from customers for goods sold or services provided on credit.
Trade Receivables consist of: Debtors & Bills Receivable
Formula: Trade Receivables = Debtors + Bills Receivable
Example:
ABC Traders sold goods worth ₹40,000 to Rahul on credit.
Rahul has not yet paid the amount.
Trade Receivable = ₹40,000
a) Debtor:
A Debtor is a person or business that owes money to the enterprise for goods or services purchased on credit.
Example
ABC Traders sold goods worth ₹25,000 to Mr. Arun on credit.
Mr. Arun becomes a Debtor until he pays the amount.
b) Bills Receivable:
A Bill Receivable is a bill of exchange accepted by a customer, promising to pay the amount on a future date.
Example:
Rahul purchases goods worth ₹50,000 on credit and signs a bill of exchange payable after 90 days.
This bill of exchange is a Bill Receivable for the seller.
2) Trade Payables:
Trade payables are the amounts a business has to pay for goods or services purchased on credit.
Trade Payables consist of: Creditors & Bills Payable
Formula: Trade Payables = Creditors + Bills Payable
Example:
ABC Traders purchases goods worth ₹60,000 from XYZ Ltd. on credit.
ABC Traders has to pay ₹60,000 later.
This amount is a trade payable.
a) Creditor:
A Creditor is a person or business to whom money is payable for credit purchases.
Example:
ABC Traders buys goods worth ₹30,000 from Raj Enterprises on credit.
Raj Enterprises becomes the Creditor.
b) Bills Payable:
A Bill Payable is a bill of exchange accepted by the buyer, promising to pay the amount on a specified future date.
Example:
ABC Traders accepts a Bill of Exchange for ₹75,000 payable after 60 days.
This is recorded as a Bills Payable.
3) Cost:
Cost is the amount spent on purchasing or manufacturing goods or providing services.
Example
A furniture manufacturer spends:
• Wood = ₹15,000
• Labour = ₹8,000
• Paint = ₹2,000
Total Cost = ₹25,000
4) Voucher:
A Voucher is a document that serves as proof of a business transaction.
There are two types:
- Source Voucher
- Accounting Voucher
a) Source Voucher:
A Source Voucher is the original document that proves a business transaction.
Examples:
- Cash Memo
- Invoice
- Receipt
- Debit Note
- Credit Note
Example:
A business purchases a computer and receives an invoice from the supplier.
The invoice is the source voucher.
b) Accounting Voucher:
An accounting voucher is prepared using the source voucher and records the accounts to be debited and credited.
Example
After receiving the computer invoice, the accountant prepares a journal voucher recording:
Computer A/c Dr.
To Cash A/c
This journal voucher is an accounting voucher.
5) Discount:
Discount is a reduction in the selling price or amount payable.
There are three types:
- Trade Discount
- Cash Discount
- Rebate
(a) Trade Discount
Trade Discount is a reduction in the list price allowed by the seller at the time of sale.
Example
List Price = ₹20,000; Trade Discount = 10%
Discount = ₹20,000 * 10 / 100 = ₹2,000
Amount Payable = ₹20,000 - ₹2,000 = ₹18,000
Amount Payable = ₹18,000
(b) Cash Discount
Cash Discount is allowed for making payment within the specified time.
Example
Amount Payable = ₹10,000; Cash Discount = 2%
Customer pays within 10 days.
Discount = ₹10,000 * 2 / 100 = ₹200
Amount Paid = ₹10,000 - ₹200 = ₹ 9,800
(c) Rebate
A Rebate is a reduction allowed after the sale due to poor quality, excess supply, or other valid reasons.
Example
A customer purchases goods worth ₹25,000.
Some goods are damaged.
The seller allows a rebate of ₹1,500.
Customer finally pays ₹23,500.
6) Bad Debts
Bad Debts are amounts that cannot be recovered from customers.
Example
ABC Traders sold goods worth ₹18,000 to Rahul on credit.
Rahul became insolvent and could not pay.
₹18,000 is treated as Bad Debt.
7) Balance Sheet:
A Balance Sheet is a statement showing the financial position of a business on a particular date.
It shows as Assets, Liabilities & Capital
Example:
Assets = Cash ₹40,000 & Furniture ₹60,000
Liabilities = Creditors ₹20,000
Capital= ₹80,000
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 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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