Access Class 11 Accountancy Chapter - 3 Recording of Transactions - 1 Notes
Accounting Equations
Accounting equation shows the relationship between the assets, liabilities and owner’s capital of a person or business
A=L+C
Where A= assets
L= liabilities
C= capital
The above equation can be presented in the following forms as its derivatives to enable the determination of missing figures of Capital(C) or Liabilities(L)
(i) A – L = C
(ii) A – L = C
Since the accounting equation shows the fundamental relationship among the items of the balance sheet, it is also called the Balance Sheet Equation
The claim of the proprietors is called capital and that which is taken from another person from the outside is known as liabilities.
The asset side of the balance sheet records all the assets of the business. The liabilities side of the balance sheet is the detailed list of owner’s capital and outsider’s claims.
Let us take an example :-
Payal started the business with a capital of Rs 10.00,000. From the accounting point of view, the resources of this business entity is in the form of cash, i.e.Rs. 10,00,000. Sources of this business entity are the contribution by payal (Proprietor) Rs. 10,00,000 as Capital.
If we put this detail in the form of equality of resources and sources, the picture will emerge somewhat as follows:-
In the Books of Payal
Balance sheet as on… .. ..
Liabilities | Amount | Assets | Amount |
Liabilities | 10,00,000 | Asset | 10,00,000 |
In the above balance sheet the total of assets is equal to the total of liabilities
Now we will analyse the transactions listed in example 1 and its effect on different elements and you will observe that the accounting equation always remain balanced:-
Opened a bank account in bank of India with an amount of Rs. 500000 (Analysis of transaction: This transaction increases the cash at bank (assets) and decreases cash (asset) by Rs. 500000.)
Bought furniture for Rs. 100000 and a cheque was issued on the same day. (Analysis of transaction: This transaction increases furniture (assets) and decreases bank (assets) by Rs. 100000.)
Bought plant and machinery for the business for Rs. 1,10,000 and an advance of Rs. 10,000 in cash is paid to M/s Ramjilal. (Analysis of transaction: This transaction increases plant and machinery (assets) by Rs. 1,10,000, decreases cash by Rs. 10,000 and increases liabilities (M/s Ramjilal as creditor) by Rs. 1,00,000.)
Goods purchased from M/s Akshay Traders for Rs. 55,000. (Analysis of transaction: This transaction increases goods (assets) and increases liabilities (M/s Akshay Traders as creditors) by Rs. 55,000.)
Goods costing Rs. 15,000 sold to Samit Enterprises for Rs. 25,000. Analysis of transaction: This transaction decreases stock of goods (assets) by Rs. 15,000 and increases assets (Samit Enterprises as debtors Rs. 25,000) and capital (with the profit of Rs. 10,000)
In the Books of Payal
Journal entries for the year ending…….
Date | Particulars | L.F | Debit | Credit |
1. | Bank a/c. Dr. To cash a/c (Being a/c opened in the bank.) | 5,00,000 | 5,00,000 | |
2. | Furniture a/c. Dr. To bank a/c (Being furniture purchased and Payment made through the bank.) | 1,00,000 | 1,00,000 | |
3. | Plant and machinery a/c. Dr. To cash a/c To Ramjilal a/c (Being plant and machinery purchased on credit and some amount is paid in cash) | 1,10,000 | 10,000 1,00,000 | |
4. | Purchases a/c. Dr. To Akshay Traders a/c (Being goods purchased on credit from Akshay traders.) | 55,000 | 55,000 | |
5. | Cash a/c. Dr. To sales a/c To profit and loss a/c (Being goods sold on profit) | 25,000 | 15,000 10,000 |
The final equation as per the above transactions analysis table can be summarised in the form of balance sheet :-
Balance sheet as on…
Liabilities | Amount (Rs.) | Assets | Amount(Rs.) |
Outsiders liability (creditors) | 1,55,000 | Cash | 4,90,000 |
Bank | 4,00,000 | ||
Furniture | 1,00,000 | ||
Debtors | 25,000 | ||
Capital | 10,10,000 | Stock | 40,000 |
Plant and machinery | 1,10,000 | ||
11,65,000 | 11,65,000 |
Using Debit and Credit
In the double entry system, every transaction affects two sides of the account.
The right side of the T shape account is credit side and the left side is debit.
Rules of Debit and Credit:-
Every accounts are categorized into five types for the purposes of recording the transactions:
(a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e) Revenues.
The two fundamental rules to be followed while recording the changes in these accounts:
(1) For recording changes in Assets/Expenses (Losses):
(i) “Increase in asset is to be debited, and decrease in asset is to be credited.”
(ii)“Increase in expenses/losses is to be debited, and decrease in expenses/ losses is credited.
The rules applicable to the various kinds of accounts that have been summarised in the below charts:
Assets
(Increase) + Debit | (Decrease) - |
Liabilities
Decrease - Debit | Increase + Credit |
Capital
Decrease - Debit | Increase + Credit |
Expenses/losses
Increase + Debit | Decrease - Credit |
Gains/revenue
Decrease - Debit | Increase + Credit |
Books of Original Entry:- The process of recording transaction in the journal is called Journalising
After the completion of Journalising there after they are transferred to another account and that process is called posting
Journal is further divided into some number of books of original entry :-
Journal proper
Cash book
Other day books:-
Purchase book
Sales book
Purchase return book
Sales return book
Bills receivable book
Bills payable book
Journal:
In this book transactions are recorded in chronological order as and when they take place.
Each transaction is debited as well credited with same amount
Let us have a look at the format of the journal.
Journal
Date | Particulars | L. F | Debit amount | Credit amount |
Let us take an example, for clearance of the journal format
Example:- sale of goods worth ₹ 10000
The golden rule says that debit what comes in and credit what goes out
Here, we are selling goods, and in return we receiving cash
So debit what comes in i.e. cash and credit what goes out i.e. goods ,
Here is tubular represent of this transaction:-
Date | Particulars | L. F | Debit | Credit |
--- | Cash a/c | 10000 | ||
To sales a/c (Being goods sold) | 10000 |
Now, refer to example 1 which we have done already, let's record the transition in the books of Miss Payal.
In the Books of Payal
Journal Entries
for the year ending…….
Date | Particulars | L. F | Debit | Credit |
1 | Cash a/c | 1000000 | ||
To Capital a/c (business started with cash) | 1000000 | |||
2 | Bank a/c | 500000 | ||
To cash a/c (Cash deposited in bank) | 500000 | |||
3 | Furniture a/c | 1,00,000 | ||
To bank a/c (Being furniture purchased) | 1,00,000 | |||
4 | Plant and machinery a/c | 1,10,000 | ||
To cash a/c To Ramjilal a/c (Being plant and machinery purchased on credit and some amount is paid in cash) | 10,000 1,00,000 | |||
5 | Purchases a/c | 55,000 | ||
To m/s Akshaya Traders a/c (Being goods purchased on credit) | 55,000 | |||
6 | Samit enterprises a/c | 25,000 | ||
To sales a/c (Being goods sold on credit) | 25,000 |
Discount
There are two types of discount that are explained below:
Trade discount:- Trade discount is allowed by wholesalers and manufacturers to the retailers at a fixed percentage. Trade discount is not to be shown in the books,
Cash discount:- Cash discount is allowed to the customers for making an early payment
Example: If a retailer sells goods of list price Rs.10000 at 10% trade discount and 2% cash discount
Ans:
List price 10000
Less: trade discount @10% (1000)
9000
Less: cash discount @2%. (180)
(9000×2÷100)
8,820
Accounting entries under goods and services tax:
Record necessary Journal entries assuming CGST @ 5% and SGST @ 5% and all transactions have occurred within Delhi
Amit bought goods Rs. 5,00,000 on credit
He sold them for Rs. 100000 in the same state on credit
He paid for railway transport Rs. 4000
He bought a computer printer for Rs.10000
Paid postal charges Rs. 1000
Journal Entries for the year ending
Date | Particulars | L.F | Debit (Rs) | Credit (Rs) |
1 | Purchases a/c Dr. Input CGST a/c Dr. Input SGST a/c Dr. To creditors a/c (Purchased goods on credit) | 500000 25000 25000 | 550000 | |
2 | Debtors a/c Dr. To sales a/c To output CGST a/c To output SGST a/c (Sales goods on credit) | 1100000 | 100000 50000 50000 | |
3 | Transportation charges a/c Dr. Input CGST a/c Dr. Input SGST a/c Dr. To bank a/c (Being transport charges paid) | 40000 2000 2000 | 44000 | |
4 | Computer printer a/c Dr. Input CGST a/c Dr. Input SGST a/c Dr. To bank a/c (Being Computer printer purchased) | 10000 500 500 | 11000 | |
5 | Postal charges a/c Dr. Input CGST a/c Dr. Input SGST a/c Dr. To bank a/c (Being Postal charges paid) | 1000 50 50 | 1100 | |
6 | Output CGST a/c Dr. Output SGST a/c Dr. To input CGST a/c To input SGST a/c To electronic ledger a/c (Being output CGST, SGST and input CGST, SGST adjusted) | 50000 50000 | 27550 27550 44900 |
Ledger:
Business transactions are first recorded in a journal and thereafter the next step is transferring the entries to the respective accounts in the ledger.
The left-hand side is known as the debit side and the right-hand side is the credit side.
This account is in ‘T’ shape.
Format of ledger account
Dr.
Cr.
Date | Particulars | J.F | Amount | Date | Particulars | J.F | Amount |
Example:-
1. Capital introduced- Rs. 100000 on 1/4/2019
2. Furniture purchased- Rs. 15000 on 1/4/2029
3. Goods purchases- Rs. 75000 on 1/4/2019
4. Salaries paid- Rs. 10000 on 30/4/2019
5. Sold goods- Rs. 95000 in April 2019
Journal Entries
For the year ending…..
Date | Particulars | L.F | Debit | Credit |
1/4/2019 | Cash a/c Dr. | 1,00,000 | ||
To capital a/c | 1,00,000 | |||
(Being capital invested) | ||||
1/4/2019 | Furniture and equipment a/c Dr. | 15,000 | ||
To cash a/c | 15,000 | |||
(Being furniture and equipment purchased) | ||||
1/4 /2019 | Purchase a/c Dr. | 75,000 | ||
To cash a/c | 75,000 | |||
(Being goods are purchased) | ||||
30/4/2019 | Salaries a/c Dr. | 10,000 | ||
To cash a/c | 10,000 | |||
(Being salaries paid) | ||||
April 2019 | Cash a/c Dr. | 95,000 | ||
To sales a/c | 95,000 | |||
(Being goods are sold) |
Ledger Accounts
Cash account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount | |||||||
1/4/2019 | To balance b/d | - | 1/4/2019 | By furniture and equipment | 15000 | |||||||||
1/4/2019 | To capital | 1,00,000 | 1/4/2019 | By purchases | 75000 | |||||||||
April 2019 | To sales | 95000 | 30/4/2019 | By salaries | 10000 | |||||||||
30/4/2019 | By balance c/d | 95000 | ||||||||||||
1,95,000 | 1,95,000 | |||||||||||||
Capital account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount |
1/4/2019 | By balance b/d | - | |||||
30/4/2019 | To balance c/d | 1,00,000 | 1/4/2019 | By cash | 1,00,000 | ||
1,00,000 | 1,00,000 |
Furniture account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount |
1/4/2019 | To balance b/d | - | |||||
1/4/2019 | To cash a/c | 15,000 | 30/4/2019 | By balance c/d | 15,000 | ||
15,000 | 15,000 |
Purchases account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount |
1/4/2019 | To balance b/d | - | |||||
1/4/2019 | To cash a/c | 75,000 | 30/4/2019 | By balance c/d | 75,000 | ||
75,000 | 75,000 |
Sales account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount |
1/4/2019 | By balance b/d | - | |||||
30/4/2019 | To balance c/d | 95,000 | 30/4/2019 | By cash a/c | 95,000 | ||
95,000 | 95,000 |
Salaries account
Date | Particulars | J. F | Amount | Date | Particulars | J. F | Amount |
1/4/2019 | By balance b/d | 10,000 | |||||
30/4/2019 | To balance c/d | 20,000 | 30/4/2019 | By cash a/c | 10,000 | ||
20,000 | 20,000 |
CBSE Class 11 Accountancy Notes Chapter 3
Overview
From the above paragraph, it is clear that entries in the Recording of Transactions Class 11 notes are considered as a source of documents. It acts as evidence for all the cash or credit transactions that are taking place in day-to-day activities of the business. On reading the notes of Accountancy Class 11 Chapter 3, students will gain more knowledge on the concepts of the Recording of Transactions 1.
From Accountancy Class 11 Chapter 3 notes, students will learn that Recording of Transactions -1 involves some predetermined steps such as identifying the transactions which are to be registered and preparing the source documents which have already been registered in the basic book called a journal. After completion of these steps, the entries in the journal book are reported in a private account called ledger.
Fundamental Steps of Recording of Transaction - 1
The steps in Accountancy Class 11 Recording of Transactions 1 ensure perfect entries in the book of accounts. Let's discuss the steps involved in the Recording of Transactions:
Identifying the financial transactions from a voucher
Recording the identified transactions by making an entry in the journal
Transfer the entries into private accounts called ledger
Plan financial statement by making profit & loss a/c and a balance sheet
Communicate the results with various customers
The Recording Transaction Rule
In order to learn and execute the Recording of Transactions, students must have proper knowledge of different financial accounting rules. Accounts Chapter 3 Class 11 notes can help students in understanding the financial accounting rules.
The Three Rules of Financial Accounting are
Personal Account - Debit the receiver and credit the giver
Real Account - Debit what comes in and credit what goes out
Nominal Account - Debit all expenses and losses and credit all incomes and gains
Recording Transactions Principles
There are some principles of the Recording of Transactions that students should learn from accountancy Class 11 Chapter 3. The notes of Chapter 3 Accountancy Class 11 help students in understanding these principles. Let's discuss these principles once:
Personal accounts are the ones who deal with the credit or lending of money from some company.
Real accounts are meant for dealing with assets, liabilities, and equity.
Nominal accounts are the ones which deal with expenses, revenue, gains and losses of a company.
Source Documents Importance
Recording of Transactions 1 Class 11 notes shows students the importance of source documents in this process. The following are the reasons why source documents are so important:
The documents are considered as the physical evidence for the transactions that are taking place in the company.
The documents provide the company with some key details such as time, date, amount and nature of the transaction.
The documents can be used as proof in the court of law.
The documents can act as a real help for the auditors in the auditing process.
FAQs on Recording of Transactions - I Class 11 Notes CBSE Accountancy Chapter 3 (Free PDF Download)
1. What is a journal?
A journal is considered a detailed account used for recording all the financial transactions that take place in a business. These entries in the journal are used in future for reconciliation of accounts. The transaction information that is there in the journal is transferred to another official private account which is called a ledger account. A journal gives valuable information such as the date, time, amount and nature of the transaction. The transactions are recorded in the journal in a double-entry method. Single-entry bookkeeping is rarely used in journals. A journal can act as proof in the court of law.