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Introduction to Accounting – Class 11 Accountancy notes, important questions and MCQs

NCERT Class 11 Accountancy, chapter 1. Notes, key terms, important questions with answers and MCQs.

Chapter overview

Accounting is the process of identifying, measuring, recording, classifying, summarising and communicating financial information about a business to its users. It shows the profit or loss of a business and its financial position. Book-keeping is the recording part, while accounting also includes analysis and interpretation.

Meaning and objectives

Accounting identifies and records financial transactions, classifies them into accounts, summarises them in financial statements and communicates the results.
Objectives: maintain systematic records, find profit or loss, show the financial position, and provide information to users.
Book-keeping covers recording and classifying; accounting goes further to summarising, analysing and interpreting.

Users of accounting information

Internal users: owners, management and employees.
External users: investors, banks and lenders, creditors, government and tax authorities, researchers and the public.
Useful information must be reliable, relevant, understandable and comparable.

Basic accounting terms

Assets are resources owned by the business, such as cash, machinery and debtors; liabilities are amounts owed to outsiders, such as creditors and loans.
Capital is the owner's investment; drawings are amounts withdrawn by the owner for personal use.
Revenue is income from business operations; expenses are costs incurred to earn revenue.
Debtors owe money to the business; creditors are owed money by the business.

Key terms

Accounting: the process of identifying, recording, classifying, summarising and communicating financial information
Book-keeping: the recording and classifying of financial transactions in books of account
Assets: resources owned or controlled by a business that have money value
Liabilities: amounts the business owes to outsiders
Drawings: money or goods taken by the owner from the business for personal use

Important questions with answers

Distinguish between book-keeping and accounting.2 marks

Book-keeping is the recording and classifying of financial transactions in the books of account; it is routine and clerical. Accounting includes book-keeping and goes further to summarise, analyse and interpret the recorded data and communicate the results to users.

Name the qualitative characteristics of accounting information.3 marks

Accounting information should be reliable, that is, free from error and bias and verifiable; relevant, that is, available in time and useful for decisions; understandable, that is, presented clearly for users; and comparable, that is, prepared consistently so that it can be compared over time and between firms.

Explain the meaning and objectives of accounting and describe its users.5 marks

Accounting is the process of identifying financial transactions, measuring them in money, recording them in books, classifying them into accounts, summarising them in financial statements, and analysing, interpreting and communicating the results to users. Its objectives are to maintain systematic and complete records of business transactions; to find the profit earned or loss suffered during a period through the profit and loss account; to show the financial position of the business on a date through the balance sheet; to help management control costs and plan; and to provide information to different users for decision-making. Users of accounting information are of two types. Internal users include owners, who want to know about profit and safety of capital; management, which needs information for planning, control and decisions; and employees, who are interested in stability, wages and bonus. External users include investors, who assess returns; banks and lenders, who assess the ability to repay loans; creditors, who check creditworthiness; government and tax authorities, who need information for taxes and regulation; and researchers and the public. To be useful, accounting information should be reliable, relevant, understandable and comparable.

Quick revision

Accounting vs book-keeping.
Internal and external users.
Qualities: reliable, relevant, understandable, comparable.
Assets, liabilities, capital, drawings, revenue, expenses.

Exam tips

Learn the accounting process as a chain: identify → record → classify → summarise → communicate.
Give one example for each basic term in answers.

Practice MCQs

Amounts owed by a business to outsiders are
1. liabilities
2. assets
3. revenue
4. drawings
Show answer
Answer: (a) liabilities. Creditors are an example.
Money taken by the owner for personal use is called
1. capital
2. revenue
3. drawings
4. expense
Show answer
Answer: (c) drawings. It reduces capital.
A person who owes money to the business is a
1. debtor
2. creditor
3. proprietor
4. supplier always
Show answer
Answer: (a) debtor. Goods were sold to him on credit.
Which of these is an internal user of accounting information
1. banks
2. researchers
3. tax authorities
4. management
Show answer
Answer: (d) management. Management uses it for decisions.
Book-keeping is mainly concerned with
1. interpreting results
2. auditing only
3. recording and classifying transactions
4. tax planning
Show answer
Answer: (c) recording and classifying transactions. Accounting goes beyond it.
Information that helps users make decisions in time is said to be
1. relevant
2. comparable
3. verifiable only
4. conservative
Show answer
Answer: (a) relevant. Relevance needs timeliness.
Which step comes immediately after recording transactions in the accounting process
1. communicating
2. identifying
3. classifying
4. interpreting
Show answer
Answer: (c) classifying. Entries are posted to ledger accounts.
Why do banks use accounting information of a business
1. to fix the owner's salary
2. to judge its ability to repay loans
3. to design products
4. to set wages
Show answer
Answer: (b) to judge its ability to repay loans. Lenders assess creditworthiness.

All chapters of Class 11 Accountancy

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.