Recording of Transactions - I Class 11 Notes CBSE Accountancy Chapter 3 [Free PDF Download]

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… .. .. 

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:-

1.  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.) 

2. 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.) 

3.  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.) 

4. 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.) 

5. 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…….

The final equation as per the above transactions analysis table can be summarised in the form of balance sheet :-

Balance sheet as on… 

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 

Liabilities

Capital

Expenses/losses

Gains/revenue

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 :-

1. Journal proper 

2. Cash book

3. Other day books:-

1.  Purchase book 

2. Sales book

3. Purchase return book

4. Sales return book

5. Bills receivable book

6. 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

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:-

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…….

Discount 

There are two types of discount that are explained below:

1. 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, 

2. 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

1. Amit bought goods Rs. 5,00,000 on credit 

2. He sold them for Rs. 100000 in the same state on credit 

3. He paid for railway transport Rs. 4000

4. He bought a computer printer for Rs.10000

5. Paid postal charges Rs. 1000

Journal Entries for the year ending

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.                                                                                                                                                    

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…..

Ledger Accounts

Cash account 

Capital account 

Furniture account

Purchases account

Sales account

Salaries account

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.