Introduction to Accounting Class 11 Notes

These Introduction to Accounting Class 11 notes condense NCERT’s opening accountancy chapter into a fast revision map: the full meaning of accounting, the four-step process behind it, who uses the information and why, the objectives and roles of accounting, and a complete glossary of all 20 basic terms.

Everything is organised for a quick re-read before a class test, with original worked examples and the common mistakes students make with these terms. The notes follow the NCERT Class 11 Accountancy textbook (Financial Accounting-I) for the 2026-27 session.

Use the jump menu to skip to the section you need. If a definition feels shaky, start with the glossary tables — most Chapter 1 questions are vocabulary questions in disguise. The worked examples use fresh numbers, so practise the reasoning rather than memorising outcomes.

Accounting as an Information System: What Chapter 1 Covers

For centuries, accounting was confined to the financial record-keeping function of the accountant. The chapter opens by showing how that role has shifted: the modern accountant is no longer a mere recorder of transactions but a member of the decision-making team who supplies relevant information (NCERT, p. 1).

That is why the opening introduces new growth areas — forensic accounting, e-commerce, financial planning and environmental accounting — and why accounting itself has been raised to the level of an information system: it collects data and communicates economic information about the organisation to a wide variety of users whose decisions and actions relate to its performance (NCERT, p. 2).

The chapter builds six blocks, each tied to a learning objective (NCERT, pp. 1-2): the meaning and need of accounting; accounting as a source of information; the internal and external users of accounting information; the objectives of accounting; the role of accounting; and the basic terms used in accounting.

This page follows that same arc, so the revision order matches the teaching order.

These notes are part of our full set of Class 11 Accountancy notes, which sits inside the wider Class 11 notes collection in the CBSE notes library. When Chapter 1 is clear, move straight to Chapter 2, Theory Base of Accounting, which explains the rules behind the terms you learn here.

If you want to verify a page-level detail, the official NCERT PDF of Chapter 1 of Financial Accounting-I is available on the NCERT website.

Meaning of Accounting: From ‘Art of Recording’ to a Full Process

The definition of accounting grew in three steps, each widening the scope (NCERT, pp. 2-3):

Putting the three together gives the NCERT definition: accounting is the process of identifying, measuring, recording and communicating the required information relating to the economic events of an organisation to the interested users of such information (NCERT, p. 3). These four process words are the same four words a complete answer must repeat.

A short history strip explains where this definition came from (NCERT, pp. 3-4):

• ~4000 B.C. — payments of wages and taxes recorded on clay tablets in Babylonia and Egypt; Egyptian treasuries sent day-wise reports to the Wazirs and month-wise reports to the kings.
• Greece — accounting was used to apportion revenues among treasuries and to maintain totals of receipts, payments and the balance of government transactions.
• Rome (700 B.C. – 400 A.D.) — receipts and payments were recorded in a memorandum or daybook and then posted to ledgers monthly.
• China — a sophisticated form of government accounting existed as early as 2000 B.C.
• India — Kautilya’s Arthashastra, written about twenty-three centuries ago, described how accounting records had to be maintained.
• 1494 — Luca Pacioli’s Summa de Arithmetica became the first book on double entry book-keeping. Pacioli did not claim to have invented the system but spread its knowledge, and he used the modern terms Debit (Dr.) and Credit (Cr.) — from the Italian debito (owed) and credito (trust or belief).

The Accounting Process: From Economic Events to Communication

The whole chapter turns on one figure. Fig 1.1, “Showing the process of accounting” (NCERT, p. 2), sets out linked steps that begin with identification of transactions and end with the preparation of financial statements; the chapter later calls this “a definite process of interlinked activities” (NCERT, p. 7). Read it as a flow: identification → measurement → recording → communication.

Economic events come first. An economic event is a happening of consequence to a business organisation, consisting of transactions that can be measured in monetary terms (NCERT, p. 4). One event can hold many transactions: buying a machine involves the purchase, its transport, site preparation, installation and trial runs. Events are of two kinds:

• External events — between the organisation and an outsider: sale of merchandise to customers, rendering services, purchase of materials from suppliers, payment of rent to the landlord.
• Internal events — entirely between the internal wings of an enterprise: supply of raw material from the stores department to the manufacturing department, or payment of wages to employees.

The four steps of the process (NCERT, pp. 5-6):

• Identification — deciding which events are of financial character and relate to the organisation, and therefore belong in the books. A sale, a purchase or a salary payment is recorded; the appointment of personnel is not.
• Measurement — quantifying transactions in financial terms using monetary units, rupees and paise, as the measuring unit (estimates are permitted). If an event cannot be quantified in money, it is not considered for recording.
• Recording — entering the identified and measured events in the books of account in monetary terms and in chronological order, summarised as per well-established practice.
• Communication — sending the pertinent information to the right person at the right time through accounting reports, which may be daily, weekly, monthly or quarterly. The accountant’s ability to present information clearly matters here.

The definition also fixes two more elements (NCERT, p. 6): the organisation — a business enterprise with a for-profit or not-for-profit motive, such as a sole proprietorship, partnership firm, cooperative society, company or local authority — and the interested users of the information, covered next.

Memory device: “I Measure Real Cash.” Each word cues one step in order — Identify, Measure, Record, Communicate.

Users of Accounting Information: Internal and External

Accounting is called the language of business because it is the means by which financial information about an enterprise is communicated to those who need it for decisions (NCERT, p. 6).

Users fall into two broad categories: internal users — the chief executive, financial officer, vice presidents, business unit managers, plant managers, store managers and line supervisors — and external users, who include present and potential investors, creditors (banks, financial institutions, debenture-holders and other lenders), tax authorities and regulatory agencies.

The table below links each user group to the specific question accounting must answer for it — the pattern the chapter builds in two places (NCERT, pp. 6-7 and 13-14).

Two points worth fixing in memory. First, since the primary function of accounting is to support decisions, it is a means to an end, the end being the decision the information makes possible (NCERT, p. 6). Second, external users have limited authority, ability and resources to obtain information themselves, so they depend on the financial statements (NCERT, p. 13).

Long-term lenders in particular want information on the company’s creditworthiness and its ability to repay loans and pay interest (NCERT, p. 13).

Qualitative Characteristics: The Four Filters of Useful Information

Accurate information is not enough — it must be usable. The four qualitative characteristics are the filters that decide whether accounting information is decision-useful: reliability, relevance, understandability and comparability (NCERT, p. 9).

Fig 1.3 (NCERT, p. 11) presents the four characteristics as the attributes an information system must carry for its output to be useful. It is a ready-made answer frame: name all four, define each in one line, then attach its sub-points.

Why these four? Each guards one failure mode: unreliable information misleads, irrelevant information distracts, incomprehensible information is ignored, and non-comparable information cannot be benchmarked against anything.

Self-check (Test Your Understanding-II, NCERT, p. 12): as a senior accountant, what three steps would you take to make your company’s financial statements understandable and decision-useful? The chapter’s own answer: ensure reliability (verifiability, faithfulness, neutrality), ensure relevance through timeliness, and then check understandability and comparability (NCERT, p. 23).

Branches of Accounting: Financial, Cost and Management

The differing needs of internal and external users pushed accounting to split into three sub-disciplines (NCERT, p. 8). The comparison table lines them up by purpose, time orientation and main users — useful both as a revision table and as the shape of a complete answer to a “differentiate” question.

The chapter also flags new areas that have gained prominence as the scope of accounting has widened: human resource accounting, social accounting and responsibility accounting (NCERT, p. 9).

Objectives of Accounting: Four Jobs the System Must Do

The basic objective of accounting as an information system is to provide useful information to interested users, both external and internal, delivered mainly through financial statements — the profit and loss account and the balance sheet (NCERT, p. 12). That broad aim breaks into four jobs.

1. Maintenance of records of business transactions. A systematic record of all financial transactions is kept in the books because no manager can accurately remember the volume of purchases, sales, receipts and payments that occur daily. The recorded information also enables verifiability and acts as evidence (NCERT, p. 12).
2. Calculation of profit and loss. Owners want to know periodically whether the business earned profit or suffered loss. A profit and loss account for the period is prepared from the records of incomes and expenses. Profit is the excess of revenue over expenses; if expenses exceed revenue, the difference is loss (NCERT, pp. 12-13).
3. Depiction of financial position. A proper record of resources owned (assets) and claims against those resources (liabilities) allows preparation of the balance sheet — the position statement — at the end of every accounting period (NCERT, p. 13).
4. Providing accounting information to its users. The information generated is communicated as reports, statements, graphs and charts. Internal users (management) receive timely information on cost of sales and profitability; external users, who have limited means to obtain information themselves, rely on the financial statements (NCERT, p. 13).

Role of Accounting: Five Views, One Language

Accounting has played changing roles as economies and societal demands grew. Each role is a different view of the same activity: describing and analysing a mass of data through measurement, classification and summarisation, then reducing it to reports that show the financial condition and results of operations of an enterprise (NCERT, p. 14). The chapter presents five views:

• As a language — the language of business, used to communicate information about enterprises.
• As a historical record — a chronological record of financial transactions at the actual amounts involved.
• As current economic reality — the means of determining the true income of an entity, that is, the change of wealth over time.
• As an information system — a process that links an information source (the accountant) to a set of receivers (external users) through a channel of communication.
• As a commodity / service — specialised information as a service in demand, which accountants are willing and able to provide (NCERT, pp. 15-16).

Two guard rails keep the role in focus. First, accounting is a means to an end, not an end in itself — the end is the decision helped by the availability of accounting information (NCERT, p. 6). Second, its limitation: accounting information relates to past transactions and is quantitative and financial in nature, so it does not provide qualitative or non-financial information.

Users must keep this limitation in view while using accounting information (NCERT, p. 14).

Basic Accounting Terms: All 20 Terms in One Glossary

Chapter 1’s vocabulary is the foundation of the whole subject. The two tables below cover every term the chapter defines (NCERT, pp. 16-21) — first the balance-sheet terms, then the performance and other terms. Each row is compressed to one line so you can self-test by covering the example column.

Balance-sheet terms

Performance and other terms

For the balance-sheet terms, two NCERT diagrams show how assets and liabilities are split.

Figure 1.4 maps the two broad classes of assets: current and non-current (NCERT, p. 17). When a question asks what an asset is and what its types are, this classification is half the answer.

Figure 1.5 does the same for liabilities: current and non-current (NCERT, p. 18). To tell the two apart, NCERT’s list gives four tests (NCERT, p. 18):

• Operating cycle — current assets and liabilities are involved in the operating cycle.
• Twelve months — current assets are realised and current liabilities are settled within 12 months.
• Primarily for trading — current items are held mainly for trading.
• Cash or cash equivalent — current items are cash or cash equivalents.

Try it (based on the chapter’s Activity 1): sort these items into one of four columns — current asset, non-current asset, current liability, non-current liability: machinery, sundry creditors, cash at bank, goodwill, bills payable, land and building, furniture, inventory, sundry debtors, patents, loan from bank, investments, computer software, motor vehicles, air-conditioners, loose tools.

Use the four tests above: cash at bank is current by test 4; machinery fails the 12-month test and the trading test, so it is non-current; sundry creditors are settled within 12 months (test 2), so they are current. Sort the rest yourself, then check your reasoning against Figures 1.4 and 1.5.

Profit and Loss: The Only Calculation in This Chapter

Chapter 1 computes profit as the difference between revenue and expenses (NCERT, pp. 12-13, 19), and also asks for gain and total losses in the Sunrise problem. All amounts are measured in rupees.

\[ \text{Profit} = \text{Revenue} – \text{Expenses} \]

\[ \text{Loss} = \text{Expenses} – \text{Revenue} \]

Profit is the excess of a period’s revenues over its related expenses; it increases the owners’ investment. Loss is the excess of a period’s expenses over its revenues; it decreases owner’s equity.

The word loss also covers money or money’s worth lost without receiving any benefit in return — such as goods destroyed by theft or fire — and losses on the sale of fixed assets (NCERT, p. 19).

Worked Example: Apply the Terms and Compute Profit (Original Numbers)

Example 1: Compute profit from revenues and expenses

A coaching centre earns fees of ₹8,50,000 in a year. It pays rent of ₹1,20,000, salaries of ₹2,40,000 and electricity bills of ₹40,000. Find its profit.

Example 2: Classify every item of a small business

Kiran started a bakery with ₹5,00,000 as capital. During the year she: bought an oven for ₹90,000 and flour for ₹1,20,000; sold cakes for ₹2,00,000 (₹1,50,000 for cash and ₹50,000 on credit to Hotel Blue); paid wages of ₹30,000 and rent of ₹20,000; withdrew ₹15,000 for personal use; lost ₹8,000 of goods in a fire; and sold an old van for ₹70,000 against a book value of ₹60,000.

Classify each item, with the amount and the reason.

Notice how the chapter’s vocabulary does the classifying: an equal “rupee outflow” can be a purchase, an expense, a loss or a drawing depending on what it buys and for whom. That distinction — not the arithmetic — is what Chapter 1 actually teaches.

Common Mistakes in Chapter 1 and the Correct Idea

Each row below is a misconception students commonly carry into Chapter 2. The correction always traces back to a definition in this chapter (NCERT, pp. 18-21).

How to Write Strong Answers to the Chapter’s NCERT Questions

The chapter’s exercise asks short, medium and long questions (NCERT, pp. 22-23). Each type has its own discipline:

• Definition questions (“Define accounting”) — must name all four process words: identify, measure, record, communicate, and link them to economic events and interested users. A single line saying “accounting records transactions” is incomplete because it drops three of the four steps.
• Distinction questions (“Distinguish between debtors and creditors; profit and gain”) — the complete structure is a two-column table by basis: meaning, nature (asset versus liability, or recurring versus incidental), effect on owner’s equity or investment, and the side of the balance sheet where the item appears. Two separate paragraphs risk missing half the bases.
• Enumerate questions (“Enumerate the main objectives of accounting”, “Enumerate the information needs of management”) — list every point and add a one-line explanation to each; a bare list reads as incomplete.
• Long answers (“What is accounting? Define its objectives”, “Explain the qualitative characteristics of accounting information”, “Describe the role of accounting in the modern world”) — use the sequence define → explain each element → give an original example → close with the limitation or the link to users. For qualitative characteristics, that means all four characteristics with their sub-points; for role, the five views plus the “means, not an end” idea and the quantitative, past-oriented limitation (NCERT, p. 14).
• Term-explanation questions (“Giving examples, explain: fixed assets, short-term liability, revenue, capital, expenses”) — pair each term with a definition and a one-line example; the glossary tables above are exactly this shape.
• End-product questions (“State the end product of financial accounting”) — name the financial statements: the profit and loss account and the balance sheet (NCERT, p. 12).

Where an answer can lean on a diagram, walk the figure step by step: the flow of Fig 1.1 gives the four process steps in order, and Fig 1.3 supplies the four qualitative characteristics with their key attributes.

Quick Revision Recap: The Whole Chapter in One Table

One table built on the chapter’s own learning objectives (NCERT, p. 1) is enough for the night-before revision.

FAQs on NCERT Class 11 Accounting Chapter 1

What is the definition of accounting in Class 11 NCERT?

Accounting is the process of identifying, measuring, recording and communicating the required information relating to the economic events of an organisation to the interested users of such information (NCERT, p. 3).

This NCERT definition grew from three earlier ones: the AICPA (1941) called accounting an art, the AAA (1966) a process of identifying, measuring and communicating, and the Accounting Principles Board (1970) stressed quantitative, financial information useful for economic decisions (NCERT, pp. 2-3).

Why is accounting called the language of business?

Because it is the means by which financial information about an enterprise is communicated to its users (NCERT, p. 6). Like a language, it uses standard reports — the profit and loss account and the balance sheet — that a wide variety of interested parties can interpret and act on for decisions.

What is the difference between book-keeping and accounting?

Book-keeping is the routine recording of transactions, while accounting is the wider process that identifies and measures events, records them, and then communicates and interprets the resulting information for decisions (NCERT, p. 5).

The chapter makes the same point differently: the role of the accountant has shifted from a mere recorder of transactions to a provider of relevant information to the decision-making team (NCERT, p. 1).

Which economic events are not recorded in accounting and why?

Events that are not of a financial character, or that cannot be quantified in monetary terms, are not recorded (NCERT, p. 5). For example, the value of human resources, the appointment of a new managing director, signing of contracts and changes in personnel do not enter the books, because measurement in rupees is the test every event must pass.

How are assets and liabilities classified as current and non-current?

By the four tests in Box 5: current items are involved in the operating cycle, are realised or settled within 12 months, are held primarily for trading, and are cash or cash equivalents; items that fail these tests are non-current (NCERT, p. 18). Figures 1.4 and 1.5 show the resulting split for assets and for liabilities (NCERT, pp. 17-18).

What is the difference between profit and gain?

Profit is the excess of a period’s revenues over its related expenses — the normal, recurring result of carrying on business. Gain is profit that arises from events or transactions incidental to business, such as the sale of a fixed asset, winning a court case or appreciation in the value of an asset (NCERT, p. 19).

Reference: NCERT Class 11 Accountancy textbook (Financial Accounting-I), chapter Introduction to Accounting.