Recording of Transactions I Class 11 Notes

This page is your recording of transactions i class 11 notes, built for one purpose — to let you revise the whole chapter quickly before a test. It follows the 2026-27 session and the rationalised NCERT Financial Accounting-I textbook, chapter 3, and it moves in the same order a teacher would build the topic: transaction → source document → voucher → journal → ledger.

You will find the accounting equation, the rules of debit and credit, journal format and GST entries, plus ledger posting — each with short definitions, comparison tables and worked examples that use fresh numbers, so you practise the method instead of memorising an answer. Use the jump links below to go straight to the section you need.

Chapter 3 in One Flow: From Source Document to Ledger

Every business event that changes the financial position of a firm passes through the same chain. Once you can picture the chain, every section of this chapter is just a closer look at one link (NCERT, p. 46).

1. Business transaction — an exchange of economic consideration between two parties, with a give-and-take aspect and a two-fold effect.
2. Source document — the written evidence of that transaction, such as a cash memo, invoice, cheque or salary slip.
3. Accounting voucher — an internal summary prepared from the source document that names the accounts to be debited and credited.
4. Journal — the book of original entry, where transactions are recorded first, in date order.
5. Ledger — the principal book, where all entries of each account are collected in one place.

In practice the journal is subdivided into the journal proper, the cash book and other day books such as purchases, sales, purchase returns and sales returns books (NCERT, p. 61). The cash book and the day books are the subject of the next chapter, covered in our Recording of Transactions-II notes; this chapter stays with journalising and posting.

These notes sit inside the Class 11 Accountancy notes hub, within the wider Class 11 notes collection on the LearnCBSE notes portal. If you need the accounting concepts and principles behind this chapter, start with Theory Base of Accounting notes.

Source Documents and Accounting Vouchers: What Starts a Record

A business transaction is an exchange of economic consideration between parties — cash paid in, goods or services given out. It always has a give side and a take side, so every transaction has a two-fold effect and is recorded in at least two accounts (NCERT, p. 47).

Think of the last time you bought a notebook. The shop’s cash memo is a source document — it proves the purchase happened. That is why every real firm files its documents: for petty expenses where no outside document exists, the firm itself prepares a voucher showing the details and gets it approved by an appropriate authority (NCERT, p. 47).

All such documents and vouchers are serially numbered, arranged in date order and kept in a separate file, and every entry in the books of account is made only on their basis.

Accounting vouchers are internal documents prepared from source documents. They state which account is to be debited and which credited, and they are classified by their debit-credit pattern (NCERT, pp. 47-49):

Note how the vocabulary connects: a transaction with one debit and one credit is simple; one with multiple accounts on one side only is compound; one with multiple accounts on both sides is complex. Vouchers have no set printed format — firms design them for their own nature and convenience — but each must carry certain essentials (NCERT, pp. 49-50):

• It is written on good-quality paper with the firm’s name printed at the top.
• It shows the date of the transaction, not the date of recording.
• It carries a serial voucher number.
• It names the accounts to be debited and credited, with the amounts in figures.
• It gives an account-wise description of the transaction.
• It bears the name and signature of the person who prepared it and of the authorised person.

The Accounting Equation: A = L + C and Why It Never Breaks

The accounting equation states that the assets of a business are always equal to the total of its liabilities and capital (owner’s equity):

\[ A = L + C \]

Here \(A\) = assets, \(L\) = liabilities, and \(C\) = capital (NCERT, p. 50). The resources of the business come from two sources: the proprietors, whose claim is capital, and outsiders, whose claim is liabilities. Because the equation shows the fundamental relationship among balance-sheet items, it is also called the balance sheet equation (NCERT, p. 50).

Two consequences follow immediately:

• Profit increases capital; a loss decreases it (NCERT, p. 51). Capital also grows when fresh capital is introduced and shrinks when the owner makes drawings.
• Every transaction changes assets and/or claims by the same amount, so the equation stays balanced after every single transaction.

To feel the mechanics, take the running example used later: you start with cash ₹2,12,000 and stock ₹58,000, so \(A = \text{₹ } 2,70,000\), \(L = \text{₹ } 0\) and \(C = \text{₹ } 2,70,000\). A credit purchase of ₹74,000 then raises stock (assets) and creditors (liabilities) together, keeping both sides equal. The complete walk-through is Example 1 in the worked examples section.

Debit and Credit: T-Accounts and the Five Account Types

The simplest form of an account looks like the letter T, which is why it is called a T-account. The left side is the debit (Dr.) side and the right side is the credit (Cr.) side (NCERT, pp. 52-53).

Entering an amount on the left is to debit the account; entering it on the right is to credit the account. The difference between the totals of the two sides is the account’s balance, and it tells you the final position of that item.

Why debit does not always mean increase (misconception autopsy)

The error runs like this: debit means plus, credit means minus. Students pick it up from cash transactions, where debiting cash always makes the balance grow. Correct view: debit and credit are only sides — left and right — and whether a side increases or decreases the account depends entirely on the account’s type (NCERT, pp. 52-54).

Test it with a liability. When you repay ₹20,000 to a creditor, you debit the creditor’s account — but you have decreased what you owe. The “debit = increase” idea fails the moment the account is a liability, capital or revenue. What never fails is the equality rule: for every entry, the total amount debited equals the total amount credited (NCERT, p. 52).

The five account types and their rules

All accounts fall into five categories for recording: assets, liabilities, capital, expenses/losses and revenues/gains (NCERT, p. 54).

Memory device: treat the credit side as one family — Li-Ca-R (Liabilities, Capital and Revenue all grow with a credit). Everything left over, A-E (Assets and Expenses), grows with a debit. If an account is not part of Li-Ca-R, its increase is a debit.

These rows come from two fundamental rules (NCERT, p. 54):

• Increases in assets and in expenses/losses are debited; their decreases are credited.
• Increases in liabilities, capital and revenues/gains are credited; their decreases are debited.

The chapter’s worked T-accounts for Rohit’s transactions on pages 55-57 apply these rules to cash, bank, furniture, creditors, purchases, sales, rent and salary — read them once with this table beside you and the rules become automatic.

Journal: The Book Where Transactions Are First Recorded

The journal is the book in which a transaction is recorded for the first time, in chronological order — hence it is called the book of original entry. Real accounting systems never record transactions directly in the accounts; every transaction is journalised first, which gives a complete record of each event in one place (NCERT, p. 60).

The process of recording in the journal is journalising, and the process of transferring entries from the journal to the individual accounts is posting (NCERT, pp. 60-61).

The journal has five columns, and each has a job (NCERT, pp. 61-62):

• Date — the date on which the transaction took place.
• Particulars — the account to be debited is written first, from the left, with “Dr.” at the end of the line; the account to be credited goes on the next line, indented, with the prefix “To”.
• Narration — a brief description of the transaction written in the Particulars column below the account titles, after which a line is drawn in that column to mark the end of that entry.
• L.F. (Ledger Folio) — the page number of the ledger on which the account appears. It is filled at the time of posting, never while journalising (NCERT, p. 62).
• Debit and Credit amount — the amounts against the respective accounts; total debits must equal total credits.

Because a journal runs over many pages, the amount columns are totalled at the end of each page and carried forward (c/f); the next page opens with the same total brought forward (b/f) (NCERT, p. 62).

When only two accounts are involved, the entry is a simple journal entry. When more than two accounts appear, it is a compound journal entry (NCERT, pp. 62-63).

One trap to fix now: although a credit purchase increases stock, the account debited is Purchases, not Goods — the goods account is split into purchases, sales, purchases returns, sales returns and stock accounts (NCERT, p. 62).

GST in the Journal: CGST, SGST and IGST Entries

Under the Goods and Services Tax, purchases carry input GST and sales carry output GST. The input tax is debited along with the purchase, and the output tax is credited along with the sale — each in its own separate tax account (NCERT, pp. 69-70). The tax is never merged into the purchase or sale amount.

Which tax account is used depends on where the buyer and seller are located:

Set-off order — the rule that decides which input credit pays which output liability (NCERT, p. 72): an input IGST credit is applied first to output IGST, then to output CGST, and the balance, if any, to output SGST. Input CGST sets off output CGST first, and input SGST sets off output SGST first.

Only the net amount left is paid in cash.

Mini-example. Goods are bought within Delhi for ₹2,00,000 at CGST 5% and SGST 5%:

\[ \text{Purchases A/c Dr } \text{₹ } 2,00,000;\quad \text{Input CGST A/c Dr } \text{₹ } 10,000;\quad \text{Input SGST A/c Dr } \text{₹ } 10,000;\quad \text{To Creditors A/c } \text{₹ } 2,20,000 \]

Now suppose the month ends with output CGST of ₹30,000 and output SGST of ₹30,000, while input credits are CGST ₹12,000, SGST ₹9,000 and IGST ₹15,000:

Because there is no output IGST liability in this month, the whole input IGST credit applies to output CGST, leaving ₹3,000 of CGST and ₹21,000 of SGST payable. The closing entry is: Output CGST A/c Dr ₹3,000; Output SGST A/c Dr ₹21,000; To Electronic Cash Ledger A/c ₹24,000.

Ledger and Posting: The Principal Book of Accounts

The ledger is the principal book of the accounting system — a collection of all the accounts that were debited or credited in the journal proper and the special journals. Each account is opened preferably on a separate page or card (NCERT, p. 72).

The ledger’s special power: only the ledger can tell you, on a given date, the amount due from a particular customer or the amount the firm has to pay to a particular supplier. The journal cannot do this easily because its entries run in date order, defying classification (NCERT, p. 72).

A ledger account carries a title ending with the suffix “Account”, a debit side and a credit side, and columns for Date, Particulars, J.F. (Journal Folio) and Amount (NCERT, p. 73). The J.F. column records the page number of the journal from which the entry was transferred, and it is filled at the time of posting.

Journal vs ledger

(NCERT, p. 74)

Classification of ledger accounts

The five categories — assets, liabilities, capital, revenues/gains and expenses/losses — group further into two sets (NCERT, p. 75):

• Permanent accounts — assets, liabilities and capital. They are balanced and carried forward to the next accounting period, and they finally appear in the balance sheet.
• Temporary accounts — revenues and expenses. They are closed at the end of the accounting period by transfer to the trading and profit and loss account.

Posting in five steps

Posting is the process of transferring entries from the journal to the ledger, done periodically — weekly, fortnightly or monthly — as the business requires. The five steps, in order (NCERT, p. 75):

1. Locate in the ledger the account to be debited, as named in the journal.
2. Enter the date of the transaction in the date column on the debit side.
3. In the Particulars column, write the name of the other account — the account through which the entry came — so the trail stays clear on both sides.
4. Enter the journal page number in the J.F. column of the ledger, and write the ledger page number of this account in the L.F. column of the journal.
5. Enter the relevant amount in the amount column on the debit side.

Then repeat the same procedure on the credit side of the account to be credited. An account is opened only once in the ledger; all its entries collect on the debit or credit side as the rules demand.

Key Terms and Definitions at a Glance

Formula Sheet: The Accounting Equation and Its Derivatives

This chapter has exactly one equation, in three arrangements. Everything else is a rule, not a formula.

where \(A\) = assets, \(L\) = liabilities and \(C\) = capital (NCERT, p. 50). The derivatives exist so that a missing figure can be determined when the other two are known. Because the equation is the relationship shown in a balance sheet — a statement of assets, liabilities and capital — it is called the balance sheet equation.

Capital changes through four causes: net profit and fresh capital increase it; net loss and drawings decrease it (NCERT, pp. 51, 97).

Worked Examples: From Equation to Ledger

Three original drills take a month of transactions through the whole chain — analysis via the accounting equation, journalising, and posting into ledger accounts. The numbers here are different from every NCERT illustration, so follow the method, not the arithmetic pattern.

Example 1: Analysing transactions with the accounting equation

Method: for each transaction, identify which assets, liabilities and capital items change, update each affected element, and confirm both sides of \(A = L + C\) stay equal.

Opening position: business started with cash ₹2,12,000 and stock ₹58,000.

\[ \text{Assets} = \text{₹ } 2,12,000 + \text{₹ } 58,000 = \text{₹ } 2,70,000; \quad \text{Capital} = \text{₹ } 2,70,000 \]

Working notes:

• Transaction 1: stock rises by ₹74,000 and creditors rise by ₹74,000 — assets and liabilities increase together.
• Transaction 2: stock falls by the cost of ₹52,000, while debtors rise by the sale price of ₹68,000. The difference of ₹16,000 is the profit, added to capital (NCERT, pp. 51-52).
• Transaction 3: paying rent reduces cash by ₹6,000 and capital by ₹6,000, because an expense decreases the proprietor’s equity.
• Transaction 4: drawings reduce both cash and capital by ₹14,000.

Final check: the equation balances, exactly as the double entry system requires:

\[ \text{₹ } 3,40,000 = \text{₹ } 74,000 + \text{₹ } 2,66,000 \]

Example 2: Journalising a month of Kavita’s transactions

Method: for each transaction, name the accounts affected, classify them into the five types, apply the debit-credit rules, write the debit account first with “Dr.”, indent the credited accounts with “To”, add a narration in brackets, and draw the line. All amounts are in ₹; the L.F.

column is deliberately left blank because it is filled only at the time of posting.

The entry of Jan 29 is a compound entry — one debit against two credits — because the machinery is partly paid in cash and partly on credit. Its pattern (one debit, many credits) is exactly the credit voucher pattern from the vouchers table. Check the totals: debit and credit columns both sum to ₹9,77,500.

Example 3: Posting to the ledger (Kiran’s books)

Method: follow the five posting steps — open each account once, post on the correct side, name the other account in Particulars, and fill the J.F. columns at the time of posting.

Journal entries for Kiran:

• Mar 1: Cash A/c Dr ₹2,16,000; To Capital A/c ₹2,16,000 (business started with cash).
• Mar 5: Purchases A/c Dr ₹78,000; To Mehta Traders A/c ₹78,000 (goods bought on credit).
• Mar 12: Mehta Traders A/c Dr ₹78,000; To Bank A/c ₹78,000 (payment made by cheque).

All three entries were recorded on the same journal page — page 12 — so every ledger posting below carries J.F. 12.

Read the creditor’s account carefully: it is credited when the purchase is made (we owe Mehta Traders ₹78,000) and debited when the cheque is issued (the debt is paid off). Its balance is now nil.

These three entries exercise exactly the pattern used for every entry in Kavita’s month-end journal: each ledger account collects only its own transactions, and the Particulars column always names the other account. That is the whole mechanism of the principal book.

Common Mistakes in Recording Transactions

Each pair below corrects a chapter-specific error before it costs you in a class test (NCERT, pp. 57, 62, 64-67, 72, 75).

How to Write Complete Answers for This Chapter

Each exercise type in this chapter has a standard structure. Match the structure and your answer is complete by construction (question set on NCERT, pp. 87-94).

• Accounting equation questions: take one row per transaction, update every affected element — assets, liabilities and capital — and finish with a fully balanced \(A = L + C\) total. State ₹ at every amount. If the set includes a credit sale, show the cost deduction from stock and the profit added to capital.
• Journalising questions: write the debit account first with “Dr.”, indent the credit account with “To”, add a narration in brackets, and draw the line below the entry. Total the debit and credit amount columns; they must be equal.
• Posting questions: open each account once, post each entry on the correct side, write the other account’s name in the Particulars column, and fill the J.F./L.F. columns at posting time. Balance the account only when the question asks for it.
• GST questions: first separate input tax from output tax in their own accounts, then prepare the set-off in the statutory order — IGST credit against IGST, then CGST, then SGST — and finally show the net amount paid.

Note the visual conventions: “A/c Dr.” occupies the first line, the credited account is indented with “To”, and the narration sits in brackets. That layout is part of a complete answer, not decoration.

Revision Summary: The Recording Chain in One Page

The whole chapter in five links:

1. Transaction → source document → voucher: every entry rests on written evidence; vouchers classify as transaction (1 debit, 1 credit), debit (many debits, 1 credit), credit (1 debit, many credits) or complex/journal (many of both).
2. Accounting equation: \(A = L + C\). Profit and fresh capital increase \(C\); loss and drawings decrease it.
3. Rules of debit and credit: A-E (assets, expenses) grow by debit; Li-Ca-R (liabilities, capital, revenue) grow by credit. Total debits always equal total credits.
4. Journal: chronological book of original entry; simple vs compound entries; narration plus a line after each entry; L.F. filled only at posting.
5. Ledger: principal book; journal is chronological, ledger is analytical; posting follows five steps; permanent accounts (A, L, C) vs temporary accounts (revenue, expense).

GST in one line: input GST is debited with purchases, output GST is credited with sales; IGST credit sets off IGST first, then CGST, then SGST. Key terms to recognise: double entry bookkeeping, source document, voucher, journal, journalising, account, debit, credit, ledger, posting (NCERT, p. 87).

The official NCERT textbook portal hosts the full Financial Accounting-I textbook, including the specimen voucher and journal formats, if you want to see the originals.

FAQs: Recording of Transactions I Doubts, Answered

What is the difference between a source document and an accounting voucher?

A source document is the original evidence of a transaction — a cash memo, invoice, cheque or salary slip — usually received from outside the firm. An accounting voucher is an internal document prepared from that evidence; it names the accounts to be debited and credited.

For petty expenses with no outside document, the firm itself prepares a voucher and gets it approved by an appropriate authority (NCERT, p. 47).

Does the accounting equation stay balanced after every transaction?

Yes. Every transaction changes at least two items — assets, liabilities or capital — and the changes always offset each other, so both sides of \(A = L + C\) move by the same amount. That is exactly why the equation is also called the balance sheet equation (NCERT, p. 50).

Is debit always an increase and credit always a decrease?

No. Debit and credit are simply the left and right sides of an account. A debit increases assets and expenses but decreases liabilities, capital and revenue; a credit does the reverse (NCERT, pp. 52-54). The only safe route is to classify the account first, then apply that account type’s rule.

How do I decide which account to debit and which to credit?

Identify the two (or more) accounts affected, classify each into one of the five types — asset, liability, capital, expense/loss or revenue/gain — then apply the rule: increases in assets and expenses are debited, and increases in liabilities, capital and revenue are credited (NCERT, p. 54). Practise with the worked examples above until the five-type table is automatic.

How are CGST, SGST and IGST recorded and set off?

On intra-state purchases, input CGST and input SGST are debited alongside the purchase, and on sales, output CGST and output SGST are credited. Inter-state transactions use only IGST. At set-off, IGST credit is applied first to IGST, then to CGST and then to SGST; the remaining output liability is paid through the Electronic Cash Ledger (NCERT, p. 72).

Reference: NCERT Class 11 Accountancy textbook, chapter Recording of Transactions-I.