Financial Statements – I Class 11: NCERT Chapter PDF

Financial Statements – I Class 11 is the opening chapter of the NCERT Class 11 Accountancy Part II textbook: the step that turns a balanced trial balance into a trading and profit and loss account and a balance sheet. The chapter runs about 41 printed pages of the book, and the official NCERT PDF is linked by name right below.

This page also walks through what the chapter teaches, section by section, so you can open the file with a clear map of what is inside. It is maintained for the 2026-27 session.

Download Financial Statements – I Class 11 PDF

The official Financial Statements – I Class 11 Accountancy PDF comes directly from ncert.nic.in (file keac201.pdf), so what you download is the same chapter that appears in the printed textbook, with every table, illustration and exercise intact. Keep this page open beside it — the walk-through below follows the chapter in order.

For a quick check: this is NCERT Class 11 Accountancy Part II, official edition on ncert.nic.in. If your school prescribes a different print year, confirm the edition at the NCERT textbook index before downloading.

Financial Statements – I at a Glance

The table below records what the chapter contains — sections, figures, worked illustrations and exercise material — so you can see the size of the chapter before you open the file.

These are the numbered sections of this textbook chapter, from its own headings:

• 8.1 Stakeholders and their Information Requirements (pp. 278-279)
• 8.2 Distinction between Capital and Revenue (pp. 280-282)
• 8.3 Financial Statements (pp. 282-283)
• 8.4 Trading and Profit and Loss Account (pp. 284-297)
• 8.5 Operating Profit (EBIT) (p. 298)
• 8.6 Balance Sheet (pp. 300-305)
• 8.7 Opening Entry (p. 309)

The chapter also closes with a summary, a key-terms list and a set of numerical questions (pp. 310-317).

What Financial Statements – I Covers: Trial Balance to Final Accounts

Before this chapter, you learned the accounting cycle up to the trial balance — journal, subsidiary books, ledger, balancing and the trial balance itself (the chapter recaps this in Box 1, NCERT, p. 280). Financial Statements – I takes the next step: once the trial balance agrees, its balances must be turned into reports that outsiders can read (NCERT, pp. 282-283).

Two statements do that job. The trading and profit and loss account (the income statement) reports financial performance — profit earned or loss sustained. The balance sheet reports financial position — assets, liabilities and capital. Both are prepared from the trial balance plus any additional information (NCERT, p. 283).

One terminology note: companies now call these the statement of profit and loss and the position statement. Because Chapter 1 and the chapter that follows deal with sole proprietorships, the book keeps the traditional names (footnote, NCERT, p. 283).

By the end of the chapter you are expected to be able to:

• state the nature of financial statements and identify the stakeholders and their information requirements;
• distinguish between capital and revenue expenditure, and between capital and revenue receipts;
• prepare a trading and profit and loss account from a trial balance using closing entries;
• state the nature of gross profit, net profit and operating profit, and compute each;
• describe, prepare and marshal a balance sheet, grouping items under logical heads;
• make the opening entry that re-opens balance sheet balances next year.

Stakeholders: Who Needs Financial Statements and What They Look For

A stakeholder is any person associated with the business (NCERT, p. 278). The stake can be monetary — the owner’s investment, a bank’s loan — or non-monetary, like the government’s regulatory interest. Stakeholders are also divided into internal users (inside the business) and external users (outside it), and each group wants different information from the accounts.

Notice the bank’s concern with liquidity — how much of the assets are held in cash or near-cash form (NCERT, p. 279). That idea returns in section 8.6.3: a balance sheet arranged by liquidity answers exactly this question. Follow the five users in Fig 8.1 (p. 279) of your own book.

Capital versus Revenue: Where Each Item Belongs

The distinction is the chapter’s first big decision rule, and it is one sentence: revenue items go into the trading and profit and loss account; capital items go into the balance sheet (NCERT, p. 280). Misclassify one item and the reported profit is wrong, which is why the chapter spends a full section on it.

Capital and Revenue Expenditure and Receipts

Expenditure is an outlay expected to give benefit to the business. The period of that benefit decides its name:

• Revenue expenditure — benefit within one accounting period; day-to-day running costs such as salaries and rent (NCERT, p. 280).
• Capital expenditure — benefit beyond one accounting period; it adds earning capacity, such as buying furniture (NCERT, p. 280).
• Deferred revenue expenditure — a revenue-type spend, usually heavy, whose benefit spills over several periods and is written off over them, e.g. a large advertising campaign (NCERT, p. 281).

The chapter lists five points of distinction between capital and revenue expenditure (NCERT, p. 281):

Receipts follow the same logic (NCERT, p. 282). A capital receipt carries an obligation to return the money — additional capital brought in by the owner, a bank loan, or the sale of a fixed asset. A revenue receipt carries no such obligation — sales, or interest received on investments.

One clarification the book makes: expenditure is the wider term. The part of an expenditure consumed in the current year is this year’s expense; the rest is carried forward, for example as depreciation on a fixed asset spread over its working life (NCERT, p. 281).

Why the Distinction Matters: Overstated and Understated Profit

Work through the chapter’s own example (NCERT, p. 282). Revenue is ₹10,00,000 and expenses are ₹8,00,000, so the reported profit is ₹2,00,000. Now suppose ₹20,000 spent on repairs of machinery was wrongly added to the machinery account instead of being treated as this year’s expense.

True expenses are then ₹8,20,000 and the correct profit is ₹1,80,000 — the reported ₹2,00,000 was overstated by ₹20,000.

The reverse error understates. If a capital item such as furniture is debited to purchases, expenses rise, profit falls, and assets are understated too (NCERT, p. 282).

Either way the statements fail to show a true and fair view. The treatment also matters for tax, because capital profits are taxed differently from revenue profits.

The Trading and Profit and Loss Account: Debits, Credits and Closing Entries

Here is the rule that drives the whole chapter: every debit balance in the trial balance is an expense or loss, and every credit balance is a revenue or gain. Profit is revenue minus expenses (NCERT, p. 284).

The statement that collects revenue items is really two accounts in one — the trading account finds gross profit, and the profit and loss account finds net profit (NCERT, p. 289).

The blank format (Fig 8.2, p. 289) shows the mechanism: the trading part balances with a figure labelled Gross profit c/d, and the same figure re-enters the P&L part as Gross profit b/d. “c/d” means carried down; “b/d” means brought down. The P&L part then balances to Net profit, which is transferred to the capital account.

Items on the Debit Side and the Credit Side

This map is the most tested skill in the chapter — know which side each item takes and why.

Two netting rules appear constantly: net sales = \( \text{sales} – \text{return inwards} \) and net purchases = \( \text{purchases} – \text{return outwards} \) (NCERT, pp. 285-286). Note the direct/indirect split in practice: wages and carriage inwards are direct because they bring goods to the point of sale; salaries and office rent are indirect.

Illustration 3 (pp. 292-293) is the chapter’s worked proof that carriage on sales is indirect — it goes to the profit and loss account while carriage on purchases stays in the trading account.

Closing Entries: Moving Balances into the Final Account

You cannot just copy balances into the final account — in the double entry system, each transfer is itself a journal entry. These transfers are closing entries (NCERT, pp. 286-288). The five patterns are:

• Trading A/c Dr — to opening stock, purchases, wages, carriage inwards and other direct expenses;
• Purchases return A/c Dr — to Purchases A/c (this nets the purchases);
• Sales A/c Dr — to Sales return A/c (this nets the sales);
• Sales A/c Dr — to Trading A/c;
• Profit and Loss A/c Dr — to each expense and loss; and each income and gain A/c Dr — to Profit and Loss A/c.

Using Ankit’s trial balance (NCERT, p. 283), the four actual entries are:

In the ledger, each closed account shows the balance on one side and the transfer out on the other. The wages account, for example, has Balance b/d ₹8,000 on the debit side and Trading ₹8,000 on the credit side (NCERT, p. 287):

Gross Profit, Net Profit and Cost of Goods Sold

Both profit names are computed in this chapter (NCERT, p. 289):

\[ \text{Gross Profit} = \text{Sales} – (\text{Purchases} + \text{Direct Expenses}) \]

\[ \text{Net Profit} = \text{Gross Profit} + \text{Other Incomes} – \text{Indirect Expenses} \]

Gross profit is the result of the basic buying, producing and selling activity. Net profit is what remains after every indirect expense — the figure transferred to capital.

Closing stock is the exception in almost every question: it normally does not appear in the trial balance (NCERT, p. 295), because goods still in hand have not yet been sold.

It is brought into the books with the journal entry Closing stock A/c Dr. To Trading A/c, then shown on the credit side of the trading account (it reduces the goods actually consumed) and as an asset in the balance sheet.

With opening stock in the picture, the full equation is (NCERT, pp. 294-296):

\[ \text{Cost of Goods Sold} = \text{Opening Stock} + \text{Purchases} + \text{Direct Expenses} – \text{Closing Stock} \]

Worked Example: Meera Traders (Original Figures)

Here is a complete example with numbers not from the book — the standard question shape of this chapter: prepare final accounts from a trial balance. Meera Traders has the following trial balance as on March 31, 2026. Closing stock was valued at ₹36,000 and is not in the trial balance.

Trading account of Meera Traders for the year ended March 31, 2026

Profit and Loss account of Meera Traders for the year ended March 31, 2026

Balance sheet of Meera Traders as at March 31, 2026

Final answer: gross profit ₹1,26,000, net profit ₹93,000, balance sheet total ₹2,44,000. The two sides balancing is the built-in check that every item was placed correctly — note that closing stock appears twice, on the credit side of the trading account and as a current asset in the balance sheet.

Operating Profit (EBIT): The Profit from Normal Operations

Managers and analysts want a profit figure that reflects normal operations only — untouched by how the business is financed and by one-off events. That is operating profit, also called EBIT (earnings before interest and tax), because interest and tax are excluded (NCERT, p. 298).

\[ \text{Operating Profit} = \text{Net Profit} + \text{Non-Operating Expenses} – \text{Non-Operating Incomes} \]

• Non-operating expenses: purely financial charges (interest on loans), taxes, and abnormal items such as loss by fire.
• Non-operating incomes: abnormal or financial gains, such as profit on the sale of an investment.

The chapter’s own figure shows the idea. Ankit’s trial balance includes a 10% long-term loan of ₹5,000, so the year’s interest is ₹500 (NCERT, p. 298). After charging it, net profit is ₹19,000; add the interest back and operating profit is ₹19,500. The interest is real and stays in the profit and loss account — it is simply excluded when measuring operating performance.

Test Your Understanding II, question 4, turns this into a formula check: the correct option is (iii) — operating profit = net profit + non-operating expenses − non-operating incomes (NCERT, pp. 299, 316).

The Balance Sheet: Financial Position at a Date

The balance sheet shows what the business owns and owes at a given date — assets on the right, liabilities (including capital) on the left, both totals equal, because it portrays the accounting equation (NCERT, p. 301). Two characteristics matter in answers: it is a statement, not an account, and it is true only at the date it is prepared (NCERT, pp. 300, 310).

The balance sheet holds the balances that were NOT transferred to the trading and profit and loss account. Of the 14 accounts in Ankit’s trial balance (p. 283), 7 are expenses and revenues and go to the final accounts; the remaining 7 — cash, capital, bank, creditors, 10% loan, furniture and debtors — make up the balance sheet (Fig 8.8, p. 302).

Compare the blank format (Fig 8.7, p. 301) with Ankit’s completed balance sheet, which totals ₹36,500 (Fig 8.9, p. 302):

Items in the Balance Sheet

Section 8.6.2 (NCERT, pp. 302-303) defines the eight classes of items a Class 11 balance sheet can carry:

Marshalling and Grouping: Permanence versus Liquidity

Marshalling means arranging assets and liabilities in a particular order (NCERT, p. 303). The bank of section 8.1 wants to judge liquidity, and the order of a balance sheet decides how quickly that judgement can be made.

In the order of permanence, the most permanent item goes on top. For Ankit: furniture, then debtors, bank, cash; on the liability side, capital, then the long-term loan, then creditors (Fig 8.10(a), p. 304). In the order of liquidity, the order is reversed: cash, bank, debtors, furniture; and creditors, the loan, then capital (Fig 8.10(b), p. 304).

The reversal is the whole rule: the most liquid asset comes first in the liquidity order and last in the permanence order.

Grouping is different — it puts similar items together under a common head: owners’ funds, non-current liabilities, current liabilities, non-current assets and current assets (Fig 8.10(c), p. 305). The chapter’s “Do it Yourself” exercise (p. 305) asks you to arrange nine assets and six liabilities in both orders and under logical heads — attempt it once and the concept is fixed.

The Opening Entry: Carrying Balances into the Next Year

The accounting cycle closes with the opening entry. Balance sheet balances are carried forward, and at the start of the next year an opening entry in the journal re-opens them — the balance sheet of one year becomes the opening trial balance of the next (NCERT, p. 309).

The rule is mechanical: every asset is debited; the capital figure and every liability are credited. Using the balance sheet of Fig 8.10(c) (p. 309):

The term appears in the chapter’s own key-terms list (p. 310).

The Figures in This Chapter and What They Show

The chapter runs a single example — Ankit’s trial balance — through twelve figures. Follow them in your own copy of the textbook:

Key Terms in This Chapter Defined

A scannable definition list, with the page where the chapter first explains each term:

Common Mistakes Students Make in Financial Statements – I

Each error below is one the chapter’s own examples and tests are built around — read the correction before you make the mistake.

Answers to the Chapter’s Own Tests

Test Your Understanding I, True or False (NCERT, p. 294):

The matching set: (i) b — closing stock is credited to the trading account; (ii) a — accuracy of books is tested by the trial balance; (iii) e — a buyer returning goods sends a debit note; (iv) d — financial position is determined by the balance sheet; (v) c — the seller sends a credit note.

Test Your Understanding II, multiple choice (NCERT, p. 299):

The answer key for both tests sits at the end of the chapter (p. 316).

How to Attempt the Numerical Questions in This Chapter

The chapter’s exercises are mostly one shape: a trial balance, closing stock stated separately when it is known, and the instruction to prepare the trading and profit and loss account and the balance sheet (NCERT, pp. 311-317). This working order handles all of them:

1. Sort every item into trading items, P&L items and balance sheet items. Every trial balance figure must land in exactly one place.
2. Net the returns: net sales = sales − return inwards; net purchases = purchases − return outwards (pp. 285-286).
3. Compute accrued interest on any loan shown in the trial balance (p. 298).
4. Bring in closing stock on the credit side of the trading account and as a current asset in the balance sheet; record the closing stock journal entry if the question asks for journal entries (p. 295).
5. Balance the trading account to gross profit, carry it down (c/d), then bring it into the P&L account (b/d).
6. Balance the profit and loss account to net profit and transfer it to capital (p. 289).
7. Complete the balance sheet, adjusting capital: add net profit, deduct drawings and income tax (Illustration 8, p. 307). Verify both sides total equal — if they do not, an item is misplaced.

A complete answer states gross profit first, then net profit, then the balance sheet total, and never leaves a trial balance item unplaced. The questions in this chapter keep the traditional sole-proprietorship names (footnote, NCERT, p. 283).

One caution: textbook contents and the examinable syllabus are not always identical — check the current official syllabus for what is examinable this session.

Financial Statements – I: Key Points to Remember

Reworked from the chapter’s own summary (NCERT, pp. 310-311), this is the whole chapter in one read:

• Financial statements present a true and fair view of financial performance (trading and profit and loss account) and of financial position (balance sheet). Revenue items belong to the first; capital items to the second.
• The trading and profit and loss account is an account, prepared by transferring balances through closing entries; its net profit or net loss is transferred to capital.
• The balance sheet is a statement, not an account, true only at the date it is prepared. Its totals are always equal because it portrays the accounting equation. Items are marshalled by permanence or liquidity and may be grouped under logical heads.

And the four computations every question in this chapter uses:

Related Resources

Move across the book or stay in the chapter from here:

• Class 11 Accountancy book page — the full set of NCERT Class 11 Accountancy chapters, each with its official PDF.
• Class 11 NCERT books hub — the same directory across all Class 11 subjects, maintained for the current session.
• Financial Statements – II — the next chapter, which carries the same final-accounts approach further.

Sources and Data Verification

• The facts, page references and chapter structure on this page describe the NCERT Class 11 Accountancy Part II textbook chapter “Financial Statements – I”, as published on ncert.nic.in (PDF keac201.pdf).
• This page covers only Financial Statements – I. It does not cover Financial Statements – II or any other chapter of the book.
• The listing is maintained for the current academic session using the NCERT edition available to us. If your school prescribes a different print year, confirm the current edition at the official NCERT textbook index.
• NCERT settles textbooks, editions and official PDFs; CBSE settles curriculum, syllabus and examinations. Textbooks and the examinable syllabus are not always identical, so check the current official syllabus.

Reference: NCERT Class 11 Accountancy textbook, chapter 1, official edition on ncert.nic.in.

Frequently Asked Questions

What is the difference between gross profit and net profit in Class 11 financial statements?

Gross profit is the surplus of sales over purchases and direct expenses — it comes from the trading account and measures the basic buying-and-selling activity (NCERT, p. 289). Net profit is gross profit plus other incomes minus indirect expenses, found in the profit and loss account and transferred to capital.

The difference between the two is the indirect expenses and other incomes that sit in between.

Why is closing stock shown on the credit side of the trading account?

Because only the goods actually sold during the year belong in the cost of goods sold (NCERT, p. 295). Closing stock is unsold goods, so it is deducted from the goods available — and in the trading account a deduction is a credit.

The same stock then appears as an asset in the balance sheet, via the entry “Closing stock A/c Dr. To Trading A/c”.

What is deferred revenue expenditure?

A revenue-type expenditure, usually large, whose benefit is expected to last more than one accounting period — for example a heavy advertising campaign (NCERT, p. 281). It is treated like capital expenditure in one way: it is written off over its expected period of benefit rather than charged fully in a single year.

How do you calculate operating profit (EBIT)?

Operating profit = net profit + non-operating expenses − non-operating incomes (NCERT, p. 298). It is called EBIT because it is profit before interest and tax. Interest on loans, taxes and abnormal items like loss by fire are the non-operating items you add back or exclude.

What is the opening entry in accounting?

The journal entry made at the start of a new year to re-open the balances that the previous year’s balance sheet carried forward (NCERT, p. 309). Every asset is debited, and the capital figure plus every liability is credited. In effect, the balance sheet becomes next year’s opening trial balance.

What is the difference between marshalling and grouping of assets and liabilities?

Marshalling is the order in which items are arranged — by permanence (most permanent on top) or by liquidity (most liquid on top) (NCERT, pp. 303-304). Grouping is putting similar items together under a common head, such as current assets or long-term liabilities (NCERT, p. 305). A balance sheet can be both marshalled and grouped.