CBSE Class 11 Accountancy Revision Notes Chapter 2

CBSE Class 11 Accountancy Revision Notes Chapter-2 Theory Base Of Accounting

This chapter talks about some of the important basic concepts of Accountancy. The topics covered in Chapter 2 Accountancy Class 11 notes are accounting principles, accounting conventions, accounting standards, IFRS, GST, etc. Students are advised to refer to the CBSE revision notes provided by Extramarks to comprehend the chapter with thorough explanations.

Access Class 11 Chapter –2 Theory Base of Accounting Notes

The revision notes are drafted by subject experts. The revision notes serve as reliable study material for the students. The CBSE Revision Notes of Class 11 Accountancy Chapter 2 discuss all the ideas in detail. They act as a complete study tool and explain the fundamentals of the chapter clearly.

Principles of Accounting

Accounting statements inform multiple parties about a company’s profitability and solvency. Such a declaration must be written in standard language and adhere to norms and regulations. “Generally Accepted Accounting Principles,” or GAAP, are known as the rules.

Features of Accounting Principles:

• Accounting principles are man-made.
• Accounting principles are widely recognised.
• Accounting concepts are flexible in nature.

Need for Accounting Principles

Financial statements must be prepared according to these standards for accounting information to be meaningful to external and internal users.

Accounting Principles Types

• Concept of continuing concern: According to this notion, it is considered that the business will continue to operate for a long time in the future, and transactions are recorded in the books of business based on this assumption.

• Concept of consistency: It specifies that accounting principles and procedures should be consistent from year to year. It allows them to compare and contrast profit and loss over time and develop relevant conclusions.

• Concept of accrual: According to this approach, revenue is recorded when sales are made, regardless of whether cash is received, and the same is true for expenses. Compared to a cash basis, it delivers more accurate information about the business.

• Concept of a company: Business organisations are recognised as independent entities under this idea.

• Concept of monetary measurement: Only those transactions that can be stated in monetary terms are recorded according to accounting norms. The event of machinery breakdown, for example, is not documented because it has no market value.

• The two-sided idea: It is the foundation for the double-entry accounting system, which means that all accounts have two sides: debit and credit. The benefit gained is equal to the advantage provided.

• The idea of price: According to this idea, the asset has usually documented the price paid or incurred to acquire it.

• The notion of the accounting period: The financial statements are created after each accounting period to determine the performance. A 12-month accounting term is common.

• Matching concept: The matching concept is a method of the accurate result of business concern for an accounting period by matching the revenues earned with the costs associated with that period.

• Realization concept or revenue recognition: According to this principle, revenue should only be accounted for when it is realized or when it is sure that it will be achieved.

• The idea of objectivity: This accounting principle stipulates that transactions be reported objectively and without bias.

Accounting Conventions

It is a custom or widely accepted practice among accountants, either by broad agreement or common consent.

• Full disclosure convention: Accounting statements should clearly and thoroughly disclose all relevant information on which various interested parties might make choices.

• Materiality Convention: It necessitates the disclosure of significant facts whose omission might impact decisions. Unimportant data can be blended with other information.

• Conservative Convention: The core of this idea is to “expect no profit and plan for all conceivable losses.” It implies that all potential losses are taken into account.

Accounting Standards

Accounting standards are written declarations released by the accounting professions association from time to time that specifies standardized rules or methods for the financial statements.

Need for Accounting Standards

Accounting standards are required to improve accounting processes’ reliability and uniformity and assure financial information’s transparency, consistency, and comparability.

Benefits of Accounting Standards

• The financial statements are more reliable when accounting standards are followed.
• Accounting standards aid in the resolution of financial conflicts between different parties.
• Accounting guidelines ensure that financial statements are consistent and comparable.
• Manipulation and fraud are much less likely when accounting rules are followed.

Except for solely philanthropic organizations, accounting standards apply everywhere.

International Financial Reporting Standards (IFRS)

The International Accounting Standards Board (IASB) issues IFRS financial reporting standards. All IFRS requirements should be followed to make financial statements more uniform and transparent.

Need for IFRS

The following factors necessitate the use of IFRS:

• Global financial markets are easily accessible.
• Comparisons are simple to create.
• Financial reporting consistency.
• Asset valuation that is accurate and fair
• It’s complex to defraud people and alter accounts.

Goods and Service Tax (GST)

The Good and Service Tax (GST) is an indirect tax applied on goods and services for a fee of doing business. One Nation, One Tax is the foundation of the GST. It is a multi-stage, destination-based tax that is comprehensive. GST covers the entire country, including Jammu and Kashmir.

GST Characteristics

• It is a consumption tax.
• In the case of GST, the burden might be shifted.
• When paying indirect taxes, taxpayers are not hit directly.
• Its nature is regressive, and it promotes social welfare.
• It is imposed on both goods and services.

Benefits of GST

• Doing business is simple.
• Reduces tax avoidance.
• The tax system has become more straightforward, systematic, and predictable.
• The GST regime eliminates the tax on tax, lowering the cost of goods.

GST Includes Three Types of Taxes:

• Central Goods and Services Tax (CGST)
• State Goods and Services Tax (SGST)
• Integrated Goods and Services Tax/ Union Territory Goods and Services Tax. (IGST/UTGST)

CBSE Accountancy Class 11 Chapter 2 Notes – Theory Base of Accounting

Accounting ideas, principles, and terminology are introduced to students in Chapter 2 Accounts Class 11 notes. Going over the notes will allow students to become acquainted with the fundamentals of the subject. Examinees will find it easier to answer all types of queries. These notes provide a thorough and in-depth explanation of the concepts.

Accountancy Class 11 Chapter 2 Notes

The theory base of accounting notes covers the following topics:

Characteristics of Accounting Principles

The accounting concepts are created by trial and error. Such ideas are generally recognized across the board, and they can be tweaked as needed.

Accounting Principles Types

Different types of accounting concepts are mentioned in the notes for Accountancy class 11, chapter 2 –

• A business entity or accounting entity principle 
• Money measurement principle 
• Accounting period principle 
• Full disclosure principle 
• Materiality principle 
• Conservatism principle 
• Cost principle 
• Matching principle 
• Dual aspect principle

Assumptions in Accounting Fundamentals

Accounting assumptions refer to actions or conduct consistent with previous practice and experience. The following are the fundamental assumptions:

• Going concern assumption: Enterprise retains its experience indefinitely.

• Assumption of consistency: Accounting procedures should be followed.

• Assumption of accrual: Revenues and costs are only recorded when they are generated or expended.

Accounting Bases

Accounting is divided into two types: cash basis and accrual basis.

Accounting Standards

Accounting standards, which specify standardized methods and rules for financial accounts, are developed by accounting organizations from time to time.

Objectives of Accounting Standards

Accounting standards aim to ensure that accounting principles and procedures are consistent. In this way, the credibility of such comments improves. Manipulations and frauds in financial accounts can be controlled with precise accounting standards, and auditing becomes easier.

Financial Statements Using IFRS

Financial statements include the Complete Income Statement, Statement of Financial Position, Statement of Cash Flow, and Statement of Changes in Equity.

IFRS Benefits

The International Financial Reporting Standards (IFRS) enable global comparisons of financial accounts from different companies or organizations. Invariably, the remarks would include country-specific standards. Investors can make better selections with such knowledge.

Nature of Accounting Standards

Accounting standards include principles that establish a sound framework for constructing financial statements. Guidelines like this can be changed with the changing business environment.

These accounting processes are all the same. It makes them more comparable and consistent. Accounting standards are adaptable, and an organization can use any accounting method it wants. Accounting requirements are also required.