Accountancy
Financial Accounting
Part II
Textbook for Class XI
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11112 – Accountancy ISBN 81-7450-507-5 (Part I)
Financial Accounting Part-II
ISBN 81-7450-532-6 (Part II)
Textbook for Class XI
First Edition
February 2006 Phalguna 1927
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and January 2021 by a sticker or by any other means is incorrect and should be
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Foreword
The National Curriculum Framework (NCF), 2005, recommends that
children’s life at school must be linked to their life outside the school.
This principle marks a departure from the legacy of bookish learning which
continues to shape our system and causes a gap between the school,
home and community. The syllabi and textbooks developed on the basis of
NCF signify an attempt to implement this basic idea. They also attempt to
discourage rote learning and the maintenance of sharp boundaries between
different subject areas. We hope these measures will take us significantly
further in the direction of a child-centred system of education outlined in
the National Policy on Education 1986.
The success of this effort depends on the steps that school principals
and teachers will take to encourage children to reflect on their own
learning and to pursue imaginative activities and questions. We must
recognise that, given space, time and freedom, children generate new
knowledge by engaging with the information passed on to them by
adults. Treating the prescribed textbook as the sole basis of examination
is one of the key reasons why other resources and sites of learning are
ignored. Inculcating creativity and initiative is possible if we perceive
and treat children as participants in learning, not as receivers of a fixed
body of knowledge.
These aims imply considerable change in school routines and
mode of functioning. Flexibility in the daily time-table is as necessary
as rigour in implementing the annual calendar so that the required
number of teaching days are actually devoted to teaching. The methods
used for teaching and evaluation will also determine how effective this
textbook proves for making children’s life at school a happy experience,
rather than a source of stress or boredom. Syllabus designers have
tried to address the problem of curricular burden by restructuring and
reorienting knowledge at different stages with greater consideration
for child psychology and the time available for teaching. The textbook
attempts to enhance this endeavour by giving higher priority and space
to opportunities for contemplation and wondering, discussion in small
groups, and activities requiring hands-on experience.
The National Council of Educational Research and Training (NCERT)
appreciates the hard work done by the textbook development committee
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iv
responsible for this book. We wish to thank the Chairperson of the
advisory group in Social Sciences Professor Hari Vasudevan and the
Chief Advisor for this book, Professor R.K. Grover, (Retd.) Director,
School of Management Studies (IGNOU), New Delhi for guiding the work
of this committee. Several teachers contributed to the development
of this textbook; we are grateful to their principals for making this
possible. We are indebted to the institutions and organisations which
have generously permitted us to draw upon their resources, material
and personnel. We are especially grateful to the members of the National
Monitoring Committee, appointed by the Department of Secondary and
Higher Education, Ministry of Human Resource Development under the
Chairpersonship of Professor Mrinal Miri and Professor G.P. Deshpande,
for their valuable time and contribution. As an organisation committed
to the systemic reform and continuous improvement in the quality of
its products, NCERT welcomes comments and suggestions which will
enable us to undertake further revision and refinement.
Director
New Delhi National Council of Educational
20 December 2005 Research and Training
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Rationalisation of Content in
the Textbooks
In view of the COVID-19 pandemic, it is imperative to
reduce content load on students. The National Education
Policy 2020, also emphasises reducing the content load
and providing opportunities for experiential learning
with creative mindset. In this background, the NCERT
has undertaken the exercise to rationalise the textbooks
across all classes. Learning Outcomes already developed
by the NCERT across classes have been taken into
consideration in this exercise.
Contents of the textbooks have been rationalised in
view of the following:
• Overlapping with similar content included in other
subject areas in the same class
• Similar content included in the lower or higher class in
the same subject
• Difficulty level
• Content, which is easily accessible to students without
much interventions from teachers and can be learned
by children through self-learning or peer-learning
• Content, which is irrelevant in the present context
This present edition, is a reformatted version after
carrying out the changes given above.
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Textbook Development Committee
Chairperson, Advisory Committee for Textbooks in Social Sciences
at Upper Primary Level
Hari Vasudevan, Professor, Department of History, University of
Calcutta, Kolkata
Chief Advisor
R. K. Grover, Professor, (Retd.), School of Management Studies, IGNOU,
New Delhi.
Members
A.K. Bansal, Reader, PGDAV College, Nehru Nagar, New Delhi.
Amit Singhal, Lecturer, Ramjas College, Delhi University, Delhi.
Ashwini Kumar Kala, PGT Commerce, Hiralal Jain Senior Secondary
School, Sadar Bazar, Delhi.
D.K Vaid, Professor, Department of Education in Social Sciences and
Humanities, NCERT, New Delhi.
Deepak Sehgal, Reader, Deen Dayal Upadhaya College, Delhi University,
Delhi.
H.V. Jhamb, Reader, Khalsa College, Delhi University, Delhi.
Ishwar Chand, PGT Commerce, Government Sarvodaya Bal Vidyalaya,
West Patel Nagar, New Delhi.
K. Sambasiva Rao, Professor, Department of Commerce, Andhra
University, Visakhapatnam.
M. Srinivas, Professor, Department of Commerce, College for Women,
Osmania University, Hyderabad.
P.K. Gupta, Reader, Department of Management Studies, Jamia Millia
Islamia, New Delhi.
Rajesh Bansal, PGT Commerce, Rohtagi A.V. Senior Secondary School,
Nai Sarak, Delhi.
S.K. Sharma, Reader, Khalsa College, Delhi University, Delhi.
S.S. Sehrawat, Assistant Commissioner, Kendriya Vidyalaya Sangathan,
Chandigarh.
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vi
Savita Shangari, PGT Commerce, Gyan Bharati School, Saket, New Delhi.
Shiv Juneja, PGT Commerce, Nirankari Boys Senior Secondary School,
Paharganj, Delhi.
Sushil Kumar, PGT Commerce, Government Sarvodaya Bal Vidyalaya,
Kailash Puri, Delhi.
Vanita Tripathi, Lecturer, Department of Commerce, Delhi School of
Economics, Delhi University, Delhi.
Member-Coordinator
Shipra Vaidya, Professor of Commerce, Department of Education in
Social Sciences, NCERT, New Delhi.
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Acknowledgements
The National Council of Educational Research and Training acknowledges
the valuable contributions of the Textbook Development Committee which
took considerable pains in the development and review of manuscript as well.
Special thanks are due to Savita Sinha, Professor and Head, Department
of Education in Social Sciences, NCERT for her support, during the
development of this book. We also acknowledge the contribution of all
teachers of Commerce who developed the extra learning material for QR
codes in the textbook.
The Council acknowledges the contribustion of Anil Deswal, Post
Graduate Teacher of Commerce at Rajkiya Pratibha Vikas Vidyalaya, Rohini,
New Delhi for the review and updation of this textbook. The efforts of DESS,
Administration is acknowleged for the preparation of manuscript, and
Publication Division of NCERT is acknowledged for printing this textbook.
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Contents of
Accountancy – Financial Accounting
Part I
Chapter 1 Introduction to Accounting 1
Chapter 2 Theory Base of Accounting 23
Chapter 3 Recording of Transactions - I 46
Chapter 4 Recording of Transactions - II 99
Chapter 5 Bank Reconciliation Statement 160
Chapter 6 Trial Balance and Rectification of Errors 191
Chapter 7 Depreciation, Provisions and Reserves 237
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Contents
Foreword iii
Chapter 8 Financial Statements - I 277
8.1 Stakeholders and their Information Requirements 277
8.2 Distinction between Capital and Revenue 279
8.3 Financial Statements 281
8.4 Trading and Profit and Loss Account 283
8.5 Operating Profit (EBIT) 297
8.6 Balance Sheet 299
8.7 Opening Entry 308
Chapter 9 Financial Statements - II 318
9.1 Need for Adjustments 318
9.2 Closing Stock 320
9.3 Outstanding Expenses 322
9.4 Prepaid Expenses 323
9.5 Accrued Income 325
9.6 Income Received in Advance 327
9.7 Depreciation 328
9.8 Bad Debts 329
9.9 Provision for Bad and Doubtful Debts 330
9.10 Provision for Discount on Debtors 333
9.11 Manager’s Commission 335
9.12 Interest on Capital 338
Appendix 383
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