Introduction to Accounting
Accounting is the language every business speaks — it captures where money comes from, where it goes, and what the business is worth. This chapter gives you the vocabulary, the purpose, and the foundation you will build every future accounting skill on.
Whether you go on to study CA, B.Com, or start your own business one day, accounting is the tool that tells you whether you are winning or losing financially — and every board exam in commerce will test your grip on these basics from Chapter 1 itself.
Concept
Lots of students think…
"Accounting is basically just bookkeeping — recording what comes in and what goes out."
Actually…
Bookkeeping is only the first step. Accounting takes those records and turns them into meaning — classifying, summarising, and analysing the numbers so that owners, banks, and managers can make real decisions. This chapter shows you why that bigger picture is what accounting actually is.
By the end of this, you will understand what accounting actually is, why every business needs it, and what all those basic terms — assets, liabilities, profit — really mean in everyday life.
What accounting really is
Accounting is a way of tracking all the money that flows in and out of a business — then turning that into a clear picture you can actually read. Think of it as the 'language of business': just like a story needs grammar, a business needs accounting to make sense of its finances.
Arjun opens a stationery shop near school. By month-end he's sold notebooks, paid rent, and borrowed ₹5,000 from his uncle — but has no idea if he made money. Accounting is the tool that answers that question.
Bookkeeping vs accounting
Bookkeeping is just one part of accounting — it is the daily job of writing down every transaction (who paid what, when). Accounting is the bigger picture: it takes those records, sorts them, summarises them, and turns them into reports that help people make decisions. Bookkeeping is like collecting the pieces of a puzzle; accounting is assembling the full picture.
The cashier at a kirana store writes every sale in a notebook each day — that's bookkeeping. The shop owner then reviews the month's notebook, calculates total sales and expenses, and decides whether to stock a new product — that's accounting.
Who uses the numbers
Accounting information is not just for the owner. Think of two rings: the inner ring is people inside the business (owner, managers, employees), and the outer ring is people outside it (banks, suppliers, customers, tax authorities). Each group asks a different question from the same set of records.
When Riya's mother wanted a ₹3 lakh loan for her saree shop in Kochi, the bank asked for her accounts. From those records, the bank could see she owned ₹5 lakh in inventory and owed only ₹80,000 — so they approved the loan in a week.
Assets, liabilities, and capital
An asset is something the business owns that has value — cash, furniture, inventory. A liability is something the business owes to someone else — a bank loan, money owed to a supplier. Capital is what the owner put in, and it equals assets minus liabilities. These three always stay in balance: Assets = Liabilities + Capital.
Priya starts a boutique with ₹2,50,000 of her own money (capital). She buys furniture for ₹80,000 (asset) and buys clothes worth ₹1,20,000 on credit from a supplier (liability). Her total assets are ₹3,70,000 and total liabilities + capital is also ₹3,70,000 — perfectly balanced.
Revenue, expenses, and profit
Revenue is all the money a business earns from selling its goods or services. Expenses are what it costs to run the business — rent, salaries, electricity, raw materials. When revenue is more than expenses, the business makes a profit. When expenses are more, it makes a loss — and that loss eats into the owner's capital.
A tea stall earns ₹8,000 in a day (revenue). It spends ₹3,000 on tea leaves and milk, ₹1,000 on a helper, and ₹500 on gas — total expenses ₹4,500. Profit = ₹8,000 – ₹4,500 = ₹3,500.
What makes accounting info trustworthy
Not all accounting information is useful — it has to have certain qualities. It should be relevant (it actually affects the decision you are making), reliable (based on real invoices and receipts, not guesses), and comparable (following the same rules every year so you can spot trends). If these qualities are missing, the numbers are just noise.
A bank asks for three years of accounts before giving a loan. If each year uses different rules, the bank cannot compare them — making the accounts useless for the decision. Consistency and reliability are what make the numbers mean something.
Accounting and the law
In India, keeping proper accounts is not just good practice — it is the law. The Companies Act 2013, the Income Tax Act, and GST rules all require businesses to maintain records and file returns based on them. Accounting ensures a business stays legal and avoids penalties.
Every GST-registered shopkeeper in India must file monthly returns showing sales and purchases. Those returns are directly built from the shop's accounting records — no proper accounts means no correct GST filing, which can lead to notices from the tax department.
Notes
Accounting is the language of business — the systematic process of identifying, recording, classifying, summarising, and communicating a firm's financial transactions so that users can make sound decisions. This first chapter builds the vocabulary, objectives, characteristics, and basic terms on which every later topic in Accountancy rests.
Key terms & definitions
- Accounting
- The process of identifying, measuring, recording, classifying, summarising, analysing, interpreting and communicating the financial transactions and events of a business to its users. It is wider than book-keeping and is rightly called the 'language of business'.
- Book-keeping
- The part of accounting concerned only with identifying financial transactions and recording them in the books in a systematic, date-wise manner. It is the primary, routine stage; analysis and interpretation are NOT part of book-keeping.
- Business transaction
- An economic activity or event of a business that can be measured in money and that changes the financial position of the firm (e.g., buying goods, paying rent, taking a loan). Events not measurable in money are not recorded.
- Capital
- The amount (in cash or kind) invested in the business by its owner. To the business it is a liability owed to the owner (Business Entity Concept). Capital = Assets - Liabilities.
- Drawings
- The amount of cash or value of goods/assets withdrawn by the owner from the business for personal use. Drawings reduce the owner's capital.
- Assets
- Economic resources owned by the business that yield future benefit and have a money value. Non-current (fixed) assets are held long-term (land, building, machinery, goodwill); current assets are convertible into cash within a year (cash, debtors, stock).
- Liabilities
- Amounts a business owes to outsiders. Non-current (long-term) liabilities fall due after one year (long-term loans, debentures); current liabilities fall due within a year (creditors, bills payable, bank overdraft, outstanding expenses).
- Expenditure vs Expense
- Expenditure is spending money or incurring a liability to acquire assets, goods or services. Capital expenditure gives benefit for more than one year (buying machinery); revenue expenditure gives benefit within the year (rent, wages). An expense is the cost of resources used up to earn revenue in an accounting period (e.g., depreciation, salaries).
- Revenue, Income, Gain, Profit
- Revenue is the regular inflow from the firm's main operations (sales, commission, rent received, interest received). Profit is the excess of revenue over the expenses of a period and increases capital. Gain is profit of an irregular/non-recurring nature (e.g., profit on sale of a fixed asset). Income (in NCERT's wider sense) is the increase in the owner's net worth from business operations.
- Goods vs Stock
- Goods are items a firm purchases mainly to re-sell (its merchandise). Stock (inventory) is the value of goods lying unsold on a given date — opening stock at the start and closing stock at the end of the year.
- Debtor vs Creditor
- A debtor is a person/firm who owes money to the business (usually because goods were sold to them on credit). A creditor is a person/firm to whom the business owes money (usually because goods were bought from them on credit).
- Voucher & Discount
- A voucher is the written documentary evidence of a transaction (cash memo, invoice, receipt) on which an entry is based. Trade discount is a reduction in the list price allowed on bulk purchase — it is NOT recorded in the books. Cash discount is allowed for prompt/early payment — it IS recorded in the books.
Meaning and definition of accounting
- Accounting is the systematic process of identifying, recording, classifying, summarising, analysing, interpreting and communicating financial information to its users.
- The flow is: raw transactions to organised records (book-keeping) to summarised statements to useful information communicated to users.
- It is called the 'language of business' because it conveys the results and financial position of a business to all interested parties.
- Book-keeping is only the recording stage; accounting is the broader discipline. Accountancy is the body of knowledge/rules that governs how accounting is done.
Accounting as a source of information
- An accounting system is an information system: it processes financial data (input) into financial reports (output) for decision-makers.
- The main outputs are the Profit and Loss Account (which shows profit/loss for a period) and the Balance Sheet (which shows the financial position on a date).
- Good information must reach the right user, at the right time, in an understandable form.
Objectives of accounting
- To maintain a systematic, complete and permanent record of all financial transactions (the book-keeping objective).
- To ascertain the net profit or loss of the business for an accounting period by preparing the Profit and Loss Account.
- To ascertain the financial position of the business (assets, liabilities and capital) by preparing the Balance Sheet.
- To provide accounting information to interested users for sound decision-making.
- To assist management in planning, controlling, budgeting and decision-making.
Functions of accounting
- Maintaining systematic records of all transactions in money terms.
- Communicating results — profit/loss and financial position — to all users.
- Meeting legal requirements (Companies Act 2013, Income Tax Act, GST law) by providing records for assessment and filing of returns.
- Protecting business assets by keeping proper records that help control and prevent misuse.
- Assisting management with information for control, planning and decision-making.
Advantages of accounting
- Provides a complete and systematic record so the owner need not rely on memory.
- Helps ascertain profit or loss earned during the year.
- Helps ascertain the financial position of the business through the Balance Sheet.
- Provides information that helps management make decisions and control the business.
- Acts as legal evidence in courts and helps in the assessment of tax (income tax, GST).
- Helps in comparison of performance across years and with other firms.
- Assists in the valuation of the business at the time of sale, merger or admission of a partner.
Limitations of accounting
- Records only those transactions that can be measured in money; valuable non-monetary facts (skill of management, employee morale, market reputation) are ignored.
- Accounting information is based on historical cost and does not show the current market value or the effect of changing price levels (inflation).
- It can be influenced by the personal judgement of the accountant (e.g., choice of depreciation method, estimate of bad debts), so it may not be fully objective.
- It may be window-dressed (manipulated) to present a more favourable picture than the reality.
- It ignores the qualitative elements and shows only the quantitative, money-measurable side of the business.
Qualitative characteristics of accounting information
- Reliability — the information must be free from material error and bias and capable of being verified from source documents (invoices, receipts, vouchers).
- Relevance — the information must be useful for the decision at hand and available in time to influence it; irrelevant data is excluded.
- Understandability — the information must be presented so that a user with a reasonable knowledge of business can interpret it correctly.
- Comparability — the information must be prepared on consistent principles so it can be compared with earlier years (intra-firm) and with other firms (inter-firm).
Users of accounting information and their needs
- Internal users: Owners/proprietors (to know profit and return on investment), Management (to plan, control and decide), and Employees (to judge job security, bonus and pay).
- External users: Banks and lenders (to judge whether a loan will be repaid), Creditors/suppliers (to fix credit terms), Investors (to decide whether to buy/hold shares), Customers (to judge continuity of supply), Government and tax authorities (to assess tax and regulate), and Researchers/public (for studies and employment data).
- All users draw their answers from the same set of financial statements, but each asks a different question.
Role of accounting in business
- Accounting helps replace memory with permanent records as the business grows.
- It assists in fixing selling prices and controlling costs.
- It helps the owner plan future activities and assess past performance.
- It builds the trust of outsiders (banks, creditors, investors) by providing reliable, comparable figures.
- Modern accounting has moved from a mere record-keeping role to a vital management information and service function for decision-making.
Branches of accounting
- Financial Accounting — records transactions and prepares the Profit and Loss Account and Balance Sheet to ascertain profit/loss and financial position for external users.
- Cost Accounting — ascertains and controls the cost of producing goods or services and helps in cost reduction and price fixation.
- Management Accounting — supplies financial and cost information to management in a form useful for planning, control and decision-making.
Basic accounting terms (the vocabulary)
- Entity & Business Transaction — the business is treated as separate from its owner; a transaction is an event measurable in money that changes financial position.
- Capital & Drawings — Capital is the owner's investment (a liability to the firm); Drawings is what the owner takes out for personal use (reduces capital).
- Assets & Liabilities — Assets are resources owned (current vs non-current); Liabilities are amounts owed to outsiders (current vs non-current).
- Expenditure, Expense, Revenue, Income, Profit, Gain, Loss — distinguished by regularity and timing (see Key Terms).
- Purchases & Sales — buying of goods meant for resale (cash or credit) and selling of those goods (cash or credit); 'Purchases'/'Sales' refer only to goods, not to fixed assets.
- Goods & Stock — Goods are merchandise for resale; Stock is unsold goods on a date (opening/closing).
- Debtor & Creditor — Debtor owes the firm money; Creditor is owed money by the firm.
- Voucher & Discount — Voucher is documentary proof of a transaction; Trade discount (on bulk, not recorded) vs Cash discount (for prompt payment, recorded).
The accounting equation (foundation)
- Every business satisfies: Assets = Liabilities + Capital (equivalently Capital = Assets - Liabilities).
- This follows from the Dual Aspect Concept — every transaction affects two items and keeps both sides equal.
- Because the two sides always stay equal, the Balance Sheet always balances.
Formulas & formats
- Accounting Equation: Assets = Liabilities + Capital
- Capital = Assets - Liabilities
- Profit = Total Revenue (Income) - Total Expenses (if negative, it is a Loss, which reduces Capital)
- Closing Capital = Opening Capital + Additional Capital + Profit - Drawings - Loss
- Cost of Goods Sold (intro level) = Opening Stock + Purchases - Closing Stock
Important questions & model answers
Define accounting. Why is it called the 'language of business'? (1 mark)
1 mark- Accounting is the process of identifying, recording, classifying, summarising and communicating the financial transactions of a business to its users.
- It is called the 'language of business' because it communicates the results and financial position of the business to all interested parties, just as a language conveys meaning.
Distinguish between book-keeping and accounting. (1 mark)
1 mark- Book-keeping is only the identifying and recording of transactions in the books in a systematic way.
- Accounting is wider — it also classifies, summarises, analyses, interprets and communicates the information; thus book-keeping is a part (the first stage) of accounting.
State any three objectives of accounting. (3 marks)
3 marks- To maintain a systematic and complete record of all financial transactions.
- To ascertain the net profit or loss of the business by preparing the Profit and Loss Account.
- To ascertain the financial position of the business (assets, liabilities and capital) by preparing the Balance Sheet, and to provide information to users for decision-making.
Explain the four qualitative characteristics of accounting information. (4 marks)
4 marks- Reliability — information must be free from material error and bias and verifiable from source documents such as invoices and receipts.
- Relevance — information must be useful for the decision at hand and available in time to influence that decision.
- Understandability — information must be presented clearly so that a user with reasonable business knowledge can interpret it.
- Comparability — information must be prepared on consistent principles so it can be compared across years and with other firms.
Who are the internal and external users of accounting information? State the need of any four users. (4 marks)
4 marks- Internal users: owners (to know profit and return), management (to plan and control), employees (to judge job security and bonus).
- External users: banks/lenders (to judge repayment capacity before granting a loan), creditors/suppliers (to decide credit terms), investors (to decide whether to invest in shares), government/tax authorities (to assess and collect tax such as income tax and GST).
- Each user examines the same financial statements but seeks the answer to a different question.
- Hence accounting serves a wide range of decision-makers, not just the owner.
Explain any four advantages and any two limitations of accounting. (6 marks)
6 marks- Advantage 1 — Systematic record: provides a complete, permanent record so the owner need not depend on memory.
- Advantage 2 — Profit/Loss & financial position: helps ascertain profit or loss and the financial position through the P&L Account and Balance Sheet.
- Advantage 3 — Decision-making and control: provides information that helps management plan, control and take decisions.
- Advantage 4 — Legal evidence and tax: serves as evidence in courts and as the basis for assessing income tax and GST; also aids comparison and business valuation.
- Limitation 1 — Money measurement only: it ignores valuable non-monetary facts such as management skill, staff morale and reputation.
- Limitation 2 — Historical cost & subjectivity: it records assets at historical cost (ignoring inflation/market value) and can be affected by the accountant's personal judgement or window-dressing.
Distinguish between (a) Trade discount and Cash discount, and (b) Goods and Stock. (4 marks)
4 marks- Trade discount is a reduction in the list price allowed on bulk purchases; it is deducted on the invoice and is NOT recorded separately in the books.
- Cash discount is allowed for prompt or early payment; it IS recorded in the books as a discount.
- Goods are the items a firm purchases mainly for resale (its merchandise).
- Stock (inventory) is the value of goods remaining unsold on a particular date — opening stock at the start and closing stock at the end of the period.
Differentiate between an asset and a liability, giving one example of each type (current and non-current). (3 marks)
3 marks- An asset is a resource owned by the business that has money value and yields future benefit; a liability is an amount the business owes to outsiders.
- Assets: non-current (e.g., machinery, building) and current (e.g., cash, debtors, stock).
- Liabilities: non-current (e.g., long-term bank loan, debentures) and current (e.g., creditors, bills payable, bank overdraft).
From the following, prepare the accounting equation: (i) Started business with cash ₹5,00,000; (ii) Bought furniture for cash ₹80,000; (iii) Bought goods on credit from Ravi ₹1,20,000; (iv) Took a bank loan of ₹2,00,000. (6 marks)
6 marks- (i) Started business with cash ₹5,00,000 -> Assets: Cash 5,00,000 = Liabilities 0 + Capital 5,00,000.
- (ii) Bought furniture for cash ₹80,000 -> one asset (Cash) falls by 80,000, another asset (Furniture) rises by 80,000. Assets: Cash 4,20,000 + Furniture 80,000 = 5,00,000 = Liabilities 0 + Capital 5,00,000.
- (iii) Bought goods on credit ₹1,20,000 -> Stock (asset) +1,20,000 and Creditor (liability) +1,20,000. Assets: Cash 4,20,000 + Furniture 80,000 + Stock 1,20,000 = 6,20,000 = Liabilities 1,20,000 + Capital 5,00,000.
- (iv) Bank loan ₹2,00,000 -> Cash (asset) +2,00,000 and Loan (liability) +2,00,000. Assets: Cash 6,20,000 + Furniture 80,000 + Stock 1,20,000 = 8,20,000.
- Final equation: Assets ₹8,20,000 = Liabilities ₹3,20,000 (Creditor 1,20,000 + Loan 2,00,000) + Capital ₹5,00,000.
- The equation balances after every transaction, proving the Dual Aspect Concept.
Explain the three main branches of accounting. (3 marks)
3 marks- Financial Accounting — records transactions and prepares the P&L Account and Balance Sheet to find profit/loss and financial position, mainly for external users.
- Cost Accounting — ascertains and controls the cost of products or services and helps in cost reduction and price fixing.
- Management Accounting — presents financial and cost data to management in a form useful for planning, control and decision-making.
Exam tips
- In 'distinguish between' questions, always answer in a two-column / point-to-point form on the SAME basis (meaning, recording, timing) — the marking scheme awards a mark per valid point of difference.
- Never confuse book-keeping with accounting: book-keeping = recording only; accounting = recording + classifying + summarising + analysing + interpreting + communicating.
- Remember the official list is FOUR qualitative characteristics — Reliability, Relevance, Understandability, Comparability. Do not invent a fifth.
- Trade discount is NEVER recorded in the books; Cash discount IS recorded. This single line is a frequent 1-mark catch.
- Capital is a liability of the business to the owner (Business Entity Concept) — state this if asked why capital appears on the liabilities side.
- For accounting-equation sums, show the effect of EVERY transaction and write the final 'Assets = Liabilities + Capital' line; an unbalanced equation loses the final mark.
- Use Indian examples and the rupee sign in answers, but keep statements crisp — examiners reward precise definitions, not long paragraphs.
Quick revision
- Accounting = identify -> record -> classify -> summarise -> analyse -> interpret -> communicate. Book-keeping is only 'identify + record'.
- Objectives: systematic record, find profit/loss (P&L), find financial position (Balance Sheet), give information to users, aid management.
- Four qualitative characteristics: Reliability, Relevance, Understandability, Comparability.
- Users: Internal = owner, management, employees. External = banks, creditors, investors, customers, government, public.
- Advantages: record, profit/loss, position, decisions, legal/tax evidence, comparison, valuation. Limitations: money-measurement only, historical cost/inflation, subjectivity, window-dressing.
- Branches: Financial, Cost, Management accounting.
- Core terms to nail: Capital vs Drawings; Assets vs Liabilities (current/non-current); Revenue/Income/Gain/Profit; Expenditure (capital/revenue) vs Expense; Goods vs Stock; Debtor vs Creditor; Voucher; Trade vs Cash discount.
- Golden equation: Assets = Liabilities + Capital (Dual Aspect Concept) — every transaction keeps both sides equal.
The full picture
Imagine your friend Arjun opens a small stationery shop near school. Every day he buys pens, sells notebooks, pays rent, and borrows money from his uncle. By month-end, he has no idea whether he made a profit or how much he owes. That confusion is exactly what accounting solves. Accounting is the process of identifying, recording, classifying, summarising, and communicating the financial transactions of a business. It turns a pile of receipts and payments into a clear picture of the business's financial health — which is why it is called the 'language of business'.
Accounting has three core objectives. First, it records every business transaction in a systematic, date-wise manner — this part is called bookkeeping. Second, it classifies those transactions into categories (sales, expenses, loans, assets) and summarises them into statements like the Profit and Loss Account and the Balance Sheet. Third, it communicates that summarised information to the people who need it for decisions. Notice the progression: raw data → organised records → useful information. Accounting also fulfils a legal obligation — under India's Companies Act 2013, the Income Tax Act, and GST rules, every registered business must maintain proper accounts and file returns based on them.
Who actually uses this information? Think of accounting information as having two rings of users. The inner ring — internal users — includes the business owner (to check whether profits justify another outlet), managers (to spot where costs are too high), and employees (to judge whether the firm is stable enough to pay salaries on time). The outer ring — external users — includes banks (to decide whether to lend ₹10 lakh for a new machine), suppliers (to set credit terms like '30 days to pay'), customers (to trust that the firm can deliver on long-term orders), investors (to weigh whether shares are worth buying), and government bodies like the Income Tax Department and GST authorities (to verify correct tax payment). Each user asks a different question, and accounting answers all of them from the same set of records.
Not all accounting information is equally useful. The NCERT syllabus identifies five qualitative characteristics that make accounting information genuinely helpful. Relevance means the information affects a decision — current profit figures are relevant when a bank considers a loan; the cost of a typewriter bought in 1990 is not. Reliability means the information is based on verifiable evidence such as invoices, receipts, and bank statements — not estimates or guesses. Comparability means you can compare one year's results with the previous year's, or compare two firms in the same industry, because both follow the same accounting rules consistently. Understandability means a person with a basic understanding of business can read the statements and grasp the financial position without needing a decoder. Completeness means all material information is disclosed — a firm cannot hide a major lawsuit or a large pending liability from creditors and investors; omitting important facts makes the accounts misleading. Together, these five characteristics ensure accounting is a communication tool, not just a record-keeping chore.
Before you can read a Balance Sheet or Profit and Loss Account, you must be comfortable with six basic terms. An asset is anything of value the business owns — cash, inventory, machinery, buildings. A liability is a financial obligation the business owes to outsiders — a bank loan, money owed to suppliers (called creditors), unpaid GST. Capital (also called owner's equity) is the owner's investment in the business; it is what remains after liabilities are subtracted from assets. These three terms are bound together by the accounting equation: Assets = Liabilities + Capital. Revenue is the total money earned from selling goods or services. Expenses are costs incurred to earn that revenue — salaries, rent, electricity, purchases. When revenue exceeds expenses, the business earns a profit; when expenses exceed revenue, it makes a loss, which reduces the owner's capital. Mastering these six terms means you can follow any accounting topic that comes after.
An Indian example
Riya's mother runs a small saree shop called 'Nirmala Textiles' in Kochi. Last year she wanted a ₹3 lakh loan from her co-operative bank to add a new kurta section. The bank manager asked for three years of accounts. From the Balance Sheet, the manager could see that the shop owned ₹5 lakh worth of inventory and equipment (assets) and owed only ₹80,000 to suppliers (liabilities) — leaving solid owner's capital of ₹4.2 lakh. The Profit and Loss Account showed consistent profit of about ₹60,000 per year. Because the accounts were well-maintained and showed reliable numbers, the bank approved the loan in a week. Riya's mother got her expansion, and the bank got confidence that it would be repaid. That is accounting at work in everyday Indian business life — not Dalal Street, but a family shop on your own street.
Key concepts covered
- Meaning and objectives
- Users of accounting information
- Qualitative characteristics
- Basic terms
Common misconceptions to watch for
- Many students think accounting and bookkeeping mean the same thing. Bookkeeping is only one part of accounting — it is the mechanical, day-to-day recording of transactions in the books. Accounting is the broader activity that includes bookkeeping but goes further: classifying, summarising, analysing, and communicating financial information so decisions can be made.
- Some students believe accounting records are kept just to pay taxes. Taxes are only one use. Owners use accounts to judge profitability; banks use them to decide on loans; managers use them to control costs; investors use them to value shares. If accounting were only about taxes, no bank would ever ask for a Balance Sheet before lending money — but every bank does.
- A common mistake is thinking the accounting equation means Assets must always equal Capital alone. The correct equation is Assets = Liabilities + Capital — liabilities (what the business owes to outsiders) are always included on the right side. A business with ₹8 lakh in assets, ₹3 lakh in loans, and ₹5 lakh of owner's capital perfectly satisfies the equation: ₹8 lakh = ₹3 lakh + ₹5 lakh.
Video
What Is Accounting? 5 Core Ideas Explained Fast
Questions
Priya invested ₹2,50,000 cash to open a boutique. She bought furniture for ₹80,000 cash. She bought clothes for ₹1,20,000 on credit from Fabrics & Co. She earned ₹25,000 in cash for tailoring services (no associated cost). She paid ₹30,000 cash to Fabrics & Co. Show the accounting equation at the end and verify it balances.
- 1Record the investment of ₹2,50,000 cash as capital.Business Cash increases by ₹2,50,000. Owner's Capital increases by ₹2,50,000 as the source. Equation: Assets (Cash ₹2,50,000) = Liabilities (₹0) + Capital (₹2,50,000). Business is separate from owner.
Question 1 of 5 · easy
Which of the following best distinguishes accounting from bookkeeping?
Quiz
Test yourself — pick an answer, then hit "Check" to see the explanation and your running score.
Question 1 of 5 · easy
Which of the following best distinguishes accounting from bookkeeping?
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