AccountancyCBSE Class 11 · Introduction to Accounting

Basic Accounting Terms Class 11: Assets, Liabilities, Capital, Drawings, Expenses and Income

Updated 17 October 2026 · Fact-checked

The basic terms of accounting fix the vocabulary of every later chapter. Assets are resources owned with future benefit; liabilities are amounts owed to outsiders; capital is the owner's investment, increased by profit and reduced by drawings and loss; expenditure is the spending that may create an asset or an expense; an expense is the cost used up to earn revenue in the period.

Assets always equal liabilities plus capital; profit (income minus expenses) raises capital and drawings lower it.

Illustration drawn for QuestionBuddy.

Understand Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income

Assets and liabilities.

Non-current assets are held for long-term use (land, building, machinery, furniture, patents). Current assets turn into cash or are used up within 12 months or the operating cycle (stock, debtors, bills receivable, cash, prepaid expenses).
Non-current liabilities fall due after 12 months (a 5-year loan, debentures). Current liabilities are due within 12 months (creditors, bills payable, outstanding expenses, bank overdraft).
Tangible assets can be touched; intangible ones (goodwill, patents, trademarks) cannot.

Capital and drawings. Capital is the owner's claim on the business. For the entity it is a liability to the owner. Accounting equation: Assets = Liabilities + Capital. Closing capital = Opening capital + Additional capital + Profit − Drawings (if there is a loss, subtract the loss instead of adding profit). Goods taken for home use are drawings at cost; they are not purchases and not an expense.

Expenditure, expense and loss.

Expenditure is spending to get an asset or a service. If the benefit lasts beyond the year it becomes an asset (machine); if used up in the year it is an expense (wages).
Expense is the cost used up in earning revenue in the period (rent, salaries, depreciation, cost of goods sold).
Loss is an involuntary reduction without matching benefit (theft, fire, flood).

Revenue, income, gain and profit.

Revenue is the inflow from normal activity (sales, fees). Income is the excess of revenue over expenses, and the word also covers other earnings such as interest and commission. A gain is a profit on a non-trading item, e.g. a profit on sale of an old machine.
Profit = Revenue + other income − expenses − losses.

Other terms. Purchases are goods bought for resale or for use in production; sales are goods sold; stock is unsold goods; debtors owe the firm for goods sold on credit; creditors are owed by the firm for goods bought on credit; trade discount is given on list price at the time of sale and is not recorded; cash discount is for prompt payment and is recorded.

Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income: key facts

Accounting equation: Assets = Liabilities + Capital; Capital = Assets − outside liabilities.
Closing capital: Opening capital + Additional capital + Profit − Drawings; Loss is subtracted instead of profit.
Profit: Revenue + Other income − Expenses − Losses; Cost of goods sold is an expense.
Cost of goods sold: Opening stock + Purchases − Closing stock; Direct expenses are added as per the later chapter.

How to answer Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income questions

Classification and capital questions need the same discipline: decide the nature of each item first, then do the arithmetic.

1Decide for every item: asset, liability, capital, income, expense or loss.
2Split assets and liabilities into current (within 12 months) and non-current.
3For capital, start from opening capital, add additional capital and profit, subtract drawings (cash and goods).
4For profit, add revenue and other income; subtract the cost of goods sold, expenses and losses.
5Check by the accounting equation if both assets and liabilities are given.

Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Goods taken home from the shop

Suppose Anjali runs a stationery shop and takes notebooks costing ₹3,000 from the shop for her children.

How is this treated, and what happens to her capital?

Try it first, then show the solutionSolution

Goods taken by the owner for personal use are drawings.
Drawings of ₹3,000 reduce capital and reduce stock.

Answer: Drawings ₹3,000: capital falls by ₹3,000. It is not a business expense.

Memory hook: Owner takes, capital shakes (falls).

Tricks to remember Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income

Short memory aids. Say each one aloud once, then use it on a question the same day.

Current = within 12
Current items convert or are paid within 12 months; the rest are non-current.
Use it when: Classification.
CAPITAL grows by PROFIT, shrinks by DRAWINGS
Opening + additional + profit − drawings.
Use it when: Closing capital.

Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Which is a non-current liability? · 1 mark · MCQBoard level

Which of the following is a non-current liability?
(a) Creditors
(b) Outstanding salary
(c) A bank loan repayable after 4 years
(d) Bank overdraft

Try it first, then show the solutionSolution

Creditors, outstanding salary and overdraft fall due within the year.
A loan repayable after 4 years is due after 12 months.

Answer: (c) A bank loan repayable after 4 years

Example 2: Classify the items · 3 marks · Short answerBoard level

Classify each as current asset, non-current asset, current liability or non-current liability: (i) stock; (ii) a 3-year bank loan; (iii) outstanding rent; (iv) goodwill; (v) bills receivable; (vi) prepaid insurance. (3 marks)

Try it first, then show the solutionSolution

(i) Current asset; (ii) non-current liability; (iii) current liability.
(iv) Non-current asset (intangible); (v) current asset; (vi) current asset.

Answer: (i) CA (ii) NCL (iii) CL (iv) NCA (v) CA (vi) CA

Example 3: Closing capital · 4 marks · Short answerHarder board level

Ritu began the year with capital of ₹3,00,000. She brought in ₹50,000 more, took ₹30,000 in cash and goods costing ₹10,000 for personal use, and earned a profit of ₹1,10,000. Find her closing capital. (4 marks)

Try it first, then show the solutionSolution

Drawings = 30,000 + 10,000 = ₹40,000.
Closing capital = 3,00,000 + 50,000 + 1,10,000 − 40,000 = ₹4,20,000.

Answer: Closing capital = ₹4,20,000.

Example 4: Profit from a list of items · 4 marks · Short answerHarder board level

From the following find the profit for the year: sales ₹6,00,000; purchases ₹3,50,000; opening stock ₹30,000; closing stock ₹40,000; rent ₹36,000; salaries ₹54,000; interest received ₹6,000; loss by fire ₹15,000. (4 marks)

Try it first, then show the solutionSolution

Cost of goods sold = 30,000 + 3,50,000 − 40,000 = ₹3,40,000.
Income = 6,00,000 + 6,000 = ₹6,06,000.
Expenses and losses = 3,40,000 + 36,000 + 54,000 + 15,000 = ₹4,45,000.
Profit = 6,06,000 − 4,45,000 = ₹1,61,000.

Answer: Profit = ₹1,61,000.

Example 5: Expenditure that is not an expense · 4 marks · Short answerHOTS / competency

A firm spent ₹2,00,000 on a machine, ₹30,000 on its repair a year later, and ₹20,000 on a customer's gift hamper that was destroyed in a warehouse fire. Classify each as asset, expense or loss and justify. (4 marks)

Try it first, then show the solutionSolution

Machine: expenditure that gives benefit for years, so an asset.
Repair: benefit is used up in the year, so an expense.
Hamper destroyed by fire: no benefit received and involuntary, so a loss.
Only the repair and the loss are charged against profit of the year; the machine is charged gradually through depreciation.

Answer: Machine: asset; repair: expense; hamper: loss.

Where students lose marks in Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income

The slips examiners see most often, and what to write instead.

Mistake: Treating goods taken by the owner as an expense
Confusing a cost with an owner's withdrawal.
Wrong working
Rent, salary and goods taken for home are all expenses.
Right working
Goods taken for home are drawings; they reduce capital.
Do this: Ask: is it for business or for the owner?
Usually costs: 1 mark
Mistake: Showing a long-term loan under current liabilities
Ignoring the 12-month test.
Wrong working
Loan repayable in 5 years: current liability.
Right working
Loan repayable in 5 years: non-current liability.
Do this: Look at when the amount is due.
Usually costs: 1 mark
Mistake: Forgetting the goods part of drawings
Only cash drawings are subtracted.
Wrong working
Drawings = ₹30,000.
Right working
Drawings = 30,000 + 10,000 = ₹40,000.
Do this: List cash and goods separately.
Usually costs: 1 mark

Exam tips

Add a one-word reason (12-month test, personal use, no benefit received) to every classification.
Show the drawings line separately in a capital calculation.
Cost of goods sold is not the same as purchases; adjust for stock.
Do not call trade discount an expense; it is not recorded in the books.

Practice questions on Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Drawings means:
(a) cash paid to suppliers
(b) cash or goods withdrawn by the owner for personal use
(c) an expense of the business
(d) amount owed to the bank
Hint
Owner takes.
Answer
(b) cash or goods withdrawn by the owner for personal use
Q2 · 3 marks · Short answerHarder board level
Opening capital ₹2,50,000; additional capital ₹40,000; drawings ₹35,000; loss for the year ₹20,000. Find closing capital. (3 marks)
Hint
Loss reduces capital.
Answer
Closing capital = 2,50,000 + 40,000 − 35,000 − 20,000 = ₹2,35,000.
Q3 · 3 marks · Short answerHarder board level
Assets of a firm are ₹5,40,000; creditors ₹80,000; outstanding rent ₹10,000; a 5-year loan ₹1,50,000. Find the owner's capital and the current liabilities. (3 marks)
Hint
Capital = assets minus all outside liabilities.
Answer
Current liabilities = 80,000 + 10,000 = ₹90,000. Outside liabilities = 90,000 + 1,50,000 = ₹2,40,000. Capital = 5,40,000 − 2,40,000 = ₹3,00,000.
Q4 · 3 marks · Short answerHarder board level
Distinguish between expense and loss with two examples of each. (3 marks)
Hint
Voluntary and matched with revenue versus involuntary.
Answer
An expense is a cost voluntarily incurred and used up in earning revenue (rent, salaries). A loss is an involuntary reduction with no benefit received (theft of cash, damage by fire). Expenses are matched with revenue; losses are charged to profit as they occur.
Q5 · 4 marks · Short answerHOTS / competency
Kavya's shop had opening stock ₹40,000, purchases ₹2,10,000, closing stock ₹55,000 and sales ₹3,00,000. She also took goods costing ₹6,000 for home use and the shop paid ₹70,000 as other expenses. Taking the home goods out of purchases (they are included in the purchases figure), find profit. (4 marks)
Hint
Net purchases for sale = 2,10,000 − 6,000.
Answer
Purchases for business = 2,10,000 − 6,000 = 2,04,000. Cost of goods sold = 40,000 + 2,04,000 − 55,000 = 1,89,000. Profit = 3,00,000 − 1,89,000 − 70,000 = ₹41,000. The ₹6,000 is drawings and is not charged to profit.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Capital formula at year end?Show answer
Opening + additional + profit − drawings.
2.Are drawings an expense?Show answer
No; they reduce capital.
3.Current liability example?Show answer
Creditors, outstanding expenses, bills payable.
4.Intangible asset example?Show answer
Goodwill, patents, trademarks.
5.Gain versus profit?Show answer
Gain arises from a non-trading item such as a profit on sale of an old machine.

Basic Accounting Terms: Assets, Liabilities, Capital, Drawings, Expenses and Income: frequently asked questions

Is capital a liability?

For the business as a separate entity it is owed to the owner, so it appears on the liabilities side.

What is the 12-month test?

Items due or convertible within 12 months or the operating cycle are current; others are non-current.

Why are goods taken by the owner drawings?

They are taken for personal use, not for earning revenue.