XI Accountancy Chapter-1 Introduction of Accounting- Questions & Answer (word file)

 

Accountancy: Class XI
RANA COMMERCE run by N.S. Rana, HoD Commerce  - 9411967377
1	Chapter -1 Introduction of Accountancy Define Accounting. What are its features or attributes? Ans. “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least, of a financial character, and interpreting the result thereon.” The following as characteristics or features or attributes of accounting :   1.      Identification : It means determining what transactions to record. It involves observing activities and selecting those events that are of considered financial character and relate to the organization. For example, the value of human resources, changes in managerial policies are important but none of these are recorded in books of account. However, when a company makes a sale or purchase, whether on cash or credit, or pays salary it is recorded in the books of account.   2.      Measurement : It means estimates of business transactions into financial terms by using monetary unit, viz. rupees and paise as a measuring unit. If an event cannot be quantified in monetary terms, it is not considered for recording in financial accounts. That is why important items like the appointment of a new managing director, signing of contracts or changes in personnel are not shown in the books of accounts. 3.      Recording :- Accounting is the art of recording business transactions according to some specified rules. All transactions are first of all recorded in a book called “Journal”. But in a big business where the number of transactions is quite large, the journal is further sub-divided into various subsidiary books.   4.      Classifying :- Classification is the process of grouping the transactions of one nature at one place, in a separate account. The book in which various accounts are opened is called “Ledger”. Separate accounts are opened in the Ledger in the name of each person.   5.      Summarizing :- Summarizing is the art of presenting the classified data in a manner which is understandable and useful to management and other users of such data. This involves the balancing of ledger accounts and the preparation of Trial balance with the help of such balances.   6.      Interpretation of the results :- In Accounting, the results of the business are presented in such a manner that the parties interested in the business such as proprietors , managers , creditors , employees etc. can have full information about the profitability and the financial position of the business. 7.      Communicating: - Finally, accounting function involve communicate the result to its users so that appropriate measures may be taken at appropriate time.
2	Give the meaning of Accountancy; Accounting and Book Keeping. Ans. Accountancy : The knowledge required for the purpose of Accounting is known as Accountancy. It is a systematic knowledge like other academic subjects as Physics, Chemistry, Economics etc. Accounting : It is the action or process which is carried out on the basis of the rules framed by accountancy. It done in the second stage. In it business transactions are recorded, analysis and interpreted. Various groups are interested in it. It interprets profitability and the financial position of the firm.   Book Keeping : It is mainly concerned with the recording of financial data relating to business operations in an orderly and significant manner.
3	What are the various branches of Accounting ? Ans. Financial Accounting, Cost Accounting and Management Accounting are the three branches of Accounting:     Financial Accounting: Financial Accounting in which records financial Transactions, Summarizes and interprets them and communicates the results to users. It ascertains profit earned or loss incurred during an accounting period. Cost Accounting: - Cost accounting relating to the ascertainment of the total cost of products or services produced by a business firm. Management Accounting: - Management Accounting is the most recently developed branch of accounting. It is concerned with generating accounting information relating to funds, costs, profits, etc.
4	Is accounting a Science or an Art ? Ans. Accounting as a Science and a Art : Accounting is an art of recording financial transactions in a set of books; classifying in desired categories and summarizing the information for presentation in a suitable manner to the concerned persons for their benefit. Accounting is also science in the sense that it comprises of rules, principles, concepts, conventions and standards.
5	. Explain the objectives of Accounting ? Ans. The objectives of Accounting may be listed as under : (i)     To keep a systematic record : The primary objectives of accounting is to maintain a systematic record of business transactions. (ii)   To calculate profit or loss : Another objective of accounting is to ascertain profit or loss earned by the business during the accounting year . For this purpose , an income statement or profit and loss account is prepared at the end of financial year.   (iii) To show financial position : One of the objectives of accounting is to show financial position of the firm. For this purpose, Balance Sheet showing assets, liabilities and capital is prepared at the end of an accounting period.   (iv) To communicate information: The last but not the least objective of the accounting is to communicate the various information and facts to various interested groups i.e. owners , creditors , employees , transaction authorities etc.
6	Define Book-Keeping. Distinguish between book-keeping and Accounting. Ans: Recording of business transactions in a systematic manner in the books of account is called book-keeping. It is mainly concerned with the maintenance of books of accounts. It includes identification of financial transactions, measuring these transaction in terms of money, recording these transactions and classifying them into ledger. Distinction between Book-Keeping and Accounting Basis of Distinction Book-Keeping Accounting (i) Scope It involves recording of transaction of accounts. It does not cover preparation of final accounts. It involves recording analysis and interpretation            of            business transactions. It covers preparation of final accounts. (ii) Stage It is the primary stage and it is done first. It is the secondary stage and begins after book-keeping. (iii) Skill It does not require special knowledge and ability. It is done by clerical i.e. junior staff. It requires special knowledge and ability. It is done by qualified and senior staff. (iv) Interest Outsiders do not have any interest in it. Various    groups    including    outsiders have interest in it. (v) Nature It is complementary to accounting. It is not complementary to book- keeping.
7	Explain in brief, the advantage of accounting . Ans. Following are the advantages of accounting : (i)               Helps in ascertaining the profit and financial position – Accounting facilities the preparation of financial statements e.g., Profit and Loss Account and Balance Sheet which depict the profit and financial position of the business. (ii)             Help in managing the business – Accounting helps the management in taking prompt decisions to run the business efficiently.   (iii)           Proof in the court of law – If the accounts of business are kept properly, according to the principles of accounting , they can be presented in the court of law for giving necessary documentary evidence.   (iv)           Comparative study – Accounting facilities inter-firm and intra-firm comparisons to detect the strong and weak points of the business.
8	What are the limitations of accounting / Financial Accounting ? Ans. Accounting as an information system is a process of identifying, measuring, recording, summarizing and communicating the information about business to interested users of such information. Accounting information should be prepared in such a way that it is able to depict a clear view of business. Following are the limitations of accounting :   (a)             Only monetary transactions – Accounting records only those transactions which can be measured in terms of money. Transactions and events howsoever important they may be, do not find a place in the accounts if they cannot be measured in terms of money.   (b)            Assets at cost – Assets are recorded at their cost and not at their market price. Hence financial statements fail to show real worth of the business.   (c)             Personal judgment – Adoption of various accounting policies depends on the personal judgment of the accountant. As a result, financial statements may not be objective and comparable.   (d)            Window dressing – it means manipulation of accounts in a way so as to conceal vital facts and present the financial statements to show the better position than what it actually is. In this situation, income statement fails to provide true and fair view of business.
9	Explain the qualitative characteristics of accounting information. OR “Accounting as a source of information” explain this statement. Ans. Following are the qualitative characteristics of accounting information : 1.      Understandability – An accounting information should be readily understandable by the different users. Accounting information should be personal in simple terms and form.   2.      Relevance – An accounting should be relevant for decision-making. To be relevant , information must be made available in time and must help in prediction and feedback. 3.      Reliability – An accounting information should be reliable in the sense that it should be free from error and bias and should represent what it should represent . An accounting information should be objective i.e. solidly supported by the facts.   4.      Comparability – An accounting information will be useful and beneficial to the different users only when it is comparable overtime and with other enterprises. For this, there should be consistency i.e. use of common unit of measurement, common format of reporting and common accounting policies.
10	What groups of people are interested in accounting information ? Ans. Following are the groups of people interested in accounting information : INTERNAL USERS (1)             Owners – Owners are the persons who provide funds to the business and share the risks. Owners need accounting information to know the profitability and financial soundness of the business to make proper decisions. (2)             Management – Management is answerable to owners. The responsibility of the management is to operate the business efficiently. Management needs accounting information for decision –making. EXTERNAL USERS   (3)             Employees – Employees need accounting information to claim increase in wages, bonus and other benefits. (4)             Investors- Investors are the persons who want to invest their money in the business. They need accounting information know the safety of their investment and future prospects of the business. (5)             Creditors – Creditors are the persons who have advanced some money or goods to the business. They need accounting information to know the capacity of the business to pay their claims in time. (6)             Government – Government needs accounting information to collect the various taxes like sales tax, income tax, excise duty etc. (7)             Researchers – Researchers need accounting information to study the financial operations of a particular firm or company.
12	What is meant by Double Entry System and Single Entry System? List four advantages of Double   Entry System. Ans. (a)    Single Entry  System : This system ignores the two fold aspect of each transaction as done in double entry system. In this only cash and personal accounts are maintained. (b)   Double Entry System: This is that system of book–keeping under which every business transaction is recorded at two places. This system is based on dual concept, which states, “For every debit there is a credit”.   ADVANTAGES OF DOUBLE ENTRY SYSTEM OF ACCOUNTING: (i)  It helps to keep a complete and systematic record of all business transactions ; (ii)   Since both the aspects of a transaction are recorded under this system, it facilitates a check on the  arithmetical accuracy of the accounting books ; (iii) It reveals the results of business activities. By preparing trading and profit and loss account, profit earned or loss suffered by the business is ascertained ; (iv) By preparing position statement (Balance sheet), the financial position of the business is correctly estimated.