Q1. Define accounting. Q2. State what is end product of financial accounting? Balance Sheet- It depicts the true financial positions of a business that provides required information like assets and liabilities of a business firm, to the users of accounting information like owners, creditors, investors, government, etc. Q3. Enumerate main objectives of accounting. 8. To communicate information to various users Q4 . List any five users who have indirect interest in accounting. 6.Tax authorities Q5. State the nature of accounting information required by long-term lenders. Q6. Who are the external users of information? Q7. Enumerate informational needs of management. Q8 . Give any three examples of revenues. 3. Dividends Q9. Distinguish between debtors and creditors. Answer: Q10. ‘Accounting information should be comparable’. Do you agree with this statement? Give two reasons. Answer : Accounting information should be comparable because of the following reasons. 1. Comparable accounting information helps in inter-firm comparisons. This helps in assessing viability and advantages of various policies adopted by different firms. 2. It also helps in intra-firm comparisons that help in determining the changes and also to ascertain the results of various policies and plans adopted in different time periods. This also helps to figure out the errors, ascertain growth and assist in management planning. Q11. If the accounting information is not clearly presented, which of the qualitative characteristic of the accounting information is violated? Q12. The role of accounting has changed over the period of time”- Do you agree? Explain. Q13. Giving examples, explain each of the following accounting terms: Gains- Gains are incidental to the business. They arise from irregular activities or non-recurring transactions; for example, profit on sale of fixed assets, appreciation in value of asset, profit on sale of investment, etc. Expenses- Expenses are those costs that are incurred to maintain the profitability of business, likerent, wages, depreciation, interest, salaries, etc. These help in the production, business operations and generating revenues. Profit- This refers to the excess of revenue over the expense. It is normally categorised into gross profit or net profit. Net profit is added to the capital of the owner, which increases the owner’s capital. For example, goods sold above its cost Short term liabilities- Those liabilities that are incurred with an intention to be paid or are payable within a year; for example, bank overdraft creditors, bills payable, outstanding wages, short-term loans, etc. Q14. How will you define revenues and expenses? Q15. What is the primary reason for the business students and others to familiarise themselves with the accounting discipline? 4. It helps in learning how to interpret the accounting information with relative accuracy. Long Answer Type Questions:Q1. Explain the factors, which necessitated systematic accounting. Q2. Describe the brief history of accounting. Q3. Explain the development of and role of accounting. Role of accounting- While in the earlier times accounting was merely concerned with recording the financial events (i.e. record-keeping activity); however, now-a-days, accounting is done with the rationale of not only maintaining records, but also providing an information system that provides important and relevant information to various accounting users. Q4. Define accounting and state its objectives. Objectives of Accounting: 1. Recording business transactions systematically- It is necessary to maintain systematic records of every business transaction, as it is beyond human capacities to remember such large number of transactions. Skipping the record of any one of the transactions may lead to erroneous and faulty results. 2. Determining profit earned or loss incurred- In order to determine the net result at the end of an accounting period, we need to calculate profit or loss. For this purpose trading and profit and loss account are prepared. It gives information regarding how much of goods have been purchased and sold, expenses incurred and amount earned during a year. 3. Ascertaining financial position of the firm- Ascertaining profit earned or loss incurred is not enough; proprietor also interested in knowing the financial position of his/her firm, i.e. the value of the assets, amount of liabilities owed, net increase or decrease in his/her capital. This purpose is served by preparing the balance sheet that facilitates in ascertaining the true financial position of the business. 4. Assisting management- Systematic accounting helps the management in effective decision making, efficient control on cash management policies, preparing budget and forecasting, etc. 5. Assessing the progress of the business- Accounting helps in assessing the progress of business from year to year, as accounting facilitates the comparison both inter-firm as well as intra-firm. 6. Detecting and preventing frauds and errors- It is necessary to detect and prevent fraud and errors, mismanagement and wastage of the finance. Systematic recording helps in the easy detection and rectification of frauds, errors and inefficiencies, if any. 7. Communicating accounting information to various users- The important step in the accounting process is to communicate financial and accounting information to various users including both internal and external users like owners, management, government, labour, tax authorities, etc. This assists the users to understand and interpret the accounting data in a meaningful and appropriate manner without any ambiguity. Q5. Describe the informational needs of external users. Q6. What do you mean by an asset and what are different types of assets? Fixed Assets- These are those assets that are hold for the long term and increase the profit earning capacity and productive capacity of the business. These assets are not meant for sale, for example, land, building machinery, etc. Current Assets- Assets that can be easily converted into cash or cash equivalents are termed as current assets. These are required to run day to day business activities; for example, cash, debtors, stock, etc. Tangible Assets- Assets that have physical existence, i.e., which can be seen and touched, are tangible assets; for example, car, furniture, building, etc. Intangible Assets- Assets that cannot be seen or touched, i.e. those assets that do not have physical existence, are intangible assets; for example, goodwill, patents, trade mark, etc. Liquid Assets- Assets that are kept either in cash or cash equivalents are regarded as liquid assets. These can be converted into cash in a very short period of time; for example, cash, bank, bills receivable, etc. Fictitious Assets- These are the heavy revenue expenditures, the benefit of whose can be derived in more than one year. They represent loss or expense that are written off over a period of time, for example, if advertisement expenditure is Rs 1,00,000 for 5 years, then each year Rs 2,00,000 will be written off. Q7. Explain the meaning of gain and profit. Distinguish between these two terms. Answer : Profit- Excess of revenue over expense is known as profit. It is normally categorised into gross profit or net profit. It increases the owner’s capital as it is added to the capital at the end of each accounting period. For example, goods costing Rs 1, 00,000 is sold at Rs 1,20,000, then the sale proceeds of Rs 1,20,000 is the revenue and 1,00,000 is the expense to generate this revenue. Hence, accounting profit of Rs 20,000 (i.e. Rs 1,20,000 – Rs 1,00,000) is the difference between the revenue and expense that is earned by the business. Gain- It arises from irregular activities or non-recurring transactions. In other words, a gain is a result of transactions that are incidental to the business, other than operating transactions. For example, an old machinery of book value Rs 20,000 is sold at Rs 25,000. Hence, the gain is Rs 5,000 (i.e. Rs 25,000 – Rs 20,000). Here, the sale of the old machinery is an irregular activity; so, the difference is termed as gain Thus, in other words the only difference between profit and gain is that profit is the excess of revenue over expense and gain arises from other than operating transactions. Q8. Explain the qualitative characteristics of accounting information. 1. Reliability- It means that the user can rely on the accounting information. All accounting information is verifiable and can be verified from the source document (voucher), viz. cash memos, bills, etc. Hence, the available information should be free from any errors and unbiased. 2. Relevance- It means that essential and appropriate information should be easily and timely available and any irrelevant information should be avoided. The users of accounting information need relevant information for decision making, planning and predicting the future conditions. 3. Understandability- Accounting information should be presented in such a way that every user is able to interpret the information without any difficulty in a meaningful and appropriate manner. 4. Comparability- It is the most important quality of accounting information. Comparability means accounting information of a current year can be comparable with that of the previous years. Comparability enables intra-firm and inter-firm comparison. This assists in assessing the outcomes of various policies and programmes adopted in different time horizons by the same or different businesses. Further, it helps to ascertain the growth and progress of the business over time and in comparison to other businesses. Q9. Describe the role of accounting in the modern world. NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce |