1st PUC Accountancy Question Bank Chapter 1 Introduction to Accounting

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Karnataka 1st PUC Accountancy Question Bank Chapter 1 Introduction to Accounting

1st PUC Accountancy Introduction to Accounting One Mark Questions and Answers

Question 1.
What is Book-keeping?
Answer:
Book-keeping is the art and science of recording in the books of account.
The monetary aspect of commerical and financial transactions.

Question 2.
Define Accounting.
Answer:
“The art of recording classifying and summarising in a significant manner and in terms of ‘ money transactions event which are, in part atleast, of a financial character and interpreting the results there of “American certificed public accountants”.

Question 3.
Write any two features of Accounting.
Answer:
Features of accounting are :

  1. It is a process of recording business transactions.
  2. Accounting is grouping the transactions according to their nature of heads.

Question 4.
Define Accountancy.
Answer:
According to Eric Kohler “Accountancy is the theory and practices of Accounting.

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Question 5.
Mention the branches of accounting.
Answer:
Branches of accounting are :

  1. Financial accounting.
  2. Cost accounting.
  3. Management accounting.

Question 6.
Mention the objectives of Accountancy.
Answer:

  • To maintain the record of financial transactions of a business accurately.
  • To ascertain the profit or loss made by business.
  • To present the true and fair view of financial position.
  • To know the amount due to creditors individually.

Question 7.
What are transactions?
Answer:
Business transactions means, any activity, dealing or event which has value measurable in terms of money related to business.

Question 8.
What is cash a transactions?
Answer:
Any business transaction which involves immediate payment or receipt of cash called cash transactions.

Question 9.
What is credit transactions?
Answer:
Any business transaction which involves postpone of payment or receipt to a future date called credit transactions.

Question 10.
What is capital?
Answer:
Capital represents the owner’s claim or share in the assets of the business. Amount invested by owner of business called capital.

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Question 11.
Write the meaning of drawings.
Answer:
The amount of cash or any asset withdrawn by the owner of the business for his personal use or domestic use we called as drawings.

Question 12.
What are Assets?
Answer:
Assets are the properties or resources which are owned by the business entity.
Ex : Machinery, stock, goodwell, etc.

Question 13.
Who is a debtor?
Answer:
Debtor is a person who owes any amount to business. In other words, who purchase goods from business on credit basis is called debtors.

Question 14.
Who is a creditor?
Answer:
Creditor is a person to whom any sum of money is owed by business, other words the person who give benefits to business and amount payable, such person called creditors.

Question 15.
What are goods?
Answer:
The term goods includes all commodities, articles or products which are purchased for the purpose of re-sale.

Question 16.
What is stock?
Answer:
The goods purchased for sale, remain unsold called goods. It is a asset for the business.

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Question 17.
Give the meaning of profit.
Answer:
It is an excess amount of revenues over the related cost or expenses, [profit = Revenue – expenditure].

Question 18.
Write the meaning of income and gain.
Answer:
Income: It refer to an amount received for sale of goods and service or for use of any rights belonging to business.
Gain: Increase in the value of assets or resources of business called gains.

Question 19.
What is Discount?
Answer:
Discount: Reducing the value of sales called discounting. Discounts are 2 types, Trade Discount and Cash Discount.

Question 20.
What is Vocher?
Answer:
Voucher: is the document which helps in reseeding business transactions.

Question 21.
Define Book-keeping.
Answer:
“Book keeping is the art of recording business transaction in a systematic manner”-Rosen.

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Question 22.
Write any two features of Book-keeping.
Answer:
Features of book-keeping are :

  1. It is the recording of only business transactions.
  2. It is the recording of business transactions in terms of money. .
  3. It is very systamatic and principled manner.

Question 23.
Question Write two objects of book-keeping.
Answer:
Objects of book of book-keeping are :

  1. To have a permanent record of all business transactions.
  2. To ascertain the net result of the business
  3. To know the exact reasons for net profit or loss.
  4. To know the progress of business from year to year
  5. To minimise errors and frauds.

Question 24.
Differentiate between Book-keeping and Accounting.
Answer:

Book-keeping Accounting
It is only a recording of business transaction. It is a recording of, analysing, summarising of business transactions.
Book-keeping just maintaining business information. Book-keeping is accounting, analysing and interprets the information.

Question 25.
Who is an accountant?
Answer:
An officer who is entrasted with the accounting function of the organisation called accountant.

Question 26.
Mention the two classification of Book-keeping.
Answer:
The two system of book-keeping are:

  1. Single entry system of book-keeping.
  2. Double-entry system of book-keeping.

Question 27.
Write the two advantages of single entry system.
Answer:

  1. It is a simple method of recording transactions.
  2. It is less costly when compared to double entry system.

Question 28.
Write any two disadvantages of single entry system.
Answer:

  1. This system is an incomplete system of book-keeping.
  2. This system is not supporting to prepare trial balance.

Question 29.
What is double entry system?
Answer:
The system of making two sides in the books of each contracting party for recording a transactions completely called double entry system.

Question 30.
Write the advantages of double entry system.
Answer:

  • It provides a complete or full records of all transaction .
  • It is a systematic and scientific manner of recording business transactions.

Question 31.
Write the disadvantages of double entry system.
Answer:

  • Under this method number of books of accounts have to be maintained.
  • It consumes more time and money.

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Question 32.
Write the different types of business transactions.
Answer:
The business transactions can be classified as:

  1. Cash transactions
  2. Credit transactions
  3. Barter transactions
  4. Non-cash transactions

Question 33.
What is Entity?
Answer:
Entity means an area of economic interest of a particular industry or group of industries. Seperate books of accounts are kept for each entity.

Question 34.
What is intangible assets? Give examples.
Answer:
The assets which we cannot see and touch called intangible assets, example: Goodwell, Trade mark, patents, copy rights.

Question 35.
What is Liabilities?
Answer:
Liabilities are debts owed by the business entity to outsiders.
Example : Creditors, Bills payable, bank over draft, etc.

Question 36.
Write the meaning of solvent.
Answer:
Solvent is a person whose assets are equal or more than that of his liability.

Question 37.
Who is insolvent?
Answer:
Insolvent is a person whose assets are not sufficient to make payment of his liabilities infull.

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Question 38.
What is purchases?
Answer:
Any articles, commodities or products bought for resale called purchses.

Question 39.
Give the meaning of entry.
Answer:
Entry: It means recording of business transactions in the books of Journal or subsidiary books.

Question 40.
What is Folio?
Answer:
Folio: It means the page number of books of accounts, it helps for referring the entry.

Question 41.
Write the meaning of carried down and Brought down.
Answer:
Carried down: It is the process of taking a balance of an account to the next period at the time of its closing. The short term is c/d.
Brought down : It is the process of bringing down the closing balance of the previous period to current year in the same account. It indicates opening balance. The short term is b/d.

Question 42.
Write the meaning of carry forward and brought forward.
Answer:
Carried forward: It is the process of taking the closing amount at the foot of the page of joumal/ledger etc. The short form is c/f.
Brought forward: It is the process of bringing forward the amount of previous page at the top of next page. The short term form is b/f.

Question 43.
Give the meaning of expenses and loss.
Answer:
Expenses: These are the amount spent for purchasing assets or material which is necessary for business.
Loss: Reduction in the value of assets or resources without any benefit called losses.

Question 44.
What is expenditure?
Answer:
Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service.

Question 45.
What is-Revenue?
Answer:
Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered.

Question 46.
What is accounting year?
Answer:
The accounts of a year are kept in a single set of books which contains 12 months, called accounting year. Generally it starts from 1st April and ends in 31st march of every year.

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Question 47.
What is Accounting cycles?
Answer:
It refers to the flow of accounting data, in the course of accounting during the period of accounting.

Question 48.
What is accounting?
Answer:
Accounting is an art of recording, classifying, measuring and summarizing interms of money, of the business transaction.

Question 49.
Accounts is an art as well as.
Answer:
Science.

Question 50.
Mention one of the objective of accounting.
Answer:
One of the objective of accounting is
(a) Providing accounting information to its users.

Question 51.
Match the following.
(a) Internal users of accounting : Investors, govt. etc.
(b) External users of accounting : Management, share holders.
Answer:
(a) Internal users of accounting : Management, share holders.
(b) External users of accounting : Investors, govt etc.

Question 52.
Give examples for external users of accounting information.
Answer:
External accounting users are : Investors, suppliers / creditors government, customers etc.

Question 53.
Accounting information should be comparable. Do you agree?
Answer:
Yes. This statement is agreeable.

Question 54.
Accounting information should be comparable. Give reasons.
Answer:
Accounting information is always comparable reasons are :
(a) It helps in planning for future.
(b) It helps to compare different business organisation.

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Question 55.
Shares is the example for…
Answer:
Revenue or income.

Question 56.
Commission received is a example for
(a) Revenue
(b) Cost
(c) Expenses
(d) Production
Answer:
(a) Revenue.

Question 57.
The primary use of accounting standards is
Answer:
Helps to maintain books in international market requirements.

Question 58.
Mention one feature of accounting.
Answer:
Feature of accounting is; Transactions are recorded in-terms of money.

Question 59.
What is profit?
Answer:
Profit is the excess of revenue over the expenses of a given period.

Question 60.
Give the meaning of gain.
Answer:
Gain refers to a revenue which not generated through regulate business activities.

Question 61.
Give examples for expenses.
Answer:
Rent, wages, salaries are examples for expenses.

Question 62.
Give one example for revenue.
Answer:
Sales, interest received, rent received are for examples.

Question 63.
Mention the different types of assets.
Answer:
The different types of assets are : Fixed assets and current assets.

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Question 64.
Mention the different types of fixed assets.
Answer:
The different types of fixed assets are:

  1. Tangible fixed assets
  2. Intangible fixed assets.

Question 65.
Give one example for fixed assets.
Answer:
Fixed assets examples are : Land and building, plants and machinery furniture, vesicles etc.

Question 66.
Give one example for tangible assets.
Answer:
Examples for tangible for tangible assets.

Question 67.
Give one example for Intangible assets.
Answer:
Examples for intangible assets are : goodwill, patents, copyrights.

Question 68.
Give examples for current assets.
Answer:
Example for current assets are : Cash, stock, debtors, short term investment etc.

Question 69.
What is Fixed Assets?
Answer:
Fixed Assets are assets held on a longterm basis. Such as land Building Machinery etc. These assets are used for the normal operations of the business.

Question 70.
What is revenue?
Answer:
These are the amount of the business earned by selling its product (or) services to customer called revenue.

Question 71.
Give the meaning for examples.
Answer:
Costs incurred by a business in the process of earning revenue are called as Expenses. Example:- Depreciation, Rent, Wages, Salaries etc.

Question 72.
What is Capital?
Answer:
Amount invested by the owner to the business is known as capital.
Balance sheet / Equation = Capital = Assets – Liabilities.

1st PUC Accountancy Introduction to Accounting Two Marks Questions and Answers

Question 1.
Define Accounting.
Answer:
According to American Institute of Certified Public Accountants “Accounting is an art of recording, classifying & summarising in a significant manner & in-terms of money, transactions & events which are, in part at least of a financial character & interpreting the results thereof’.

Question 2.
What is end product of financial accounting?
Answer:
Balance sheet is the end product of financial accounting. It show the true financial positions of a business concern, that provides required informations like assets & liabilities of a business firm.

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Question 3.
Enumerate main objectives of accounting.
Answer:
The main objectives of accounting are

  1. Maintenance of Records of Business transaction.
  2. Calculation of profit and Loss.
  3. Depiction of financial position.
  4. Providing Accounting information to its users.

Question 4.
Who are the users of Accounting information.
Answer:

  • Internal users:- Management, who needs timely information for planning, controlling & decision making.
  • External users:- Investors, Government, customers, competitors etc. obtain necessary information & rely on financial statement.

Question 5.
State the nature of accounting information required by long term lenders.
Answer:
Accounting information required by Longterm lenders are credit worthiness of the company & its ability to repay loans with Interest.

Question 6.
Who are External users of accounting information?
Answer:
External users of accounting informations are

a. Investors.
b. Suppliers & creditors
c. Customers
d. Government
e. Common man or society .
f. Lenders & financial institution.

Question 7.
Enumerate information needs to Management.
Answer:
Management needs timely information on cost of sales, profitability etc for planning, controlling & decision making.

Question 8.
Give any three Examples of revenues.
Answer:
Examples for revenues are ;
(a) Sales
(b) Commission received
(c) Interest received
(d) Dividend received.

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Question 9.
Distinguish between Debtors & Creditors
Answer:
Debtors Creditors

Debtors Creditors
(i) Debtors are persons and other entities who owe to an enterprise an amount for buying Goods & services on credit. (i) Creditors are persons and other entities who have to be paid by an Enterprise goods & services on credit.
(ii) The total amount standing against such Persons (or) Entities on closing Date, is Show in the balance sheet as sundry Debtors on Assets side. (ii) Total amount standing to the favour of such persons on closing Date, is shown in the Balance as sundry creditors on liability side.

Question 10.
Distinguish between profit & gain.
Answer:

Profit Gain
(i) Profit is the Excess of revenue over the expenses of a given period, usually a year. (i) Gain refers to a revenue which not generated through routine or regular business activities.
(ii) Profits increases the investment office owners (ii) Gain increases the profit of an enterprises

Question 11.
Accounting information should be comparable. Do you agree with this statement. Give two reasons.
Answer:
Yes this Statement is agreeable.
The reasons are as follows:-
a. It helps in planning for the future.
b. It also useful in the areas of decision making in an organization.

Question 12.
If accounting information is not clearly presented, which of the qualitative characteristics of accounting is violated?
Answer:
If accounting information is not clearly presented, then the qualitative characteristics like comparability, reliability & understandability are violated.

Question 1.3.
The Role of accounting has changed over the period of time? Do you agree? Give reasons.
Answer:
The role of accounting is over changing. While in 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 information to various accounting users area.

Question 14.
With Example, Explain each of the following accounting term.
(a) Fixed Assets
(b) Revenue
(c) Expenses
(d) Short term liability
(e) Capital
Answer:
(a) Fixed Assets Fixed Assets are assets held on a longterm basis. Such as land Building Machinery etc. These assets are used for the normal operations of the business.
(b) Revenue These are the amount of the business earned by selling its product (or) services to customer called revenue.
Example Sales, Commission received, Rent received etc.
(c) Expenses:- costs incurred by a business in the process of earning revenue are called as . Expenses.
Example:- Depreciation, Rent, Wages, Salaries etc.
(d) Short term liability:- Short term liability are obligations that are payable within a period of one year.
Examples:- Creditors, Bills payable, etc.
(e) Capital:- Amount invested by the owner to the business is known as capital.
Balance sheet / Equation = Capital = Assets – Liabilities.
Example:- if, on a given date, the total Assets of a business are ?6,000 & the total liabilities of business are ?20,000 the excess of the total assets over total liabilities of the business (60,000 -20,000) ?40,000 will be owners capital.

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Question 15.
Define revenues & expenses.
Answer:
According to American Accounting Association “Revenue is the monetary Expression of the aggregate of products (or) services transferred by the Enterprises to its customers during a period of time.”
According to Robert. N. Anthony “Expenses are the costs incurred in connection with the earnings of revenue”.

Question 16.
What is the primary reason for the business students & others to familiarize themselves with the accounting discipline?
Answer:
The reason for why business students & others should familiarize themselves with the accounting discipline are given below:-

  • It helps in learning the various aspects of accounting.
  • It helps in learning how to maintain books of accounts.
  • It helps in learning how to summarise accounting information.

Question 17.
Give the meaning of expenses and loss.
Answer:
Expenses: These are the amount spent for purchasing assets or material which is necessary for business.
Loss: Reduction in the value of assets or resources without any benefit called losses.

Question 18.
What is expenditure?
Answer:
Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service.

Question 19.
What is Revenue?
Answer:
Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered.

1st PUC Accountancy Introduction to Accounting Six Marks Questions and Answers

Question 1:
Explain the factors, which necessitated systematic accounting?
Answer:
The factors that necessitated systematic accounting are given below:

a. Only financial transactions are recorded: Those events that are financial in nature are only recorded in the books of accounts. For example, salary of an employee is recorded in the books but not recorded educational qualification.

b. Transactions are recorded in monetary terms: Only those transactions which can be expressed in monetaiy terms are recorded in the books. For example, if a business has two buildings and four machines, then their monetary values is recorded in the books,
i. e. two buildings costing ? 20,000, four machines costing ? 8,00,000. Thus the total value of assets is ? 8,20,000.

c. Art of recording: Transactions are recorded in the order of their occurrence (Date, wire).

d. Classification of Transaction: Business transactions of similar nature are classified and posted under their respective accounts. For example, all the transactions relating to machinery will be posted in the Machinery Account.

e. Summarising of data: All business transactions are summarized in the form of Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet that provides necessary information to various users.

f. Analysing and interpreting data – Systematic accounting records enable users to analyse and interpret the accounting data in a proper and appropriate manner. These accounting data and information are presented in the form of graphs, statements, charts, that leads to easy communication and understand ability by various users. Moreover, this facilitates in decision making and future predictions.

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Question 2.
Describe the brief History of accounting.
Answer:
a. The history of accounting can be traced long back in civilization. Around 4000 B.C., in Babylonia and Egypt, payment of wages and taxes were recorded on clay tablets. As history claims that Egyptians kept the record of gold and valuables deposits and withdrawal from the treasuries. These records were reported on daily basis by the incharge of treasuries to the wazir, who used to forward the monthly reports to the king. Babylonia and Egypt used this method to rectify and remove errors, frauds and inefficiency from the records. Around 2000 B.C., China used sophisticated form of accounting.

In Greece, accounting was used to maintain total receipts and total payments and to balance government accounts.
In Rome, around 700 B.C., receipts and payments were recorded in daybook and were posted in the ledger at the end of the month.

b. In India, around twenty three centuries ago, Kautilya wrote the book Arthshastra, which describes how accounting records have to be maintained.

c. In 1494, Luca Pacioli wrote the book ‘Summa’ de Arithmetica Geometria Proportioniet Proportionality. In this, he explained the term debit and credit, which are used in accounting till date.

Question 3.
Explain the development and role of accounting.
Answer:
Development of accounting
In ancient times, around 4000 B.C., accounting was used for recording wages and salaries, deposits and withdrawals of valuable goods (such as gold and silver) from the treasures of the king. Afterwards, it was used to record the receipts and payments and balancing of government financial transactions.

During 1500 A. D., accounting was used by business firms for recording transactions related to business.
In 1800 A.D., accounting was used to record transactions and also to provide information to various users of financial data.

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. .

a. Substitute of memory : As, it is beyond human capabilities to remember each and every business transaction, so accounting plays an important role in recording these transactions in the book of accounts.
b. Assistance to management: Management uses accounting information for short term and long term planning of business activities and to control various costs and budgets.
c. Comparative study : In order to ascertain the performance of the business, accounting enables comparison of current year’s profit with that of previous years (intra-firm comparison) and also with other firms in the same business (inter-firm comparison).
d. Evidence in court: It acts as evidence that can be used or presented in the court, if any discrepancy arises in the future.

Question 4.
Define accounting and state its objectives.
Answer:
In 1970, American Institute of Certified Public Accountants changed the definition and stated, “The function of accounting is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions.”

Objectives of Accounting:

a. 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. ,

b. 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.

c. 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.

d. Assisting management: Systematic accounting helps the management in effective decision making, efficient control on cash management policies, preparing budget and forecasting, etc.

e. 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.

f. 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.

g. 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.

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Question 5.
Describe the informational needs of external users.
Answer:
There are various external users of accounting who need accounting information for decision making, investment planning and to assess the financial position of the business. The various external users are given below.

a. Banks and other financial institutions: Banks provide finance in form of loans and advances to various businesses. Thus, they need information regarding liquidity, creditworthiness, solvency and profitability to advance loans.

b. Creditors: These are those individuals and organisations to whom a business owes money on account of credit purchases of goods and receiving services; hence, the creditors require information about credit worthiness of the business.

c. Investors and potential investors: They invest or plan to invest in the business. Hence, in order to assess the viability and prospectus of their investment, creditors need information about profitability and solvency of the business.

d. Tax authorities: They need information about sales, revenues, profit and taxable income in order to determine the levy various types of tax on the business.

e. Government: It needs information to determine national income, GDP, industrial growth, etc. The accounting information assist the government in the formulation of various policies measures and to address various economic problems like employment, poverty etc.

f. Researcher: Various research institutes like NGOs and other independent research institutions like CRISIL, stock exchanges, etc. undertake various research projects and the accounting information facilitates their research work.

g. Consumer: Every business tries to build up reputation in the eyes of consumers, which can be created by the supply of better quality products and post-sale services at reasonable and affordable prices. Business that has transparent financial records, assists the customers to know the correct cost of production and accordingly assess the degree of reasonability of the price charged by the business for its products and thus helps in repo building of the business.

h. Public: Public is keenly interested to know the proportion of the profit that the business spends on various public welfare schemes; for example, charitable hospitals, funding schools, etc. This information is also revealed by the profit and loss account and balance sheet of the business.

Question 6.
What do you mean by an asset? Explain the different types of assets.
Answer:
Any valuable thing that has monetary value, which is owned by a business, is its asset. In other words, assets are the monetary values of the properties or the legal rights that are owned by the business organisations.
The different types of assets are ;

a. 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.
b. 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.
c. Tangible Assets : Assets that have physical existence, i.e., which can be seen and touched, are tangible assets; for example, car, furniture, buildings, etc.
d. 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.
e. 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.
f. 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.

Question 7.
Write the meaning of gain and profit. Distinguish between gain and profit.
Answer:
Profits: Excess of revenue over expense is known as profit. It is normally categorized 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 ₹ 1,000 is sold at ₹ 1,200 then the sale proceeds of ₹ 1,200 is the revenue and 1,000 is the expense to generate this revenue. Hence, accounting profit of ₹ 200 (i.e. ₹ 1,200 – ₹ 1,000) 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 ₹ 2,000 is sold at ₹ 2,500. Hence, the gain is ₹ 5,00 (i.e. ₹ 25,00 – ₹ 2,000). 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.

Profit

Gain

1. Profit is derived from regular business regular business activity Gain is derived from investment over on period of time not falling under regular business activity.
2. It is return on capital employed. It is return on investment
3. Profit is the summation of total income less total expenses Gain is the process received from the sale of fixed or financial assets.

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Question 8.
Explain the qualitative characteristics of accounting information.
Answer:
The following are the qualitative characteristics of accounting information:

a. 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.

b. 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.

c. 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. ,

d. 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 indifferent time horizons by the same or different businesses.

Question 9.
Describe the role of accounting in the modern world.
Answer:
The role of accounting has been changing over the period of time. In the modem world, the role of accounting is not only limited to record financial transactions but also to provide a basic framework for various decision making, providing relevant information to various users and assists in both short run and long run planning.

The role of accounting in the modem world is given below:

Assisting management: Management uses accounting information for short term and long term planning of business activities, to predict the future conditions, prepare budgets and various control measures.

Comparative study: In the modem world, accounting information helps us to know the performance of the business by comparing current year’s profit with that of the previous years and also with other firms in the same industry. .

Substitute of memory: In the modem world, every business incurs large number of transactions and it is beyond human capability to memorise each and every transaction. Hence, it is very necessary to record transactions in the books of accounts.

Information to end user: Accounting plays an important-role in recording, summarizing and providing relevant and reliable information to its users, in form of financial data that helps in decision making.

1st PUC Accountancy Introduction to Accounting Additional Questions and Answers

Question 1.
Write the advantages and disadvantages of book-keeping.
Answer:

Book-keeping Advantages Book-keeping Disadvantages
1. It provide full information about all expenses and loss. It gives only monetary transaction information.
2. It is return on capital employed. It is return on investment
3. It helps to know the true financial position of business. This recordings do not give exact information and timely information.
4. It helps to know the progress of business from year to year. Final accounts prepared under book-keeping do not provide timely information.
5. It helps to know from whose money due and to whom due. With the help of only book-keeping management can’t take decision and correct action cannot be possible.
6. It keep control over the properties and activities of business. Book-keeping depends on personal judgment.

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Question 2.
Explain the features of accounting.
Answer:
The features / Natures of accounting are :

  • Recording of business transaction as and when they occur in single book is the first feature of accounting.
  • Classify or grouping of entries according to their nature in to appropriate heads of account.
  • Accounting also involves summarising the transactions, classified in the ledger and financial position presentation.
  • Accounting also analyse and interpret the recorded transactions.

Question 3.
Differentiate book-keeping and accounting. .
Answer:

Book-keeping Accounting
1. It is an art of recording money transaction in a-set of books. It is a process of designing the system of records of books of a/cs.
2. It is a mechanical and routine Work. It requires specialised knowledge and creative ability.
3. Book-keeper is a clerk. Accountant is a professionalist.
4. Book-keeping creates a data base. It process the finacial data and finds results and conclusion.
5. It helps to know from whose money due and to whom due. With the help of only book-keeping management can’t take decision and correct action cannot be possible.

Question 4.
Accounting is an art as well as science. Discuss.
Answer:Accounting is an art: art means application of knowledge to produce the desired result, accounting ivolves the designing of information system, record filing system, standardisation of forms and statements etc. The working of an accounting needs creative and active skills . and involvement of all staff.

Accounting is also science: A ‘Science’ means a systematic body of knowledge relating to universal phenomenon. It consists of concept theories, rules, and techniques developed by the process of rational thinking and spirit of enquiry, accounting is a social science..
So accounting is a applied science as well as art of recording a business transactions.

Question 5.
Write the objectives or advantages of accounting.
Answer:
The objectives or advantages of accounting are:

  • To maintain the record of financial transactions of a business accurately.
  • To ascertain the profit or loss made by business.
  • To present the true and fair view of financial position.
  • To know the amount due to creditors individually.
  • To know the amount due from debtors to the business.
  • To compute the tax liability of the concern.
  • To supply the required financial information to the mangement it helps for decision making.

Question 6.
Explain the role or growth of accounting.
Answer:
The origin and growth of accounting can be summarised as follows:

  • Accounting is said to be very old, as old as money.
  • The present accounting is the result of constant innovations to the requirements of business activities.
  • Accounting has developed to meet the emerging needs and requirements of fast developing society.
  • “Arthashastra” the book written by Kautilya is the base or foundation for accounting.
  • The present system of accounting based on the double entry system founded by pacilio in 1494 at Italy.
  • Futher various publications were made and an important publications was that of edward jones in 1975 who invovated the concept of ‘Two Column journal’.

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Question 7.
State the different terms in Accounting.
Answer:
Drawings: The amount of cash or any asset withdrawn by the owner of the business for his personal use or domestic use we called as drawings.

  • Assets: are the properties or resources which are owned by the business entity.
    Ex: Machinery, stock, goodwell, etc.
    Liabilities are debts owed by the business entity to outsiders.
    Example: Creditors, Bills payable, bank over draft, etc.
  • Debtor: is a person who owes any amount to business. In other words, who purchase goods from business on credit basis is called debtors.
  • Creditor: is a person to whom any sum of money is owed by business. Other words the person who give benefits to business and amount payable, such person called creditors.
  • Goods: The term goods includes all commodities, articles or products which are purchased for the purpose of re-sale.
  • Purchases: Any articles, commodities or products bought for resale called purchases.
  • Sales: Any goods purchase by customer called sales mean sale of goods and not the assets. Stock: The goods purchased for sale, remain unsold called goods. It is a asset for the business.
  • Profit: The accounts of a year are kept in a single set of books which contains 12 months, called accounting year. Generally it starts from 1st April and ends in 31st march of every year.
    • Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service.
    • Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered.
  • Discount: Reducing the value of sales called discounting. Discounts are 2 types, Trade Discount and Cash Discount.
  • Voucher: is the document which, helps in reseeding business transactions.
  • Income: It refer to an amount received for sale of goods and service or for use of any rights belonging to business.
  • Gain: Increase in the value of assets or resources of business called gains.
    Capital represents the owner’s claim or share in the assets of the business. Amount invested by owner of business called capital.
  • Entity: means an area of economic interest of a particular industry or group of industries. Separate books of accounts are kept for each entity

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