Accounting



Q. 1. Give two features of accounting principles. 

Ans. (i) Accounting principles are man made.

(ii) Accounting principles should be practicable or feasible.

Q. 2. What is business entity concept?

Ans. The identity of the business is differentiated from the identity of the businessman in order to separate the expenses and incomes of the business from the businessman.

Q. 3. What is money measurement concept?

Ans. The transactions and events which can be measured in monetary terms can only be recorded in accounting.

Q. 4. What is going concern concept?

Ans. The business will continue to exist in the long run, thereby the assets are recorded at cost, not at realisable value.

Q. 5. What is accounting period concept?

Ans. In order to measure the profitability and financial position of an enterprise, an accounting period is determined (which is normally one year).

Q. 6. What is cost concept.?

Ans. Assets are recorded in the books at the price paid for purchasing, not at market price.

Q. 7. What is dual aspect concept?

Ans. Every business transaction is having double aspect. One aspect is debited and other one is credited.

Q. 8. What is realization concept?

Ans. Revenue is recognized in the period in which it is earned irrespective of the fact whether it is received in that provide or not.

Q. 9. What is matching concept?

Ans. The concept of matching the costs incurred during a particular period with the income of that particular period is the basis for determining the net profit.

Q. 10. What is accrual concept?

Ans. The recording of expenses and incomes on its occurrence is the basis, whether paid or not, whether received or not.

Q. 11. What is stable monetary unit concept?

Ans. The value of the measuring rode will not change with the time period is the basic assumption is accounting.

Q. 12. What is the convention of full disclosure?

Ans. The transparency of the methods, calculations and the concepts followed is necessary in order to avoid the confusion or suspension among the users of financial information. To provide details of methods or policies, the information becomes reliable.

Q. 13. What is the convention of consistency?

Ans. The uniformity of the methods followed in preparing the accounts is the consistency. It is required for proper comparison of financial results.

Q.  14.What is the convention of conservatism or prudence?

Ans. Ignoring the future profits but providing for expected losses is the prudence required in accounting. Not to inflate the profits unnecessarily is the logic behind this convention.

Q. 15. What is the convention of materiality?

Ans. It refers to the relative importance of an item or event. Any item or event which will influence the decision of the users of financial information is a material item.

Q. 16. What is the convention of objectivity?

Ans. Accounting records based on the proper documentary evidence bring reliability and trustworthiness. It is objective, if it is not influenced by personal bias or judgment of those who prepare it.

Q. 17. What is the meaning of accounting standards?

Ans. Accounting standards is the selected set of accounting policies or broad guidelines issued by an accounting body for the preparation of financial statements.

Q. 18. Name two causes of development of accounting standards.

Ans. (i) It removes confusing variations.

(ii) The manipulations in the accounting data are avoided.

Q. 19. Write down two features of double entry system?

Ans. (i) Each transaction affects at least two elements in an accounting equation.

(ii) For each transaction, debit amount is equal to the credit amount.

Q. 20. Give two advantages of double entry system.

Ans. (i) It keeps a complete record of business transactions.

(ii ) It provides a complete check on the arithmetical accuracy of books of accounts based on equality of debits and credits.

Q. 21. Give two disadvantages of double entry system.

Ans. (i) It requires expert knowledge.

(ii) It is a cumbersome and tedious process to follow.

Q. 22. What is cash basis of accounting?

Ans. It is a method of recording the expenses and incomes in the year in which these are actually paid and received.

Q. 23. What is hybrid system of accounting?

Ans. It is a mixture of cash system and accrual system of recording. The incomes are recorded on cash basis and expenses are recorded on accrual basis.

Q. 24. What do you mean by IFRS?

Ans. IFRS refers to the new numbered series of pronouncements made by International Accounting Standards Board which includes standards and interpretations.

Q. 25. Which of the three is not an essential feature of accounting principles- subjectivity, relevance and feasibility?

Ans. Subjectivity is not an essential feature of accounting principles. Rather objectivity should be the basis so that the accounting data may be free from personal bias or judgement.

Q. 26. What is the significance of fundamental accounting assumptions?

Ans. The accounting process is guided by several notions and basic premises known as fundamental accounting assumptions. These assumptions serve as solid bedrock of the book- keeping and record keeping tasks of an accountant.

Q. 27. Whether to tie a rakhi on the right hand of a brother is an assumption, concept or convention?

Ans. Concept denotes logical consideration and a notion which is generally and widely accepted. The right hand is considered as the most powerful part of the body to protect one's sister. It is a logical consideration to tie rakhi on the right hand of a brother. Hence, it is a concept.

Q. 28. When a business belongs to a businessman, then why are they separated under the business entity concept?

Ans. In order to find out the true profitability of the business, it is necessary to distinguish the business from businessman. The expenses and incomes of business are separated from the personal expenses and incomes of the businessman.

Q. 29. The various units of measurement viz. number, tons, sizes are lost in money measurement concept! Is it prudent to translate all units of measurement into one unit i.e, rupee in India?

Ans. The double entry system of accounting can't be followed until and unless, we use one unit of measurement which is money. Even many important transactions and events do not become part of the accounting process because of their non-measurement in monetary terms.

Q. 30. The measuring rod of accounting should be stable over the years. When the rupee (a measuring rod) is not stable, should not it be discarded as the measuring unit?

Ans. No doubt, money does not provide a stable measurement basis because it is influenced by inflation or deflation in the economy but still it is a useful measuring rod. Now-a-days, it is considered to provide additional data showing the effects of price level changes on the reported income, assets and liabilities of the business.

Q. 31. Do we always prefer objectivity over subjectivity in accounting transactions? 

Ans. No doubt, the objectivity implies verifiability of the documentary endence but it is not always the case. It is also said that it is better to be subjectively right than to be objectively wrong. In the cases, where subjectivity is more realistic, it can be preferred but not subject to the biasness of the accountant.

Q. 32. "Mr. A had been doing the business of manufacturing toys since 2008. During the year 2013, a likely loss of 50,000 on account of bad and doubtful debts was foreseen in the business. A likely gain of 25,000 on account of getting discount on creditors was expected to be received. Mr. A ignored the loss due to bad debts and considered the gain due to discount on creditors while preparing final accounts. Which accounting concept will it violate? Explain the concept.

Ans. It is a violation of conservatism principle which indicates "anticipate no profit, but provide for all losses." Rather provision for bad and doubtful debts should be created and provision for discount on creditors should be avoided.

Q.33 . X Ltd. gets a contract of 100 crore to build a flyover to be completed in 3 years. The management of the company wants to show profit or loss on this contract only when the contract is completed. Is the management justified?

Ans. No, the management is not justified. The going concern concept suggests the profits from the long term projects to be recorded on yearly basis depending upon the degree of completion.