Accounting

Q. 1. What do you mean by accounting?

Ans. Accounting is an art as well science of recording, classifying, summarising interpreting and communicating the financial information to the users to make decisions or form judgments.

Q. 2. Who is known as the father of accounting?

Ans. Luca Pacioli who invented the double entry system is known as the father of accounting. 

Q. 3. What is the process of accounting?

Ans. Accounting as an information system is the process of identifying, measuring, recording. classifying, summarising, anlaysing, interpreting and communicating the required information to the
users,

Q. 4. Give two objectives of accounting.

Ans. (1) To keep systematic records.

(ii) To ascertain the profitability and financial position.

Q. 5. List two advantages of accounting.

Ans. (1) It helps in debt collections

(ii) The maintenance of proper account books prevent frauds and irregularities.

Q. 6. Give two limitations of accounting.

Ans. (1) The availability of alternative treatments make the results incomparable.

(ii) The important non-monetary information is ignored.

Q. 7. What is accounting cycle?

Ans. Accounting cycle is a complete sequence beginning with the recording of transactions and ending with preparation of final accounts.

Q. 8. Enumerate the branches of accounting.

Ans. (i) Financial Accounting

(ii) Cost Accounting

(iii) Management Accounting

Q. 9. What is meant by accounting data?

Ans. Accounting data consists of financial transactions and events relating to an entity for the accounting period, supported by documentary evidence.

Q. 10. What is meant by accounting information?

Ans. Accounting information is presented mostly in the form of financial statements like income statement, balance sheet, fund flow statement etc.

Q. 11. Name the external users directly concerned with accounting information. 

Ans. The external users directly concerned with the accounting information are creditors, investors, employees, consumers, tax authorities and foreign entrepreneurs.

Q. 12. Name the external users indirectly concerned with accounting information. 

Ans. The external users indirectly concerned with accounting information are regulatory agencies, public, researchers, print and electronic media.

Q. 13. Give the broader classification of assets.

Ans. (i) Fixed Assets (ii) Current Assets (iii) Fictitious Assets

Q. 14. Give the broader classification of liabilities.

Ans. (i) Fixed Liabilities (ii) Current Liabilities (iii) Contingent Liabilities

Q. 15. How will you classify personal accounts?

Ans. (1) Natural Personal Accounts

(ii) Artificial Personal Accounts

(iii) Representative Personal Accounts.

Q. 16. What is meant by real account?

Ans. The accounts relating to the properties of the business are called real accounts.

Q. 17. What do you mean by nominal accounts?

Ans. The accounts relating to expenses, losses, incomes or gains are known as nominal accounts. 

Q. 18. What is cost of goods sold ?

Ans. Cost of goods sold is the total cost of the goods sold during a particular period which include direct expenses also.

Q. 19. What is gross profit?

Ans. It is the margin of profit in absolute terms added by the seller in the cost of goods sold to fix up the selling price.

Q. 20. What is net profit?

Ans. It is the profit finally arrived at after deducting all the business expenses from all the business incomes.

Q. 21. What is an account?

Ans. Account is a date-wise summary of transactions relating to persons, property, expenses, losses, incomes and gains. The transactions of similar nature are recorded at one place which is called an 'account.

Q. 22. What do you mean by capital?

Ans. Any money or money's worth contributed by the proprietor into business is called capital. 

Q. 23. What do you mean by drawings?

Ans. The withdrawl of cash, goods or assets by the owner from the business for his personal use is called as drawings.

Q. 24. What do you mean by liability?

Ans. Liabilities are the financial obligations of the business to outside parties arising from events that have already happened.

Q. 25. What do you mean by long term liabilities?

Ans. The liabilities which are payable in a relatively larger period (normally, after a period of one year) are called as long term liabilities or fixed liabilities.

Q. 26. What do you mean by short term liabilities?

Ans. The liabilities which are payable in a relatively short period (normally, within one year) are called short term liabilities or current liabilities.

Q. 27. What do you mean by internal liabilities?

Ans. The amount owed by the business enterprise to the owners or partners are called internal liabilities such as capital and accumulated profits.

Q. 28. What do you mean by external liabilities?

Ans. The amount owed by the business enterprise to the outsiders are called external liabilities such as creditors, bank loan etc.

Q. 29. What do you mean by capital receipts?

Ans. Capital receipts consists of non-recurring receipts into the business which are shown on the liability side of the balance sheet or as a reduction in the value of assets.

Q. 30. What do you mean by revenue receipts ?

Ans. Revenue receipts consist of recurring receipts into the business as an outcome of the firm's activities in the accounting period.

Q. 31. What do you mean by expenditure?

Ans. The amount incurred for recurring or non-recurring business transactions for the receipts of the benefit is called expenditure.

Q. 32. What do you mean by capital expenditure?

Ans. Capital expenditure may be described as outlay resulting in the increase of asset or in the earning capacity of a business.

Q. 33. What do you mean by revenue expenditure?

Ans. The amount incurred for the purchase of goods or services which are consumed during the current period or for meeting day to day expenses is called revenue expenditure.

Q. 34. What do you mean by deferred revenue expenditure?

Ans. A heavy expenditure of revenue nature incurred, having the effect of generating income over a number of years is classified as deferred revenue expenditure.

Q. 35. What do you mean by income ?

Ans. The excess of revenue over expenses is called income.

Q. 36. What do you mean by profit ?

Ans. The excess of total revenues over total expenses of a business enterprise for an accounting period is called profit.

Q. 37. What do you mean by gain?

Ans. Gain is a profit of irregular nature resulting from the transactions or events incidental to the business such as sale of fixed assets.

Q. 38. What do you mean by discount?

Ans. The reduction in the list price or payment of goods allowed by business enterprise to its customers is called discount.

Q. 39. What is trade discount?

Ans. The reduction in the list or catalogue price allowed by a seller to a customer is called trade
discount.

Q. 40. What is cash discount?

Ans. The reduction allowed by a creditor to his debtor for making the quick payment of the amount due is called cash discount.

Q. 41. A firm has received a large order to supply goods. Will it be recorded in the books of account of the firm? 

Ans. No, it will not be recorded until goods are delivered.

Q. 42. Is capital account a personal account or a real account?

Ans. It is personal account, being an account of proprietor.

Q. 43. Luca Pacioli regarded as the father of modern accounting was an accountant by profession, not a philosopher and mathematician. Do you agree?

Ans. Laca Pacioli was a great philosopher of Italy. He wrote a book on mathematics in which he wrote one chapter on double entry system of book-keeping. He was a mathematician, not an accountant to codify this system.

Q. 44. Art and service of recording business transactions systematically is the end of accounting. Do you agree with the statement?

Ans. No. Art and science of recording business transactions in a systematic and chronological order is defined as book-keeping which is the beginning of the accounting, not the end. The accounting ends with communication of interpreted data to the users of financial statements.

 Q. 45. The steps in the process of accounting contain the order-measuring, recording, identifying, classifying, summarising, interpreting, analysing and communicating the information to the users. Do you agree?

Ans. No, the sequence of the steps is identifying, measuring, recording, classifying, summarising, analysing, interpreting and communicating the information to the users.

Q. 46. The accounting cycle rotates in the forward direction only but not in the backward direction. Why?

Ans. The accounting cycle starts from the previous year balances and current year's transactions and events. Then it moves to Journal and from Journal to ledger. From the ledger it moves to trial balance and then to financial statements i.e. Trading A/c to Profit & Loss A/c to Balance Sheet. It can not move in backward direction.

Q. 47. Is the basic objective of book-keeping to maintain systematic records or ascertain net results of operations of financial transactions? 

Ans. The basic objective of book-keeping is to maintain systematic records of financial transactions but not the net results of operations.

Q. 48. Accounting provides monetary as well as non-monetary information of the business. Do you agree?

Ans. No, the accounting ignores vital non-monetary information eg. loyalty and efficiency of the employees, technical innovations possessed, extent of competition faced by the business etc.

 Q. 49. Accounting information is required to all the levels of management. Do you agree?

Ans. Yes, the top level management requires accounting information for planning and policy making, the middle level requires for planning and controlling and bottom level management requires it for operational affairs.

Q. 50. The external users having direct interest in accounting information include: regulatory agencies, general public, researchers, print and electronic media. Do you agree?

Ans. No, the external users having direct interest in accounting information include creditors, investors, employees, tax authorities, consumers and foreign entrepreneurs. The general public, researchers etc. have indirect interest in accounting information.

Q. 51. Which of the following features of transactions/events is ignored in accounting?

(i) Economic activity or social activity

(ii) External or internal

(iii) Quantitative or Qualitative

(iv) Financial or Non-financial

Ans. The features of business transactions/events ignored in accounting are social activity and non-financial in nature. Purchase of goods or assets is economic, quantitative, external and financial in nature while depreciation of asset is internal and quantitative change which are recorded in accounting.

Q. 52. The receipts of recurring and non-recurring nature into the business are recorded in accounting. Do you agree?

Ans. Yes, the receipts of recurring nature called as revenue receipts are recorded in Trading and Profit & Loss Account, from which the net profit or net loss is calculated. The receipts of non-recurring nature called as capital receipts affect the balance sheet either on the liability side or as a reduction in the value of assets.