1st PUC Accountancy Unit 01 Introduction To Accounting Notes 1st puc Accountancy 1st Chapter Notes Question And Answer Mcq Pdf Download Introduction To Accounting Notes Class 11 Kseeb Solutions For Class 11 Accountancy Chapter 1 Notes Pdf ಪ್ರಥಮ ಪಿಯುಸಿ ಅಧ್ಯಾಯ 1 ಲೆಕ್ಕಶಾಸ್ತ್ರ ನೋಟ್ಸ್
*BOOK KEEPING: it is a art as well as science ,recording all the financial transaction systematically in a set of books .
*Book keeping involve preparation of journal (subsidiary book) and ledger.
METHODS/TYPES BOOK KEEPING :-
There are two methods of book keeping they are as follows:-
1.single entry system.
2. double entry system
*ACCOUNTINGS:- it is a systematic process of a collecting ,classifying,
recording, summarizing and presenting financial transaction.
FUNCTIONS OF ACCOUNTING :-
There are 05 functions of accounting they are as follows:
- Collecting.
- Classify.
- Recording.
- Summarizing.
- Presenting.
*Accounting wider term including book keeping also.
ACCOUNTACY:- it is an art as well as science which provides theory,
concepts, rules-regulation , and methods of accounting.
*Accountancy is a more wider term includes both book keeping and
accounting.
- Book keeping is a body description.
- Accounting is a process.
- Accountancy is a profession.
DIFFERENCE BETWEEN BOOK KEEPING AND ACCOUNTING
The following are difference between book keeping and accounting.
| BOOK KEEPING | ACCOUNTING |
|---|---|
| 1. It is a an art as well as science recording all the financial transaction systematically in a set of book. | 1. It is a systematical process of collecting ,classifying, recording, summarizing and presenting of financial transaction. |
| 2. It is a primary work. | 2. It is a secondary work. |
| 3. Book keeping is depends on accounting. | 3. Accounting depends on book keeping. |
| 4. Book keeping scope is narrow | 4. Accounting scope is wide. |
DIFFERENCE BETWEEN ACCOUNTING AND ACCOUNTANCY
| ACCOUNTING | ACCOUNTANCY |
|---|---|
| 1. It is a systematic process of collecting, classifying, recording, summarizing and presenting of financial transaction. | 1. It is a art as well as science which provides theory, concepts, ruleregulation, and methods of accounting. |
| 2. Accounting depends on accountancy. | 2. Accountancy depends on accounting. |
| 3.Accounting is a process. | 3. Accountancy is a profession |
| 4. It is followed theory, concepts ,rule-regulation and methods of accountancy . | 4. It is formulate theory, concepts ,rule-regulation and methods of accounting. |
| 5. Accounting scope is narrow. | 5. Accountancy scope is wide. |
ORIGIN OF ACCOUNTING/HISTORY OF ACCOUNTING
Accounting system was born before centuries. The people be by Lonia,
Grece, and Rome were maintaining records of govt .
The modern system of book keeping (double entry system) introduced by Locas pocialy of Italy 1494.Locas pacioly wrote a book called ‘SUMMA’ .it is contain rule regulations and principals of double entry system .
Accounting system well developed in india during the period ‘mourya samraj’ .that time in the book of ‘arthashashtra’ a written by ‘koutilya’in 18th century ‘arthshashtra’ book is contain rule-regulation of
double entry system.
OBJECTIVES/ADVANTAGE/NEED FOR ACCOUNTING
The following are objectives or advantages or need for accounting.
- To know the net profit or net loss of the business.
- To know the financial position of the business.
- To know amount receivable and amount payable.
- To know the all incomes or gains and expenses or loss.
- To preparation of future plan.
- To comparative study of previous year and current year.
One Mark Qs
Q1. What is Book-keeping?
A: Book-keeping is the art and science of recording in the books of account.
The monetary aspect of commerical and financial transactions.
Q2. Define Accounting.
A: “The art of recording classifying and summarising in a significant manner and in terms of money transactions event which rene art atleast, of a financial character and interpreting the result there of American certificed public accountants”.
Q3. write any two features of accounting.
A: Features of accounting are:
- It is aprocess of recording business transactions.
- Accounting is grouping the transactions according to their nature of heads.
Q4: Define Accountancy
A: According to Eric Kohler “Accountancy is the theory and practices of Accounting.
Q5. Mention the branches of accounting.
A: Branches of accounting are :
- Financial accounting.
- Cost accounting.
- Management accounting.
Q6. Mention the objectives of Accountancy.
A: The objectives are:
- To maintain the record of financial transactions of a business accuratel
- 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.
Q7. What are transactions?
A: Business transactions means any activity, dealing or event which has value measurable in terms of money related to business.
Q8. What is cash a transactions?
A: Any business transaction which involves immediate payment or receipt of cash
called cash transactions
Q9. What is credit transaction?
A: Any business transaction which involves postpone of payment or receipt to a future date called credit transactions.
Q10. What is capital?
A: Capital represents the owner’s claim or share in the assets of the business. Amount invested by owner of business called capital.
Q11. Write the meaning of drawings.
A: 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.
Q12. What are Assets?
A: Assets are the properties or resources which are owned by the business entity.
Ex : Machinery, stock, goodwell, etc.
Q13. Who is a debtor?
A: Debtor is a person who owes any amount to business. In other words, who
purchase goods from business on credit basis is called debtors.
Q14. Who is a creditor?
A: Creditor is a person to whom any sum of money is owed by business, other
words the person who give bengfits to business and amount payable, such
person called creditors.
Q15. What are goods?
A: The term ao cludes all commodities, articles or products which are purchase to the purpose of re-sale.
Q16. What is stock?
A: The goods purchased for sale, remain unsold called goods. It is a asset for the
business.
Q17. Give the meaning of profit.
A: It is an excess amount of revenues over the related cost or expenses, [profit = Revenue – expenditure].
Q18. Write the meaning of income and gain.
A: 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.
Q19. What is Discount?
A: Discount: Reducing the value of sales called discounting Discounts are 2 types, Trade Discount and Cash Discount.
Q20. What is Vocher?
A: Voucher is the document which help in reseeding business transactions.
Q21.Define Book-keeping.
A: According to Rosen define as “Book keeping is the art of recording business transaction in a systematic manner”
Q22. Write any two features of Book-keeping.
A: Features of Book-keeping are :
- It is the recording of only business transactions.
- It is the recording of business transactions in terms of money.
- It is very systamatic and principled manner.
Q 23. Write two objects of book-keeping.
A: Objects of book of book-keeping are :
- To have a permanent record of all business transactions.
- To ascertain the net result of the business
- To know the exact reasons for net profit or loss.
- To know the progress of business from year to year
- To minimise errors and frauds.
Q 24. Differentiate between Book-keeping and Accounting.
A:
| Book keeping | Accounting. |
|---|---|
| 1.It is only a recording of business transaction. | It is a recording of, analysing, summarising of business transaction. |
| 2. Book-keeping just maintaining business information | book keeping is accounting, analysing and interprets information. |
Q 25. Who is an accountant?
A: An officer who is entrasted with the accounting function of the organisation called accountant.
Q26. Mention the two classification of Book-keeping.
A: The two sytem of book keeping are:
- single entry system of book-keeping.
- Double-entry system of book-keeping.
Q27 .Write the two advantages of single entry system.
- It is a simple method of recording transactions.
- It is less costly when compared to double entry system.
Q28. Write any two disadvantages of single entry system
- This system is an incomplete system of book-keeping.
- This system is not supporting to prepare trial balance.
Q29. What is double entry system?
A: The system of making two sides in the books of each contracting party for
recording a transactions completely called double entry system “
Q30. Write the advantages of double entry system.
A: double entry system advantages are:
- It provides a complete or full records of all transaction .
- It is a systematic and scientific manner of recording business transactions.
Q31. Write the disadvantages of double entry system.
A: double entry system disadvantages are:
- under this method number of books of accounts have to be maintained.
- It consumes more time and money.
Q32. Write the different types of business transactions.
A: The business transactions can be classified as:
- Cash transactions
- Credit transactions
- Barter transactions
- Non-cash transactions
Q33. What is Entity?
A: Entity means an area of economic interest of a particular industry or group of
industries. Seperate books of accounts are kept for each entity.
Q34. What is intangible assets? Give examples.
A: The assets which we cannot see and touch called intangible asset, example:
Goodwell, Trade mark, patents, copy rights.
Q35. What is Liabilities?
A: Liabilities are debts owed by the business entry to outsiders.
Example : Creditors, Bills payable, bank over draft etc.
Q36. Write the meaning of solvent.
A: Solvent is a person asset are equal or more than that of his liability.
Q37. Who is insolvent
Insolvent is a person whose assets are not sufficient to make payment of his
liabilities infull.
Q38. What is purchases?
A: Any articles, commodities or products bought for resale called purchses.
Q39. Give the meaning of entry.
A: Entry: It means recording of business transactions in the books of Journal or
subsidiary books.
Q40. What is Folio?
A: Folio: It means the page number of books of accounts, it helps for referring
the entry.
Q41. Write the meaning of carried down and Brought down.
A: 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
Q42. Write the meaning of carry forward and brought forward.
A: Carried forward: It is the process hy ing 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 The short form is b/f.
Q43. Give the meaning of expenses and loss.
A: 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.
Q44. What is expenditure?
A: Expenditure means a payment of cash or incurring a liability for acquiring
assets, goods or service.
Q45. What is-Revenue?
A: Revenue is the amount that adds to the capital. It represents cash generated
by sale of goods or service offered.
Q46. What is accounting year?
A: The accounts of a year are kept in a single set of books which contains 12
months, called accounting year. Generally it starts from ril and ends in
31st march of every year.
Q47. What is Accounting cycles?
It refers to the flow of accounting in the course of accounting during the
period of accounting. “
Q.48. What is accounting?
A: Accounting is art of recording, classifying, measuring and summarizing interms of money business transaction.
Q49. Accounts is an art as well as.
A: Science.
Q50. Mention one of the objective of accounting.
A: One of the objective of accounting is
(a) Providing accounting information to its users.
Q51. Match the following.
(a) Internal users of accounting : Investors, govt. etc.
(b) External users of accounting : Management, share holders.
(a) Internal users of accounting : Management, share holders.
(b) External users of accounting : Investors, govt etc.
Q52. Give examples for external users of accounting information.
A: External accounting users are : Investors, suppliers / creditors gavernment, customers etc.
Q53. Accounting information should be comparable. do you agree?
A: Yes. This statement is agreeable.
Q54. Accounting information should be compareble. Give reasons.
A: Accounting information is always comparable reasons are :
(a) It helps in planning for future
(b) It helps to compare diffrent business organisation.
Q55. Shares is the example for
A: Revenue or income
Q56. Commission received is a example for
- Revenue
- Cost
- Expenses
- Production
A: 1. Revenue.
Q57. The primary use of accounting standards is
A: Helps to maintain books in international market requirements.
Q58. Mention one feature of accounting.
A: Feature of accounting is; Transactions are recorded in-terms of money.
Q59. What is profit?
A: Profit is the excess of revenue over the expenses of a given period.
Q60. Give the meaning of gain.
A: Gain refers to a revenue which not so regulate business activities.
Q61.give examples for expenses,
A: Rent, wages, salaries eraamples for expenses.
Q62. Give one examples for revenue.
A: Sales, interst received, rent received are for examples.
Q63. Mention the different types of assets.
A: The different types of assets are : Fixed assets and current assets.
Q64. Mention the different types of fixed assets.
A: The different types of fixed assets are:
- Tangible fixed assets
- Intangible fixed assets.
Q65. Give one example for fixed assets.
A: Fixed assets examples are : Land and building, plants and machinery furniture,
vehicles etc.
Q66. Give one example for tangible assets.
A: Examples for tangible for tangible assets.
Q67. Give one example for Intangible assets.
A: Examples for intangible assets are goodwill, patents, copyrights.
Q68. Give examples for current assets.
A: Example for current ase : Cash, stock, debtors, short term investment etc.
Q69. What is Fixed assets?
A: 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.
Q70. What is revenue?
A: These are the amount of the business earned by selling its product (or)
services to customer called revenue.
Q71. Give the meaning for expenses
A: Costs incurred by a business in the process of earning revenue are called as
Expenses. Example:- Depreciation, Rent, Wages, Salaries etc.
Q72. What is Capital?
A: Amount invested by the owner to the business is known a
Balance sheet / Equation = Capital = Assets — liabilities
Two Mark Qs
Q1. What is end product of financial accounting?
A: 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.
Q2. Enumerate main objectives of accounting.
A: The main objectives of accounting are
- Maintenance of Records of Business transaction.
- Calculation of profit and Loss.
- Depiction of financial position.
- Providing Accounting information to its users.
Q3.Who are the users of Accounting information.
A: 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.
Q4. State the nature of accounting information required by Seal lenders.
A: Accounting information required by Longterm lenders are credit worthiness of
the company & its ability to repay loans with interst.
Q5. Who are External users of accounting information?
A: External users of accounting information are
- Investors.
- Suppliers & creditors,
- Customers
- Government
- Common man or society
- Lenders &ufi ial institution.
Q6. Enumerate information needs to Management.
A: Management needs timely information on cost of sales, profitability etc for
planning, controlling & decision making.
Q7. Give any three Examples of revenues.
A: Examples for revenues are ;
- Sales
- Commission received
- Interest received
- Dividend received.
Q8. Accounting information should be comparable. Do you agree with this
statement. Give two reasons.
A: 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.
Q9. If accounting information is not clearly presented, which of the qualitative
characteristics of accounting is violated?
A: If accounting information is not clearly presented, then the qualitative
characteristics like comparability, reliability & understandability are violated.
Q10. The Role of accounting has changed over the period of time? Do you agree?
Give reasons.
A: 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 retionale of not only maintaining records, but also providing information to various accounting users area.
Q11. With Example, Explain each of the follow the accounting term.
(a) Fixed Assets
(b) Revenue
(c) Expenses
(d) Short term liability
(e) Capital
A: (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: Revenue are the amount of the business earned by selling its
product ( ervices 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 76,000 & 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.
Q12 Define revenues & expenses.
A: 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 incured in connection with the earnings of revenue”.
Q13. What is the primary reason for the business stu ay others to familiarize themselves with the accounting discipline?
A: The reason for why business student & others should familiarize themselves
with the accounting discipline are given below:-
- It helps in learning the various aspects of accounting.
- It helps in learning maintain books of accounts
- It helps in learning how to summarise accounting information.
Q14. Give the meaning 9 expenses and loss.
A: Expenses; these are the amount spent for purchasing assets or material which
is neccessary for business.
Loss: Reduction in the value of assets or resources without any benefit called
losses.
Q15 What is expenditure?
A: Expenditure means a payment of cash or incurring a liability for acquiring
assets, goods or service.
Q16. What is Revenue?
A: Revenue is the amount that adds to the capital. It represents cash generated
by sale of goods or service offered.
Six Mark Qs
Q1. Explain the factors, which necessitated systematic accounting?
A: The factors that necessitated systematic accounting are given below
a. Only financial transactions are recorded: Those event 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_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 ? ano 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
d. Classification Of Transaction: Business transactions of similar nature are
classified 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 neccessary 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.
Q2. Describe the brief History of accounting.
A: 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. The records were reported on daily basis by the incharge of treasuries to 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 mantain total receipts and total payments and to balance government accounts.
In Rome, around 700 B.C, receipts 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 describe how accounting records have to be maintained.
Q3. Explain the development and role of accounting.
A: 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 capa remember
each and every business transaction, so accounting play an important role in
recording these transactions in the book of accounts
b. Assistance to management: Management uses acconting information for
short term and long term planning of busifi sea and to control various
costs and budgets.
c. Comparative study : In order to asertain the performance of the business,
accounting enables comparison of t 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 act as evidence that can be used or presented in the court, if any arises in the future.
Q4. Define accounting and state its objectives.
A: In 1970, ra 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 serve 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, as accounting facilitates the comparison both inter-firm as we
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 records 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.
Q5. Describe the informational needs of external users.
A: 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 prospectos 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 verious 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: Vari Qearch institutes like NGOs and other independent research institutes 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 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.
Q6. What do you mean by an asset? Explain the different types of assets.
A: 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 productiv capatity of the business. These assets are not meant for sale, for example , building, machinery etc.
b. Current Assets : Assets that can be easily converted into cash or cash
equivalents are termed as current assets are required to run day to day’
business activities; for example, cash, ebtdrs, 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, trader , etc.
e. Liquid Assets : Ass hat are kept either in cash or cash equivalents are regarded as liqui ts. These can be converted into cash in a very short period of time; for example, cash, bank, bills receivable, etc.
h. Fictitious Asset: 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.
Q7. Explain the qualitativé characteristics of accounting information.
A: The following ate th qualitative characteristics of accounting information:
a. Reliability: it mesns 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 in different time horizons by the same or different businesses.
Q8.Describe the role of accounting in the modern world.
A: 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 recorde financial transactions but also to provide a basic frame work for various decision making, providing relevant information various users and assists in both short run and long run planning.
The role of accounting in the modern world is given below:
Assisting management: management uses accounting information for short
term and long term planing 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 incures 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.
FAQ:
It is a systematic process of collecting, classifying, recording, summarizing and presenting of financial transaction.
It is a art as well as science which provides theory, concepts, ruleregulation, and methods of
accounting.
It is a art as well as science ,recording all the financial transaction systematically in a set of books .
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