1st Puc Accountancy Unit 2 Theory Base Of Accounting Notes Accountancy Chapter 2 Class 11 Notes Mcq Question And Answer Pdf Download Theory Base Of Accounting Class 11 Questions And Answers ಪ್ರಥಮ ಪಿಯುಸಿ ಲೆಕ್ಕಶಾಸ್ತ್ರ ಅಧ್ಯಾಯ – 2 ನೋಟ್ಸ್
ACCOUNT:– it is a statement, containing , debits and credits of business of transaction.
TYPES OF ACCOUNT:-
There are five types of account they or as follows:-
FORMATE OR SPECIAMAN OF ACCOUNTS:-
Dr. Amount Cr.
DEBTOR:- debtor is a person who gets goods on credit and money as loan
debtor is treated as assets for accounting purpose.
CREDITOR:- creditor is a person, who gives goods on credit and money as loan.
creditor is treated as liabilities for accounting purpose.
FINACIAL TRANSACTION:- Is an activity ,transferring goods from one person to another person with cash or without cash.
*financial transaction are classified into two types they are as follow
GOODS:- goods includes product articles and compound and commodities.
EX:-books, pens, paper, tooth paste, chair, vehicles, soap, cloth, etc……..
PURCHASE:- purchase means purchased goods for cash or on credit
purchase is treated as expenses for accounting purpose.
SALES:- sales means sold goods for cash or without cash.
sales is treated as income for accounting purpose.
PURCHASE RETURN:- purchase return means purchased goods return to supplier due to damages, overcharge, and different goods.
purchase return is treated as gain for accounting purpose.
SALES RETURN:- sales return means sold goods return to from consumer due to damages ,overcharge and different goods. sales return is treated as loss for accounting purpose.
ASSETS:- assets are properties or resources of business.
assets are classified into two types they are as follows:-
1.fixed assets. 3.tangible assets.
2.curent assets. 4.intangible assets.
EX:- FIXED ASSETS :- Land and building, Machinery, Furniture and fixture, Moter van, Vehicles, Premises, Investment.
CURRENT ASSETS :- stock, bills receivable, debtors, outstanding incomes, prepaid expenses, cash in hand, cash at bank.
- Good will.
- Copy right.
- Know hoe.
LIABILITIES:- liabilities are debts of the business.
Ex:- Capital, Creditors, Bills payable, Bank loan, Bank overdraft (BOD), Debentures, Advance received, Out standing expenses, Post-paid expenses.
CAPITAL:- capital is the amount invested by the owner to his business.
*capital is treated as 1st liabilities of the business.
DRAWINGS:– Drawings means ,amount of cash or any goods withdrawn by the owner for his personal use.
ACCOUNTING CYCLE:- Accounting cycle is nothing but during Twelve month period, containing sum accounting process like identification of financial transactions preparation of journal/subsidiary
book, preparation of ledger ,preparation of trail balance, and finallypreparation of financial statement.
Firstly ,all financial transactions are recorded into journal /subsidiary book ,then posting to ledger then take out to trail balance and finally prepaid financial statements (trading account, profit & loss account, balance sheet).
STOCK:- stock means unsold goods.
stock may be classified into two types they are follows.
1.OPENING STOCK:- it is treated as expenses for accounting purpose.
2.CLOSEING STOCK:- it is treated as assets for accounting purpose.
ENTITY:- entity is a unit of the business or department of the business.
One Mark Qs
Q1. What is the need for theory base accounting?
A: Theory base accountancy makes accounting information meaningful for
internal and external uses. Such theory make information is reliable and
Q2. What is accounting concepts?
A: Accounting concepts means assumptions upon which accountig is based and recorded.
Q3. What is accounting conventions?
A: Accounting conventions refers to c s, traditions, usages or practices followed by accountants as ees reparation of financial statements.
Q4. What is the revenue said to be recoqnized?
A: ‘Revenue is said or from sale of goods, or services only when revenue is actually relised”
Q5. Expand GAAP
A: Generally Accepted Accounting Principles: GAAP.
Q6. What is accrual concept of accounting?
A: This concept distinguish between cash received and receivable, cash paid and
payable on various income or expenses of business.
Q7. What do you mean by double entry system of Book Keeping?
A: It is a method of book keeping. Double entry system means “The method of
recording of two fold aspects of a transactions.
Q8. What is single entry system of book-keeping?
A: It is a method of Book-keeping where both the aspects are not recorded, and
for a few transactions none of the aspects is recorded.
Q9. Write any two Accounting standards, accepted under IAS.
A: As 1. Disclosure of Accounting Policies As 2. valuation of inventories
Q10. What is cost concept?
A: An assets acquired by a concern is recorded in the books of accounts at cost
called cost concept.
Q11. Write the accounting equation.
A: Accounting equation Is Assets = Liabilities + Capitals.
Q12. Find out the of Liability, if capital is 50,000 and Assets is 70,000.
A: Liability = Assets — Capital = Liability = 70,000 – 50,000
Liability = 20,000.
Q13. Find out capital, if liability is 70000, and Assets is 200000.
A: Capital = Assets -Liability = Capital = 2,00,000 — 70,000
Capital = 1,30,000.
Q14. Find out Assets, if capital is 60000 and Liability is 90000.
A: Assets = Capital + Liability = Assets = 60,000 + 9,0,000
Assets = 1,50,000.
Q15. What is Accounting cycles?
A: It refers to the flow of accounting data, in the course of accounting during the
period of accounting.
Q16. Write any two disadvantages of double entry system.
A: The disadvantages of double entry system are :
- It is a costly ap .
- It requires special knowledge and skills tone ain the accounts.
Q17. Write any two features of double entry system
A: The two features of double entry system are:
- It maintain complete record of all transactions.
- It is a costly syste equires a specialised skills to maintain.
Q18. State the two system of book-keeping.
A: The two system book-keeping are :
- Single’entry system of book-keeping.
- Double.entry system of book-keeping.
Q19. Write the meaning of an account.
A: An account refers to statement of business transactions relating to person,
income, expenses related to a particular period.
Q20. Mention any one merit of single entry system of accounting.
A: It is suitable for small business to recording business transaction is more
Q21. Complete the following work sheet:
(i) If a firm believes that some of its debtors may default?. It should act on this
by making sure that all possible losses are recorded in the books. This is an example of the __________concept.
(ii) The fact that a business is separate and distinguishable from its owner is
best exemplified by the_________ concept.
(iii) Everything a firm owns, it also owns out to somebody. Fg\eb incidence is
explained________ by the concept.
(iv) The ______ concept states that if straight lin nOttod of depreciation
is used in one year, then it should also be used in, xt year.
(v) A firm may hold stock which is heavily in d . Consequently, the
market value of this stock may be increas al accounting procedure is
to ignore this because of the _____________
(vi) If a firm receives an order for gobi Ooud not be included in the sales
figure owing to the __________
(vii) The management of a firm i arkably incompetent, but the firms, accountants cannot take this account while preparing book of accounts because of concept __________
A: (i) The conservation Der
(ii) The business Mit concept.
(iii) The dual be concept.
(iv) The c siste cy concept
(v) consi concept
(vi) The revenue recognition concept
(vii) The money measurement concept.
Two Marks Qs
Q1. Why is necessary for accountancy to assume that business will remain a going
A: According to this the assumption is made that “Every business is carried on with a view to‘ continue it for an indefinite period of time in future and not to liquidate the affairs.
Q2. Write any four concepts of accounting.
- Money measurement concept
- Dual concepts
- Business entity concept
- Continuity concept,
Q3. Mention any four accounting conventions.
- Convention of materiality
- Convention of conservatism
- Convention of consistency
- Full disclosure.
Q4. What is money measurement Concept?
A: In accounting, a recordsismade only of those transactions which can be expressed in term they called money measurement concept.
Q5. Write any Assumptions of double entry system.
A: The assumptions of double entry system of book keeping are:
- Every transactions affects the financial position in two ways.
- The effect of change is in opposite directions.
- The benefit measured in terms of money.
Q6. Write any two advantages of double entry system.
A: The advantages of double entry systems are
- It maintains complete record of all transactions.
- The correctness of records can be verified easily.
- It helps to ascertain correct profit and loss of the business.
Q7. Why it is necessary for accountants to assume that business entity will remain a going concern?
A: Going Concern Concept assumes that the business entity will continue its operation for an indefinite period of time. It is necessary to assume So, as it helps to bifurcate revenue expenditure (i.e. expenditure relat diOveurrent year), and capital expenditure.
Q8. When should revenue be recognized? Are there exceptions to the general rule?
A: Revenue should be recognized when sal abe place either in cash or credit and /or right to receive income fro rce is established. Revenue is not recognized, in case, if the income ent is received in advance or the. payment is actually received fro ebtors. In a nutshell, revenue will be recognized when the right to recive income is established.
The exceptions to this uleprBaiven below.
- Hire purchase: goods are sold on hire-purchase system, the amount re in installments is treated as revenue.
- Long tern construction contract: The long term projects like constrution of dams, highways, etc. have long gestation period. Income is prized on proportionate basis of work certified and not on the
completion of contract.
Q9. What is the basic accounting equation?
A: The basic accounting equation is Assets = Liabilities + Capital. It means that, the monetary value of all assets of a firm is equal to the total claims, viz. owners and outsiders.
Q10. The realization concept determines when goods sent on credit to customers are to be included in the sales figure for the purpose of computing the profit or loss for the accounting period. This of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period. When the goods have been.
d. Paid for
Give reasons for your A.
A: According to the realization concept. Revenue is ecognjaren an obligation to receive the amount arises. When the goo e invoiced, it is treated as the transfer of ownership of goods from thelr to the buyer and hence the revenue is recognized.
Q11. What is the need for theory base of accounting?
A: Theory base accountancy makes nting information meaningful for internal and external uses. Such theory make information is reliable and comparable.
Q12. What is accounting concepts?
A: Accounting Concepts means assumptions upon which accounting is based and
Q13. What is accounting conventions?
A: Accounting conventions refers to customs, traditions, usages or practices followed by accountants as guide for preparation of financial statements.
Q14. Why is necessary for accountancy to assume that business will remain a going concern?
A: According to this the assumption is made that “Every business is carried on with a view to continue it for an indefinite period of time in future and not to liquidate the affairs.
Q15. What is revenue said to be recognized? Are there exceptions to the general rule?
A: “Revenue is said to be recognised from sale of goods, or services only when
revenue is actually realsied”.
FOUR Mark Qs
Q1.Explain the different accounting concepts.
A: Accounting concepts are basic assumptions and conditions on which the accounting is based, the different concept of accounting are:
(1) Business entity concept: According to this “the business is treated as a separate and distinct entity from the owner, who invests money or money’s worth”. If there is any branch or unit, is also treated as a distinct entity.
(2) Going concern concept: According to this the assumption is made that “Every business is carried on with a view to contiune it for an indefinite period of time in future and not to liquidate the affairs.
(3) Money measurement concept: According to this “the accounting entries made in the books are only of those transactions which can be measured and recorded in terms of money”.
(4) Cost concept: According to this “All the fixed assets which are acquired by a concern are recorded in the books of accounts at cost price”.
(5) Dual-aspect concept: According to this “Every business t ons has a two-fold- aspects (receiving and giving benifit) of mame
(6) Accounting period concept: As per the going co nm concept every business is intended to be continued indefinitelysafoka”long period in future. In that case the trading result cant be ascertaine e life time. For this “The convinient period of time is selected by di diag the estimated period of life of
the business for ascertaining the netwe ive business during a given period as well as financial position of the nades as on that date”.
(7) Realisation concept: Accordi the “revenue is said to be recognised from sale of goods, or servi nly when revenue is actually realised.
(8) Matching concep g prof it is the object of ever}’ business enterprise. It has b duty of an accountant to calculate exact accurate prof it. The ree ere efforts was the introduction of the principle of
matching CoN Revenue. According to this principle income can be as curtained by matching revenue of the business with its costs.
(9) Accrual Concept: Accrual means recognition of revenue and costs as they are earned or incurred and not as money is received or paid. The accrual concept relates to measurement of income. Identifying assets is liabilities.
example: Recording salary payable to staff commission receivable etc.
Q2. What is matching concept?
A: This concept mainly based on accounting period concept, according to this “The trading result of a business is calculated by matching the total revenues earned during the year with total amount of expenses incurred in the same year”. The difference between the two represents profit or loss.
Q3. Explain the different accounting conventions.
A: Conventions are customs or traditions which are followed to maintain
accounts and presentation of financial statements. The different accounting
- Convention of conservatism: According to this “a safe policy is adopted in preparing the financial statements of a concern. anticipate profits may be ignored not anticipated loss while financial statements are prepared.
- Convention of consistancy: According to this the accounting rules and practices should be continuously follow applied in accounting. Rules and practices once adopted should not be changed from year to year.
- Convention of full disclosure: According to this “all the important information should be fully discloused in the financial statements of a concern”.
- Convention of materiality: According to this only the significant information which is material in nature, is disclosed in the financial statements.
Q4. write a note General Accepted Accounting Principles. (GAAP).
A: Accounting is the systematic body of knowledge having cache and effect relationship.-Whe subject has certain established concepts, conventions, standard language and terminology to enable the interested parties in the subject to understand it in the same sense as the accountant wants to
communicate. There rules are usually called Generally Accepted Principles(GAAP). Accounting assumption rule of recording and reporting business transactions are also known by terms like concepts, principles, conventions, doctrines, axioms and postulates.
Q5. Write the needs or importance of accounting.
A: Accounting needs or importance are as follows-
- Book-keeping creates financial records erapatticl and appropriate manner and also give reference in future.
- Accounting gives evidence in the f law, it is accepted as evidence.
- Accounting provides relevant information to the management and helps in decision making.
- Accounting system develops reporting system, it helps to control the organisation.
- Accounting prevevt froud and errors and also reduce the misappropriation of funds in the business
- As per legal requirement, some of the business should keep accounts compulsorlly is statutory requirement.
Q6. Write a note on basis of accounting.
A: The two basis of accounting are.
(a) Cash Basis of Accounting: It is a simple form of accounting and a payment is received for the sale of goods or services, a goods purchase and payment is recorded on same date. The payment or receipt recorded date wise and not post poring called cash basis accounting under this system accrual transactions are not considered.
(b) Accrual Basis of Accounting: Accrual basis of accounting matches revenue to the time period in which they are earned and matinees expenses to the time period in which they are incurred. It provides more information about business. example: Commissioning on sales payable. Interest on fixed deposit
receivable etc are recorded for the current period.
Q9. What do you mean by Accoubifig Standard? List out Indian Accounting Standard.
A: According to Ghosh ‘Accounting standard are the policy documents issued by the recognised accountancy body relating to various aspects of measurements treatment and disclosure of accounting transactions and events.’
The following are mandatory Accounting standards (AS) issued by institute of chartered accountants of India (ICAI).
AS 1 Disclosure of Accounting Policies.
AS 2 Valuation of Inventories.
AS 3 Cash Flow Statement
AS 4 Contingencies and events occuring after the balance sheet
AS 5 Net profit or loss for the period. Prior period items and changes in
accounting policies AS 6 Depreciation Accounting.
AS 7 Constriction contracts (revised 2002) ‘
AS 8 Presently in in As 26 AS 9 Revenue Recognitions
AS 10 Accounting for Fixed Assets
AS 11 The effects of changes in foreign exchange rates (Revised 2003)
AS 12 Accounting for Government grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamation
AS 15 Employes Benefits (revised 2005)
AS 16 Borrowing costs
AS 17 Segment Report
AS 18 Related party disclosure
AS 19 Leases
AS 20 Earning per share
AS 21 Consolidated financial statements.
AS 22 Accounting for Taxes and Incomes
AS 23 Accounting for investments in associates in consgigids Financial
AS 24 Discontinuing operation AS 25 Interim financial reporting
AS 26 Intangible Assets .
AS 27 Financial reporting of interest mii
AS 28 Impairment of Assets
AS 29 Provisions, contingent liabilitie » Yontingent assets.
AS 30 Financial Instruments: Reco ditto and Measurement.
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: disclosure
Six Marks Qs
Q1.The accounting concepts and accounting standards are generally referred to as the essence of financial accounting.
A: Financial accounting is concerned with the preparation of the financial statements and provides financial information to various accounting users. It is performed according to the basic accounting concepts like Business Entity, Money Measurements, consistency, Conservation, etc. These concepts allow
various alternatives to treat the same transaction.
For example, there are a number of methods available for calculating stock and depreciation, which can be followed by various firms? This leads to wrong interpretation of financial results by external users due to the problem of inconsistency and incomparability of financial results among different business
entities, In order to mitigate inconsistency and incomparability and to bring uniformity in preparation of the financial statements, accounting standards are being issued in India by the Institute of Chartered Accountant of India. Accounting standards help in removing ambiguities and inconsistencies.
Hence, accounting standards and accounting concepts are referred as the essence of financial accounting.
Q2. Why is it important to adopt a consistent basis for the pre ioh of financial statements? Explain.
A: Financial Statements are drawn to provide information bout growth or decline of business activities over a period of hg compa of the results, i.e. intra-firm (comparison within the organization) or inter-firm
comparisons (comparison between differ Syms). Comparisons can be performed only when the accounting policies are uniform and consistent.
According to the Consistency Peco accounting practices once selected should be continued over a periedr of time (i.e. years after years) and should not be changed very resus These help in a better understanding of the financial statements and make comparisons easy.
Although consist es not prevent change in the accounting policies, but if change in the es is essential for better presentation and better understandi e financial results, then the firm must undertake change in
its sccouny policies and must fully disclose all the relevant information, reasons and effects of those changes in the financial statements.
Q3. What is matching concept? Why should a business concern follow this concept? Discuss?
A: Matching Concept states that all expenses incurred during the year, whether paid of not, and all revenues earned during the year, whether received or not, should be taken into account while determining the profit of that year. In other words, expenses incurred in a period should be set off against its revenues earned in the same accounting period for ascertaining profit or loss.
For example, insurance premium paid for a year is = 1200 on July 01 and if accounts are closed on March 31, every year, then the insurance premium of the current year will be ‘ ascertained for nine months (i.e. from July to March) and will be calculated as, 1200 – 900 = 300
Thus, according to the matching concept, the expense of = 900 will be taken into account 2 and not = 1200 for determining profit, as the.benefit of only = 900 is availed in the current accounting period.
The business entities follow this concept mainly to ascertain the true profit or loss during an accounting period. It is possible that in the sarnnssounting period, the business may either pay or receive payments t “ma or may not belong to the same accounting period. This leads to eit rcasting or under casting of the profit or loss, which may not reveal truth, efficiency of the business and its activities in the concerned accounting period,
Q4. What is the money measurement conceptxidnich one factor can make it difficult to compare the monetary values of one with the monetary values of another year?
A: Money Measurement Con Cextates that only those events that can be expressed in monetary caine recorded in the books of accounts.
For example: 12 t n sets of = 10,000 each are purchased and this event js recorded in cane ks with a total amount of 2 1,20,000. Money acts a common domonation for all the transactions and helps in expressing
different units into a common unit, for example rupees. Thus, money measurement concept enables consistency in maintaining accounting records.
But on the other hand, the adherence to the money measurement concept makes it difficult to compare the monetary values of one period with that of another. It is because of the fact that the money measurement concept ignores the changes in the purchasing power of the money, i.e. only the
nominal value of money is concerned with and not the real value. What 1 rs could buy 10 years back cannot buy today; hence, the nominal value of money makes comparison difficult. In fact, the real value of money would be a more appropriate measure as it considers the price level (inflation), which depicts
the changes in profits, expenses, incomes, assets arid liabilities of the business.
debtor is a person who gets goods on credit and money as loan
creditor is a person, who gives goods on credit and money as loan.
creditor is treated as liabilities for accounting purpose.
Accounting concepts means assumptions upon which accountig is based and recorded.