INTRODUCTION TO ACCOUNTING (Remembering Based And HOTS Questions)

Remembering based Question

1. Define accounting.

Ans. Accounting may be defined as the process of recording, classifying, summarizing  and communicating the financial information to the users of accounting service for making rationale decisions about the entity.

2. What do you mean by accounting?

Ans. Accounting is the art of recording, classifying, summarizing and interpreting the results of money transactions of the entity.

3. Name any two functions of accounting.

Ans. (i) Business transactions are recorded either in the journal or in the subsidiary books depending upon the size of the business and the volume of transactions.

(ii) After recording of transactions in the journal or in the subsidiary books, these are posted to ledger date wise.

4. Name three branches of accounting.

Ans. Financial accounting, Cost accounting, and Management accounting.

5. Define Book-keeping.

Ans. Book-keeping is the art of recording and classifying the business transactions in a set of books.

6. Name two functions of book-keeping.

Ans. Functions of book-keeping are :

 (i) Identification of financial transactions.

(ii) Recording of financial transactions in the books of accounts.

(iii) Classifying the recorded transactions i.e. ledger posting.

7. State any two advantages of accounting.

Ans. Advantages of accounting are :

 (i) Provides information about profit or loss of the business.

(ii) Provides information about the financial position of the business i.e. position of assets, liabilities and capital.

8. Name any two limitations of accounting.

Ans. Limitations of accounting are :

 (i) It is based on accounting concepts and conventions. For instance - (a) Fixed assets are valued at historical costs; (b) Provision for doubtful debts is made on the basis of principle of conservatism.

(ii) It is based on personal judgement. For instance - depreciation and provision for doubtful debts are based on personal judgement of the accountant.

9. Name any two types of accounting information.
Ans. (i) Provides accounting information for making analysis and interpretation of financial statements.

(ii) Provides information about corporate social responsibilities of the entity.

10. Name any two qualitative features of accounting information.
Ans. Qualitative features of accounting are :
(i) Reliability of accounting information by the users.
(ii) The accounting information must be understandable by various users.

11. Explain in brief about accounting :
 (i) Window dressing in accounting.
 (ii) Reliability.
 (iii) Relevance
 (iv) Understandability
 (v) Comparability
 (vi) Based on Historical Cost
Ans. (i) Window dressing in accounting - If the management of the business entity prefers to show more or less profit than the true and fair profit, it is called window dressing in accounting. It can be done by over or under valuation of closing stock, by showing revenue expenditure and vice versa.
(ii) Reliability - Reliability means that users of the accounting information must be provided information on which they can depend and rely upon. This is possible only when it is free from personal bias and transactions are supported by verifiable evidences.
(iii) Relevance - The accounting information depicted by the financial statements must be relevant keeping in view the informational need of various users. For instance - information about segments, departments and accounting conventions be disclosed.
(iv) Understandability - The various users of accounting information possess reasonable knowledge of the business. The management should provide information which is not only understandable but reliable and relevant too.
(v) Comparability - The management should use accounting period, accounting concepts and conventions consistently so that the financial information can be compared with the past and with similar firms.
(vi) Based on Historical Costs - Fixed assets are shown in the balance sheet at their original cost (historical cost) while they should be shown at their current market price. Thus, fixed assets do not reveal true and fair value and consequently balance sheet does not reveal true financial position of the business entity.

12. Who are internal users of the accounting service?
Ans. Management, Directors and Officers of the entity are the internal users.

13. Name the external users of accounting information.
Ans. Shareholders (proprietors), potential investors, bankers and financial institutions, creditors, employees, researchers, government, etc. are the external users of accounting information.

14. What does financial statements include?
Ans. (i) Trading and Profit and Loss Account (ii) Balance Sheet.

15. Who uses published and unpublished accounting information?
Ans. Internal users-management.

16. Who uses published accounting information?
Ans. All external users like shareholders, proprietors, bankers, financial institution, creditors, employees, researchers, etc.

17. How many aspects are involved in double entry system of accounting? Name them.
Ans. Two aspects, namely Debit and Credit.

18. Explain accounting as a language of business.
Ans. Accounting is now considered as a language of business. Financial statements are technical documents and they can be analyzed and interpreted by only those who are fully conversant with the accounting process. Thus, accounting is rightly considered as a language of the business.

HOTS  Questions (High Order Thinking Skill Questions)

1. Name the steps in accounting process.

Ans. Identification of financial transactions, recording, classifying, summarizing, interpreting and communication to users.

2. Name any two objectives of accounting.

Ans. Objectives of accounting are :

(i) It keeps complete and systematic record of financial transactions of the enterprise.

(ii) It helps in ascertaining profit or loss of the business entity during accounting period.

(iii) It also depicts financial soundness of the business through Balance Sheet.

3. Name accounting as a source of information. (any two)

Ans. (i) Accounting is the principal source of accounting information to the various end users of accounting service e.g. owner, bankers, creditors, etc.

(ii) Provides information for making inter-firm and intra-firm comparison.

4. Which system of accounting is more popular and why?

Ans. Double Entry System of accounting is more popular as it a systematic, complete and scientific method of recording of business transaction in the books of accounts.

5. Name any two roles of accounting.

Ans. Role of accounting is :

(i) Accounting is considered as a language of business. Financial statements are technical documents so they can be analyzed and interpreted only by those who are fully conversant with the accounting language.

(ii) Accounting is viewed as a service activity. It provides quantitative financial information to various users of accounting service so that they may take rational decisions about the business entity.

6. What is the end product of accounting?

Ans. Trading Account, Profit and Loss Account and Balance Sheet.