Chapter 1 Class 11 Accountancy

Introduction to accounting 1.

Defne Accounting. Ans. Accounting records records fnancial transactions and events, summarizes and interprets interprets them and a nd communicates the results to the users

2.

What do do yo you me mean by by Fi Financial Ac Accounting? Ans. Financial Financial accounting is that branch o accounting, which records fnancial transactions and events, summarizes and interprets them and communicates the results to the users.

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What do do yo you me mean by by co cost Ac Accounting? Ans. It ascertains the cost o products manuactured and helps the management in decision making.

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What What do you you mean ean by manage nagem ment ent acco accou unti nting? ng? Ans. It is concerned with the generating accounting inormation relating to  unds, cost, profts, etc. as it enables the management in decision making.

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What do you mean by accountancy? Ans. Accountancy reers to a systematic knowledge o accounting. It explains how to deal with various aspects o accounting. It educates us why and how to maintain the books o accounts.

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What What are !ari !ario ous ob"ec b"ectti!es i!es o# Accou ccoun nting ing? Ans. Following are the obectives o accounting! "i# $aintaining systematic records to transactions! $he obective o accounting is to record fnancial transactions and events o the organization in the books o  accounts in a systematic manner. "ii# Ascertaining %roft or loss ! Another obective o accounting is to ascertain the net result o day to day transactions or a period. For this purpose $rading $rading A%c and &roft ' (oss a%c are prepared. "iii# Ascertaining Financial &osition ! For a businessman, it is not ade)uate to only ascertain the proft or loss* it is also necessary to know the fnancial position o organization. For this purpose +alance heet is prepared. "iv# Assisting $anagement! $he management oten o ten re)uires re)uires fnancial inormation or decision making, e-ective control, budgeting and orecasting. Accounting provides fnancial inormation to assist the management. 'ommunicating Accounting In#ormation to (sers) Another obective o "v# 'ommunicating accounting is to provide accounting inormation to users who analyze ana lyze them as per their individual re)uirements. re)uirements. "vi# &re!ention o# Frauds! aintaining regular and systematic accounting records helps in preventing possible rauds.

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What are !arious ad!antages o# accounting? Ans. ame as in $. 0rewal.

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What What are are the the char charac acte teri rist stic ics+ s+at attr trib ibut utes es,, o# o# acc accou ount ntin ing? g? Ans. Following Following are the attributes o accounting

+i, Identifcation o# fnancial transactions and e!ents) Accounting records only those transactions and events which are o fnancial nature as the bring change in the Income o the frm. 1g. ale2purchase o goods. +ii, $easuring the identifed transactions) Accounting measures the transactions and events in terms o a common measurement unit i.e. 3upees. +iii,-ecording ! Accounting is an art o recording business transaction in the books o  accounts. In other words noting down the transactions in the books"ledgers#. +i!, 'lassi#ying) 4lassifcation is the process o collecting similar transactions in one book"ledger#. In other words transactions are divided on the basis o similarity e.g. purchase book, sales book, cash book, +%3 book, +%& book. +!, ummari/ing )  $his involves presenting the classifed data in a manner which is understandable. In which one can fnd total o the di-erent items. For this purpose $rial +alance, $rading A%c, &'( a%c and +alance sheets are prepared. +!i, Analysis and Inter%retation) Financial data is analyzed and interpreted so that the users o fnancial data can make a meaningul udgment o the fnancial perormance. +!ii, 'ommunicating! Accounting unction involves communicating in the last. Accounting inormation must be provided in time and presented to the users. 0.

What are the limitations o# accounting? Ans. Following are the limitations o accounting! +i, Accounting is not #ully eact) Although most o the transactions are recorded on the basis o evidence yet some estimates are also made or calculating proft or loss e.g. providing 5epreciation on machine, &rovision or tax, &rovision or bad debts etc. +ii, Accounting does not indicate the reali/able !alue)  $he +alance sheet does not show the realizable amount o assets i sold. +ecause historical cost concept is ollowed. +iii,Accounting Ignores the ualitati!e elements) ince accounting is confned to monetary matters only, )ualitative elements like )uality o sta-, honesty, industrial relations etc. "iv# Accounting may lead to indo dressing)  $he term window dressing means manipulation o accounts so as to hide vital acts and present the fnancial statements in such a way as to show better position than what it actually is . "v# Accounting Ignores the eect o# %rice le!el changes)  Accounting statements are prepared at historical cost. +ut prices o the product does not remain same. 6nless price level change are considered accounting inormation will not show true fnancial position.

What are !arious #unctions o# accounting? 78. Ans. Following are the unctions o accounting! +i, $aintaining systematic Accounting records) $he primary unction o accounting is to maintain systematic accounting records o fnancial transactions. +ii, &re%aration o# fnancial statements) Financial statement shows the fnancial position and fnancial perormance o company. $hat is why it is important unction o accounting to prepare fnancial statements o an organization these include &roft ' (oss a%c, $rial +alance and +alance sheet etc. +iii,$eeting legal reuirements)  Accounting records are accepted as evidence by the court o law i they are maintained systematically ollowing the accounting

principles and concepts. +esides at the time o fling income tax, service tax, vat etc. accounts provide important inormation. +i!, 'ommunicating the fnancial data) It is yet another unction o accounting to communicate the fnancial data to the users, which may be internal users or external users. +!, Assistance to the management) anagement oten re)uires inormation other then the inormation obtained rom fnancial data. Accounting records should be maintained in such a manner that the inormation sought by the management is available, which in turn helps in decision making.

Dierentiate beteen boo ee%ing and Accounting +most im%ortant, 77. Ans. ame as in $ 0rewal

12. 6o many ty%es o# accounting in#ormation are there? Ans. Following are the types o accounting inormation! +i, In#ormation relating to %roft or sur%lus) $he income statement makes available the accounting inormation about the proft or loss incurred as a result o business operation. +ii, In#ormation relating to Financial %osition) $he position statement i.e. balance sheet makes available the inormation about the fnancial position o the entity. In other words it provides inormation about the assets and liabilities o the assets. +iii,In#ormation about cash 7o) 4ash 9ow statement is a statement that shows 9ow, both in9ow and out9ow o cash during the year. What do you mean by accountancy? 7:. Ans. Accountancy reers to a systematic knowledge o accounting and its aspects "principles#. 7;. (sers o# accounting In#ormation) Internal (sers) "i# .

Ans. 6nder ingle entry system all transactions are recorded only once. In other words it is incomplete double entry system .

2. Accounting 9erms) 1.

Assets :- Anything which is in the possession or is the property of businessman including the amounts due to it from others, is called an asset. In other words, anything which will enable a businessman to get cash or get a benefit in future is an assets. Eg. Cash, Ban, Building, !achinery, "urniture, Car etc.

# Debtors  !2 5ebtors are those persons or customers whom goods have been sold on credit and

payment has not been recei$ed from them. %.

 Liability :- It refers to the amount which the firm owes to outsiders Eg. &oan, Ban '$erdraft, Bills payable, Creditors etc.

# Creditors:- Creditors represents those persons or suppliers from whom goods ha$e been purchased on credit and payment has not been made to them # Capital :- It refers to the amount (money $alue) in$ested by the proprietor in a business. It is the amount with the help of which goods and assets are purchased in the business. As such, in order to calculate the amount of capital all e*ternal liabilities are deducted from total assets .

# Bank Overdraft: +hen money is o$erdrawn from ban , ban balance becomes negati$e. It is a type of short term loan gi$e by ban. +hen accountholder deposits the money into ban this amount is adusted against the deposit along with interest automatically. his facility is not pro$ided to all accountholders. .

Drawings :- Any cash or $alue of goods withdrawn by the owner for personal use.

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Accrued nco!e:- Income earned but not recei$ed.

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"repaid $penses:- E*penses paid in ad$ance.

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Outstanding $penses:- E*penses due but not paid. (or arrears)e.g. rent due but not paid.

2.

%angible Assets: angible assets are those assets which ha$e physical e*istence i.e. they can be seen and touched. E*. Cash, furniture, machinery, soc, computer etc.

3.

ntangible Assets :Intangible assets are those assets which do not ha$e physical e*istence ie they can not be seen and touched. E*. 4oodwill, 5atents, rademar etc.

6.

&i$ed Assets: "i*ed assets are those assets which are ac7uired not with a purpose for resell but for the use of long term. E* "urniture, !achinery, Building, 8ehicles etc.

19.

Current assets: Current Assets are those assets which are retained in the business with the purpose to con $ert them into cash within a short period. Eg. Cash, toc, ;ebtors, Ban etc.

11.

$penditure: is the amount spent or liability for ac7uiring 4oods or other assets. Eg. 5urchase goods on Credit. 5urchased furniture for cash.

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$pense: E*pense is a $alue which has e*pired during the accounting period. Eg. 5ayment of salaries. 5ayment of rent.

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"rofit : 5rofit is the e*cess of re$enue of a business o$er its costs.

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'ain: 4ain is a profit of irregular or non-recurring nature. E*ample: 4ain on sale of car assets

10.

&ictitious Assets : "ictitious Assets are those assets which are neither tangible assets nor intangible assets but represent loss yet to be written off e.g. 5