ACCOUNTANCY CH 1 and CH 2 WORKSHEET

INTRODUCTION TO ACCOUNTING
The more complex the society becomes, the more difficult it is to keep track of resources, to ascertain who owns
them and to ensure that they are used for the purpose intended. Consequently, it has become very important to
keep track of events and record them before they are diminished from the memory.
NEED FOR ACCOUNTING
At the end of each year, all the businessman want to know whether they have earned profits or incurred losses
during the year. They want to know the amount they owe and the amount owed to them etc. In order to attain
information related to the business, it is essential to keep a complete and systematic record of each and every
business transaction entered into during the year.
A complete and systematic record of every business transaction kept by a businessman helps in assessing
financial performance (profit earned or loss suffered) and financial position (position of assets and liabilities) and serves
other purposes also as calculation of the amount of purchases, the amount of sales, the amount of total expenses, etc.
MEANING OF ACCOUNTING
According to the American Institute of Certified Public Accountants (AICPA),
“Accounting is an art of recording, classifying and summarising in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.”
According to the American Accounting Association (AAA) in 1966,
“The process of identifying, measuring and communicating economic information to permit informed judgements
and decisions by users of information”.
In nutshell, Accounting is a process of identifying, measuring, recording and communicating the required
information relating to the economic events of an organisation to the interested users of such information”.
OR
Accounting is the art of recording, classifying, summarizing, analyzing and interpreting the financial
transactions and communicating the results to the interested persons.
Father of Accounting: Luca Pacioli (Italian Mathematician)
CHARACTERISTICS / ATTRIBUTES / FEATURES OF ACCOUNTING
 Recording - Accounting is the art of recording business transactions according to some specified rules
known as principles of accounting. Accounting is also a science as it is an organized knowledge based on
certain basic principles. Recording means noting down business transactions. A small business has a small
number of transactions which are recorded in a book called ‘Journal’. But a big business has quite large
number of transactions, and the Journal is further subdivided into various books known as subsidiary
books.
 Recording of Financial Transactions Only - Accounting records only those transactions or events which
are of financial character. It is a serious limitation of accounting. An important transaction which is not of
financial character cannot be recorded in the books. For example, a quarrel between the production
 manager and sales manager, strike by employees affect the earnings of the business but cannot be recorded
because the effect of such events cannot be measured in terms of money.
 Recording in Terms of Money - All the transactions of business are recorded in the books in terms of
money only. This makes the transaction more meaningful. For example, if a business has one building, ten
machines, 25 tons of raw material, 25 tables and chairs and 20 fans etc., these cannot be added and hence
cannot give any useful information. But they will immediately provide useful information if they are
expressed in terms of money.
 Classifying - Once the transactions are recorded in journal or subsidiary books, these are classified.
Classification is the process of grouping the transactions of one nature i.e., of homogeneous character at
one place, in a separate account. The book in which various accounts are opened is called ‘Ledger’.
Separate accounts are opened in the ledger in the name of each item concerned.
 Summarising - It is presentation of the classified data n a manner which is understandable and useful to
the management and other users of such data. It involves the totalling and balancing of ledger accounts
and preparation of Trial Balance with the help of the ledger accounts balances. From Trial Balance, final
accounts (Trading and Profit & Loss Account and Balance Sheet) are prepared.
Trading Account is prepared for calculating the amount of gross profit or gross loss during the year.
Profit & Loss Account is prepared to ascertain the net profit or net loss during the year.
Balance Sheet is prepared to present the financial position of the business.

Financial
Transactions

Balance Recording
Sheet in Journal

Income Statement: Ledger

(Posting &
Trading and Profit & Loss
Balancing)
Account

Trial
Balance
 Books of Original Entry
Cash Book
Purchases Book
Sales Book
Purchases Return Book / Returns Outward Book
Sales Return Book / Returns Inward Book
Bills Receivable Book
Bills Payable Book
Journal Proper
 Interpretation of Results - In Accounting, the results of the business are presented in such a manner that
the parties interested in the business such as proprietors, managers, banks, creditors, employees etc. can
make a meaningful judgement about the profitability and financial position of the business unit. It includes
reasons of present performance and suggestions and recommendations for further improvement. This helps
in planning for the future in a better way.
BRANCHES OF ACCOUNTING
To meet the increasing requirement of various types of information by management, various specialised
branches of accounting have come into existence. These are as follows :

FINANCIAL TAX COST

ACCOUNTING ACCOUNTING ACCOUNTING

SOCIAL
MANAGEMENT
RESPONSIBILITY
ACCOUNTING
ACCOUNTING

 Financial Accounting - It is the original form of accounting. It deals with the systematic
maintenance of books of accounts with a view to ascertain the profitability and the financial status
of the business.
The main purpose of this branch of accountancy is to ascertain the financial position of business at
the end of a certain period.
That is, to find out whether the firm has earned profits or incurred losses.
It relates to the past period, and is monetary in nature.
 Tax Accounting - The branch of accounting which is used for tax purposes is known as ‘tax
accounting’. Income Tax, Sales Tax, Service Tax, Value-Added Tax (VAT), Excise Duty as well as
Customs Duty are computed on the basis of tax accounting. Mechanised accounting (accounting on
computers) may be of much help in this regard.
  Cost Accounting - Cost Accounting is the process of accounting for costs.
Limitations of financial accounting are responsible for the evolution of cost accounting.
Cost Accounting is the formal mechanism by means of which costs of products or services are
ascertained and controlled.
Its main purpose is to ascertain the cost of production of goods and cost of running different
departments to enable the management to fix the selling price.
 Management Accounting - It is accounting for management i.e., accounting which provides
necessary information to the management for discharging its functions.
Management Accounting covers various areas such as cost accounting, budgetary control, inventory
control, working capital management, etc.
The main object of this branch is to provide all the relevant information that may be required by the
management to take decisions in respect of various aspects of running the business enterprise. Such
information includes: sales forecast, cash flows, purchase requirements, manpower needs,
environmental data about effects on air, water, land, etc. 4.
 Social Responsibility Accounting - It is the process of identifying, measuring and communicating
the social effects of business decisions to permit informed judgements and decisions by the users of
accounting data and information.
Business has a great social responsibility towards society.
Management is held responsible for what it contributes to the social wellbeing and progress.
Accounting for environment and ecology is part of social responsibility accounting.
BOOK-KEEPING, ACCOUNTING AND ACCOUNTANCY
Quite often, these three terms are considered as synonymous but there is a line of demarcation between their uses.
BOOK-KEEPING - Book-keeping is a part of accounting and is concerned with record-keeping or
maintenance of books of accounting which is often routine and clerical in nature and can be accomplished
through the use of mechanical and electronic equipments.
Following four activities are required for the maintenance of books of accounts (book-keeping):
 Identifying the transactions and events of financial nature.
 Measuring the identified transactions and events in a common measuring unit (i.e. in terms of
money).
 Recording the identified and measured transactions and events in proper books of accounts.
 Classifying the recorded transactions and events in ledger.
ACCOUNTING - Accounting starts where book-keeping ends. It is the art of putting the academic
knowledge of accountancy into practice.
Following activities are covered in accounting:
 Summarizing the classified transactions and events in the form of Income Statement
(Profit and Loss Account) and Position Statement (Balance Sheet).
 Analyzing the summarized results.
 Interpreting the analyzed results.
  Communicating the interpreted information to the interested parties; internally as well as externally.
Thus, an accountant’s work goes beyond that of a book-keeper.
Accountants often direct and review the work of book-keepers.
 DIFFERENCES BETWEEN BOOK KEEPING AND ACCOUNTING:

S.No. Basis Book Keeping Accounting

1 Meaning It is a part of accounting, as it involves It is the art of recording, classifying
and Scope identification of financial transactions, and summarizing in a significant
measurement of such transactions in manner and in terms of money,
monetary terms, recording of such transactions and events which are,
transactions in the books of account in part at least, of a financial
and classifying the transactions and character and interpreting the
events by way of posting them. results thereof.
2 Stage First stage of accounting and is Second stage, starts where Book-
therefore, considered as a basis of Keeping ends.
accounting.
3 Purpose Purpose is to maintain systematic Purpose is to ascertain net results of
records of the financial transactions. operations and financial position of
the enterprise so as to communicate
information to the interested parties.
4 Nature It is of routine nature. It is analytical and dynamic in
nature.
5 Skills It is mechanical in nature and It requires special skills and ability
therefore, does not require special to interpret the information
skills. effectively.
6 Performed by It is performed by junior staff. It is performed by senior staff.

ACCOUNTANCY - Accountancy refers to a systematic knowledge of accounting concerned with the

principles and techniques which are applied in accounting. It tells us how to prepare the books of accounts,
how to summarize the accounting information and how to communicate it to the interested parties.
According to Kohler, “Accountancy refers to the entire body of the theory and practice of
accounting”.
OBJECTIVES OF ACCOUNTING
Maintaining Systematic Accounting Records - The primary objective of accounting is to
maintain systematic accounting records of business transactions and events following the
accounting rules, principles and concepts. In order to avoid any omission and fraud, all business
transactions are first recorded in Journal or Subsidiary books and then posted in Ledger.
 Calculation of Profit or Loss - Another objective of accounting is to calculate the net profit
earned or loss incurred on account of business transactions during the accounting period.
For this purpose, Trading and Profit & Loss Account is prepared at the end of each accounting
period.
Determination of Financial Position - Another main aim of accounting is to determine the
financial position of the business concern in the form of its assets and liabilities at the end of
every accounting period.
This is done by preparing Balance Sheet of the enterprise, which is a statement of assets and
liabilities. The resources owned by an enterprise i.e., Assets and claims against such resources
i.e., liabilities are shown in the balance sheet.
Facilitating Management - Management often requires financial information for decision making,
effective control, budgeting and forecasting. Accounting provides financial information and help
managers to plan, control and evaluate the operations of the business.
Providing Accounting Information to its Users - The basic objective of accounting is to provide
information which is useful not only for the persons within the organisation but also for the use of
various persons and groups outside the organisation.
This information help them in taking sound and judicious decisions about the business.
FUNCTIONS OF ACCOUNTING
 Maintaining Systematic Accounting Records - It means that the accounting records should be
maintained following the accounting rules, principles and concepts.
 Preparation of Financial Statements - Financial Statements are prepared to ascertain the financial
performance i.e., profit earned or loss incurred during the accounting year and
the financial position i.e., Statement of Assets and Liabilities at the end of the accounting year.
 Protection of Business Assets - Accounting maintains proper records of various assets such as
Cash in hand, Cash at Bank, Stock, Debtors, etc., and thus enables the management to exercise
proper control over them with the help of various relevant information.
 Meeting the Legal Requirements - The provisions of various laws such as Income Tax Act, 1961,
Companies Act, 2013, GST Act, 2017 etc., require the submission of various statements such as
Annual Accounts, Income Tax and GST returns etc.
Accounting facilitates an enterprise to meet these requirements.
 Communicating the Financial Results. Accounting serves as a means of communication of
various types of information regarding profit or loss, assets, liabilities etc., to the users which may
be internal users or external users such as management, banks, employees, government authorities
etc.
 Facilitates Decision Making - Management often requires financial information which is given by
accounting records that in turns helps the management in the task of planning, controlling and
decision making. It will assist the management in protecting the assets and also exercising control.
 ADVANTAGES OF ACCOUNTING

ADVANTAGES OF ACCOUNTING

ASSISTS THE MANAGEMENT

INFORMATION REGARDING PROFIT AND LOSS

INFORMATION REGARDING FINANCIAL POSITION

HELPS IN REMEMBERING

FACILITATES COMPARATIVE STUDY

HELPFUL IN ASSESSMENT OF TAX LIABILITY

FACILITATES RAISING LOANS

HELPS IN THE SALE OF BUSINESS

HELPS IN THE REALISATION OF DEBTS

PROOF IN THE COURT OF LAW

 Assists the Management - Accounting assists the management in planning and controlling
business activities and in taking decisions.
 Information regarding Profit or Loss - Accounting helps in providing information about the net
results of business activities of an accounting period by preparing Profit and Loss Account.
 Information regarding Financial Position - Accounting helps in providing information about the
financial position of the business by preparing Balance Sheet.
 Helps in Remembering - A systematic and timely accounting record helps in eliminating the
limitation of human memory.
Therefore every transaction should be recorded in black and white so that there may not be any
Misappropriation (fraud).
 Facilitates Comparative Study - By keeping a systematic record, accounting helps the owners of
the business to compare one year’s costs, expenses, sales and profits, etc. with those of other years
by computing various accounting ratios. Such a comparison provides the useful information on the
basis of which important decisions can be taken more judiciously.
 Helpful in Assessment of Tax Liability. Many types of taxes -income-tax, vat and etc., are
imposed upon the businessmen now-a-days. To make payment of these taxes it is necessary that
accounts are maintained according to the principles of accounting.
 Facilitates Raising Loans - Accounting facilitates raising loans from banks and various financial
institutions by providing them historical and projected financial statements.
  Helps in the Sale of Business - If the businessman wants to sell his running business he can realise
its reasonable price only if he had maintained proper accounts according to the principles of
accounting. Otherwise it will not be possible to assess the correct value of the business.
 Helps in the Realisation of Debts. Accounting proves useful in realising debts from other persons.
The businessman can produce his account books in the court of law as a proof of debt.
 Proof in the Court of Law - If the accounts of the business are kept properly according to the
principles of accounting, they can be presented in the Court of Law for giving necessary
documentary evidence.
For example, the businessman has to present his accounts in the court if he wants himself to be
declared insolvent.
LIMITATIONS OF ACCOUNTING
Accounting serves so many objectives that it is called the language of business. But it suffers from a number of
limitations which are inherent in its nature. Following are the main limitations of financial accounting:
 Financial Accounting is not absolutely exact
Although transactions are recorded on actual basis, but there are many instances where estimates have to
be made for calculating profits. Hence, financial accounting is not completely free from personal bias or
judgement as the amount of profit may vary if calculated by different persons.
for e.g., The determination of useful life of the asset for depreciation purposes, provision for doubtful
debts, lower of the cost or market price for the inventories are some of the instances in which estimates
or personal judgement is needed and since there is no uniformity for such estimates.
 Accounting does not indicate realizable value
The Balance Sheet does not show the amount of cash which the firm may realise by sale of all the assets.
This is because many assets are not meant to be sold; they are meant for use and are shown at cost less
depreciation that may have been written off.
 Financial Accounting does not present the complete picture
Financial Accounting information does not include the qualitative aspects of the business enterprise.
It is concerned only with those business activities which can be expressed in money. In this manner,
non-monetary transactions e.g. good labour relation, quality of the goods, established management and
efficiency of staff etc. are ignored.
 Figures in Financial Accounting does not carry the level of their accuracy
Financial Accounting information is based upon various fundamental assumptions, concepts and
conventions based on experience rather than any specific enquiry. Attempts are often made to violate the
accounting principles for the purpose of distorting the factual position.
 Window dressing in Balance Sheet
When accountants apply ‘window dressing’ in balance sheet, the balance sheet can’t exhibit the true and
fair view of the state of affairs of the business.
 Accounting is based on Historical Cost
Accounts are prepared on the basis of historical costs i.e., the original costs. The figures given in financial
statements do not show the effect of changes in price level. Many assets remain undervalued, particularly
land and building. Hence the value of assets shown in the balance sheet is not helpful in estimating the true
financial position of the business.

USERS OF ACCOUNTING INFORMATION

OR
PARTIES INTERESTED IN ACCOUNTING INFORMATION
Different kinds of information is needed by different categories of users to take important decisions.
These users can be divided in the following categories:

INTERNAL USERS
1. OWNERS
A business is done with the objective of earning profits. Proprietors are very much interested in
knowing the amount of profit earned or loss incurred by the business and so also the assets and
liabilities of the business.
In small and medium sized enterprises, owners generally exercise direct control on the affairs
and thus, always possess the information as to profit and financial position.
But in large sized enterprises, owners do not exercise direct control and are dependent on the
managers for financial information.
2. MANAGEMENT
Accounting information is used by management for their decision making.
In large sized enterprises, business is managed by professional managers who are in direct control.
Management need information to review the firm’s (a) short-term solvency, (b) long-term solvency,
(c) activity, (d) profitability, and (e) future projections to decide upon the course of action.
EXTERNAL USERS
1. EMPLOYEES OR WORKERS
They are generally interested in information which enables them to assess the ability of the enterprise
to pay remuneration, retirement benefits and to provide employment opportunities.
Their representative groups are interested in information about the stability and profitability of the
employers.
2. PRESENT AND POTENTIAL INVESTORS
Present investors need information to judge the prospects for their investment and to determine whether
they should buy, hold or sell their shares.
Potential investors i.e., those, who want to invest, need information to judge prospects of an enterprise
and to determine whether they should buy the shares.
3. SHORT-TERM AS WELL AS LONG-TERM CREDITORS.
Short-term creditors like suppliers of raw-materials, goods and suppliers of short-term loans need
information to determine whether the amount owing to them will be paid in time and whether they
should extend, maintain or restrict the flow of credit to an individual concern.
Suppliers of long-term loans need information to determine whether their principal and interest
thereon will be paid when due and whether they should extend, maintain or restrict the flow of credit
to a particular client.
4. BANKS AND FINANCIAL INSTITUTIONS
Bankers and financial institutions are an essential part of any business as they provide loans to the
businesses.
Before providing loans the banks and financial institutions want to judge the earning capacity and
financial position of the business to ensure the safety and recovery of the loan advanced.
Banks and financial institutions assess the position of a company on analysis of financial information.
5. GOVERNMENT AND THEIR AGENCIES.
Government and their agencies are interested in the allocation of resources, and therefore, the activities
of the enterprise. They also require information in order to regulate the activities of enterprise, determine
taxation policies and as the basis the nation income and similar data.
Tax authorities need information to assess the tax liability of an enterprise.
6. PUBLIC/CUSTOMERS
Enterprises affect members of the public in many ways. They may make substantial contribution to the
local economy by providing them employment, patronising the local suppliers and above all, by providing
good quality of goods and services at reasonable rates.
Accounting information may assist the masses by providing them useful insight about trends and recent
developments in the prosperity of the enterprise and the range of its activities.
Besides, customers have an interest in information about the continuation of an enterprise, especially
when they have established a long-term involvement with or are dependent upon, the enterprise.
 7. RESEARCHERS
The financial statements are of much use to the researchers also. They provide useful information for
undertaking researches in various economic, business, accounting and other related areas.

QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION

In order to ensure the objectivity in reporting and validity in the system, accounting information must possess
possess certain qualitative characteristics as shown below:

Reliability
Accounting information is considered to be reliable if it is free from bias, verifiable and faithfully
represents the facts.
It is also necessary to prove the reliability of financial statements that they remain quite neutral and
independent from any bias.
They should not be designed for the benefit of a particular person or group of persons.
Their neutrality is essentially required for the successful management team service.
Biased information may result into misleading (deceptive) and erroneous (false) results.
It is to be noted here that accounting is not a perfect science and there is always a possibility that their
conclusions may differ.
For example, two accountants can very well determine the cost of any fixed asset, but they may differ
on its expected working life and thus their calculation for the amount of annual depreciation will vary.
This the reason for which various vouchers and documents are required to support and enhance the
reliability of accounting information.
 Relevance
Relevance is another qualitative characteristic of financial statements since, in case, the information is not
relevant, it may lose its utility.
An accountant has to select such information from the mass of data which can fulfill the needs of different
users.
for e.g., the financial information required by small investors will certainly differ from the information
requirements of bankers. An accountant must analyse the requirements of various known and unknown
users of financial information and should decide about what information may be material and relevant for
all the present and potential decision makers.
Understandability
Accounting information must be presented in such form and terminology, so that investors as well as
creditors both may understand it completely.
But the complexity of economic activity becomes a major obstacle in the way of its reporting in quite
understandable and simple terms.
Moreover, sometimes, an information may lose much of its importance while attempting to make it more
simple. Thus, it becomes an obligation for different users that one must have at least a working knowledge
of business activities.
Comparability
It means that the accounting reports of one firm should be comparable with other firms (inter-firm) or own
previous performances (intra-firm) to identify similarities or differences. To achieve this, the period, the
format, unit of measurement etc. should be the same.
In case, two sets of information are not prepared with continuity, the comparison will not be possible.
For example, the methods of charging depreciation on fixed assets, valuation of inventory and writing-off
of different intangible assets should be the same in both the periods.
ROLE OF ACCOUNTING IN BUSINESS
There has been constant evolution of economic development and business environment with time.
The role of accounting has also been versatile and had changed with these changes. It is no longer
restricted to recording financial transaction rather it has to cater to various demands of society.
Thus, accounting has to play different roles which are as follows:
 TRADITIONAL ROLE
The most traditional but crucial role that accounting had played since centuries is to keep a record of
all financial transactions in books of accounts. By maintaining proper books of accounts and records,
it assists management to a greater extent in the field of planning decision making and controlling.
 LANGUAGE OF BUSINESS
It can be regarded as a language of business because it shows the financial position and results of an
enterprise by summarising a mass of data into reports and statements at the end of each month or year.
 SERVICE ACTIVITY
It performs the role of service activity by providing quantitative information primarily financial in nature
 through financial statements which is of interest to various stakeholders. Stakeholders include bank,
stockholders, owner and employees. Stakeholders use these information to make lending and investing
decision.
 PAST RECORD
Accounting keeps a record of all the past transactions of an enterprise in a chronological order along
with the amount involved.
 INFORMATION SYSTEM
Accounting plays the role of a mediator and serves as an information system between an enterprise
and other stakeholders. As an information system it collects and transmits the information.
 ASSISTANCE TO MANAGEMENT
In recent times, accounting helps an enterprise to ascertain change in various financial variables and
compare it with previous data locate significant factors leading to change, if any. It enables the
management in the test of planning, controlling and coordinating the business activities.
 TAX PURPOSES
Accounting also plays a large role for tax purposes. Recording consistent, accurate financial records
leads to an easier calculation of income taxes. The financial information transfers from the accounting
information system to the appropriate tax forms. Accounting information is useful in paying other taxes,
including GST (Goods & Service Tax) payroll taxes and quarterly estimated taxes.
 CONTROL OVER BUSINESS ASSETS
Accounting maintains track and records of various assets held by business in systematic manner.
It thus helps management to exercise effective control over the assets.
 DETERMINING RESPONSIBILITY
In modern day business is conducted through organised departments. Accounting provides information
regarding profitability of each department separately.
It helps management to determine the responsibility of each department towards obtaining common goal.

ACCOUNTING AS A SOURCE OF INFORMATION

As an information system, the accounting process provides information to all the users whether internal or
external to a business-enterprise. The information is communicated through various financial statements such as
Profit & Loss Account, Balance Sheet, Funds Flow Statement, Cash Flow Statement, etc.
To be useful, the accounting information should ensure:
o proper information for making economic decisions;
o to serve the users who depend upon financial statements of the organisation;
o to provide necessary information needed for the purpose of prediction, evaluation of amount, timing, etc.;
o to provide information so that management’s ability to utilise resources effectively, can be judged;
o to provide factual and interpretative information.
 FILL IN THE BLANKS
Q 1. Word used for not showing the actual position in the financial statement is ……………..
Q 2. Branch of accounting used to calculate cost of product is …………….
Q 3. Fixed assets are also known as ………………….
Q 4. Main function of accounting is to maintain complete and systematic record of ………. Transactions.
Q 5. Branch of commerce which keeps a record of monetary transactions in a set of books is called ……..
Q 6. The excess of revenue over expenses of an accounting year is known as …………..
Q 7. Amount invested in the business by the owner is known as ……………
Q 8. The branch of accounting which is concerned with GST and Income tax is known as ………………..
Q 9. Excess of current assets over current liabilities in known as ……………….
Q 10. Current Assets get converted in cash in a period of …………………….
Q 11. Branch of accounting which assists in systematic recording of business transactions is known as
………..…
Q 12. Assets used in the business for the purpose of re-sale are called ……………..
Q 13. For the purpose of calculating net profit or net loss at the end of the accounting year, the statement
prepared is called ……………..
Q 14. To ensure reliability, the information disclosed must be ………….
Q 15. An event involving some value between two or more entities is known as ………………
Q 16. Total revenue earned from goods or services sold during accounting year is called ………….
Q 17. Use of common unit of measurement and common format of reporting promotes ……………….
Q 18. Internal users are the persons who have direct interest in the business enterprise are known as
………… and ………….
Q 19. Creditors and banks are the example of ……………. users of accounting.
Q 20. Discount given to encourage prompt payment and which reduces bad debts is called ………………
Q 21. Documentary evidence to support a business transaction is known as voucher, voucher prepared to
deposit cash in bank is called …………….
Q 22. Assets which do not have physical existence and can’t be touched, seen but can be felt only are
known as ……….
Q 23. Bank Overdraft is an example of current liability and trade receivable is an example of …………….
Q 24. Qualitative characteristics of accounting include reliability, comparability, understand ability and
……………
Q 25. Recording, classify and summarizing are also termed as …………….
Q 26. The amount of goods lying unsold at the end of an accounting year is called ………………
Q 27. The amount which is paid for increasing profit earning capacity of business is called ……………….
Q 28. Ethical or environmental activities of the firm are related to ………….. responsibility of a business.
Q 29. Monetary benefit received from sale of non-current assets is called ………..
Q 30. Amount spent on cost of goods sold during a year and no benefit received on the same leads to …..…
Q 31. The term purchase is used for purchase of goods only but not for purchase of ……………….
Q 32. Amount not recovered from trade receivables on account there insolvency is known as ……………
Q 33. Amount paid for the purchase of goods is an example of …………………………
Q 34. Amount of cash invested in business is called capital whereas amount withdrawn from the business
for personal use is known as ……………..
Q 35. The assets which are used in the business for a longer period of time are called ……………………..
Q 36. Bad debts arise due to sale of goods on credit as well as ……………..
Q 37. Amount due from Ajay was Rs.10,000 being insolvent he paid Rs.2,500 only. Amount of bad debts
from Ajay in terms of percentage will be ………….
Q 38. Double entry system of accounting involves two aspects ………… and ………….
Q 39. Liquid Assets = Current Assets - Prepaid Expenses - ………………
Q 40. Paying salary to employee is a business transaction whereas paying salary to personal maid of owner
is termed as …………..
Q 41. Buying of machine of Rs.10,00,000 for business is a capital expenditure whereas buying of a calculator
for business is …………………
Q 42. Sale of household furniture of Rs.50,000 of proprietor for Rs.45,000 and invested the same amount in
business will be called as ……………
Q 43. At the end of an accounting year, following balances are given:
Capital Rs.1,00,000 and Assets Rs.5,00,000; the amount of outside liabilities will be ………………
Q 44. Ansari sold goods costing Rs.2,00,000 for Rs.2,60,000 and received cash Rs.2,43,500. Amount of cash
discount allowed will be ………….
Q 45. Rent outstanding is an example of current liabilities whereas computer software for Microsoft is an
example of ………………….
Q 46. Machine of Rs.6,00,000 was purchased at a commission of 10%. Total cost of machine will be Rs. …….
Q 47. Anushka started business with cash Rs.5,00,000; loan from friend. Rs.2,00,000 and assets Rs.7,00,000.
Amount of internal liability of Anushka is ……………..
Q 48. Debtors + Bill Receivable + Short-term Investments + Marketable Securities are examples of ………..
Assets.
Q 49. Profit earned during year is called income and it is expressed as ………………..
Q 50. Proprietor borrowed long-term loan from bank on collateral of assets of Rs.1,00,000. It is an example
of ……….
 TRUE AND FALSE
Q 1. Book-Keeping starts where accounting ends.
Q 2. Cost Accounting is a branch of Accounting.
Q 3. Accounting involves only the recording of Business Transactions.
Q 4. Assets which can be converted into cash within a year is known as Fixed Assets.
Q 5. Those debts that are payable after a period of one year are known as Current Liabilities.
Q 6. Costs incurred by a business for earning revenue are known as Expenses.
Q 7. Assets accounts normally have a credit balance.
Q 8. Plant and Machinery is a type of fixed assets.
Q 9. Goods remain unsold at the end of an accounting year is known as Closing Stock.
Q 10. Accounting is a language of business.
Q 11. GST stands for Goods & Sales Tax.
Q 12. Final Accounts are prepared at the end of the accounting year.
Q 13. Cash Account is a Nominal Account.
Q 14. Management is an external user of accounting information.
Q 15. Accounting helps a firm in the assessment of its correct tax liabilities.
Q 16. Accounting does not give the complete picture of the financial conditions of the business unit.
Q 17. GST is an indirect tax which is levied on the supply of goods & services.
Q 18. Accounting is a service function.
Q 19. Creditors are the external users of accounting information.
Q 20. Accounting makes records of qualitative aspects of business.
Q 21. In accountancy, all business transactions are recorded as having dual aspect.
Q 22. Current Assets include Bank Loans.
Q 23. Accountancy includes book-keeping as well as accounting.
Q 24. Tax Accounting is not a branch of Accounting.
Q 25. Goods or Cash withdrew by owner for personal use is treated as expenditure.
Q 26. Business Organisation involves economic events.
Q 27. Accounting provides information which is useful to management for making economic decisions.
Q 28. Trade Discount is allowed to persuade the buyer to buy more goods.
Q 29. A transaction is any event or condition, such as buying or selling that must be recorded in the financial
records of a business.
Q 30. Accounting ascertains the progress of the business from year to year.
Q 31. Drawing increases the capital of the owner.
Q 32. Trade Payable includes creditors & bills receivable.
Q 33. Trade Discount is deducted from list price of the product.
Q 34. Cash Discount is allowed to the customers for making prompt payment.
Q 35. Goodwill is a tangible asset.
Q 36. Profit decreases the investment of the owner.
Q 37. Bad Debts arise from credit sales.
Q 38. Account Receivables are considered as income.
Q 39. Complete process of accounting is called accounting circle.
Q 40. The excess of revenues of a period over its related expenses during an accounting year is called Profit.
Q 41. Inventory is valued at cost price or realisable value, whichever is more.
Q 42. Long-term transactions are also known as Revenue transactions.
Q 43. Purchase of machinery is a capital transaction.
Q 44. Net Profit or Net Loss of a particular period is ascertained by preparing a Trading Account.
Q 45. An expenditure whose benefit lasts for more than an year is treated as Revenue Expenditure.
Q 46. Amount received from sale of goods is an example of Revenue.
Q 47. The excess of current liabilities over current assets is known as working capital.
Q 48. Capital Expenditure is non-recurring and irregular.
Q 49. Resources minus Capital Equities is equal to Liabilities.
Q 50. Double Entry System of Accounting means entry in two sets of books.
Q 51. The Purchases Account is used for goods that are for the purpose of resale.
Q 52. Written Document for credit sales given by seller to buyer is known as Invoice.
MULTIPLE CHOICE QUESTIONS
Q 1. Qualitative characteristics of accounting information are:
(a) Reliability (b) Relevance (c) Understandable (d) All of these
Q 2. A summarized record of relevant transactions of particulars head at one place are:
(a) Ledger (b) Journal (c) Account (d) Purchases book
Q 3. Those assets which have physical existence and can be seen and touched are:
(a) Current Assets (b) Tangible Assets (c) Intangible Assets (d) None of these
Q 4. The goods available with the business for sale on a particular date is known as:
(a) Stock (b) Creditors (c) Debtors (d) None of these Answer
Q 5. The excess of expenses of a period over its related revenues is termed as:
(a) Profit (b) Loss (c) Gain (d) Expenses
Q 6. Current assets do not include:
(a) Motor car (b) Inventory (c) Bills Receivable (d) Debtors
Q 7. Which one is an example of current liabilities?
(a) Bills Receivable (b) Debtors (c) Creditors (d) None of these
Q 8. Goodwill is an:
(a) Intangible assets (b) Tangible assets (c) Current assets (d) All of these
Q 9. The person who still owes some amount to the business are termed as:
(a) Creditors (b) Bills Payable (c) Debtors (d) Bills Receivable
Q 10. It is the cost incurred in producing goods and services:
(a) Expenses (b) Incomes (c) Profit (d) Loss
Q 11. Which of the following is received at the time of making the payment?
(a) Trade Discount (b) Rebate (c) Cash Discount (d) None of these
Q 12. Amount of money or in kind which the proprietor has invested in a business is known as:
(a) Investment (b) Capital (c) Assets (d) Liabilities
Q 13. The documentary evidence in support of a transaction is known as:
(a) Debit Note (b) Credit Note (c) Voucher (d) Invoice
Q 14. A document given by the seller to the buyer for sale of goods or provision of service on credit, is
known as:
(a) Invoice (b) Debit note (c) Cash Memo (d) All of these
Q 15. Any dealing between two parties or persons which must be recorded and which can be measured in
terms of money is called:
(a) Debtors (b) Transactions (c) Creditors (d) Investor
Q 16. The excess of current assets over the current liabilities is called:
(a) Working Capital (b) Net Current Assets (c) (a) and (b) both (d) None of these
Q 17. Current Liabilities are liabilities that are payable with in:
(a) 2 years (b) 1 year (c) 3 years (d) 4 years
Q 18. Amount received from sale of goods is:
(a) Revenue Receipt (b) Capital Receipt (c) (a) and (b) both (d) None of these
Q 19. A language of business is known as:
(a) Accountancy (b) Accounting (c) (a) and (b) both (d) All of these
Q 20. Purchases refer to the purchase of:
(a) Stationery for office use (b) Goods for resale (c) Assets for the factory (d) None of these
Q 21. Which of the following is not a fixed assets?
(a) Building (b) Land (c) Machinery (d) Bill Receivable
Q 22. Which of the following is not a current asset?
(a) Plant (b) Debtors (c) Bill Receivable (d) Stock
Q 23. The amount of cash or goods which is withdrawal by proprietor from business for its private uses is
called:
(a) Capital (b) Expenses (c) Drawings (d) Expenditure
Q 24. Which branch is used for calculating cost of product?
(a) Financial Accounting (b) Management Accounting (c) Cost Accounting (d) All of these
Q 25. Who is the father of Accounting?
(a) Luca Pacioli (b) Charles Babbage (c) Henry Fayol (d) Frederick Winslow Taylor
Q 26. Business organization involves:
(a) Social Event (b) Economic Event (c) Welfare Event (d) None of these
Q 27. A person who owns business alone is called:
(a) Investor (b) Vendor (c) Proprietor (d) Buyer
Q 28. Recording business transactions in a set of books is known as:
(a) Book keeping (b) Ledger (c) Accountancy (d) All of these
Q 29. The goods unsold at the end of the accounting year are called:
(a) Opening Stock (b) Goods (c) Closing Stock (d) All of these
Q 30. Property of the business is called:
(a) Assets (b) Liabilities (c) Expenditure (d) Gain
Q 31. Winning a court case an example of:
(a) Profit (b) Income (c) Gain (d) Revenue
Q 32. Objective of Accounting is:
(a) Calculation of Profit and Loss (b) Maintaining records of business
(c) Depicts the financial position (d) All of these
Q 33. Inventory valued at:
(a) Cost Price (b) Market Price (c) Whichever is less (d) Whichever is more
Q 34. The person who draw a bill of exchange is known as:
(a) Drawer (b) Drawee (c) Payee (d) Endorsee
Q 35. Goods purchased for resale are called:
(a) Sales (b) Purchases (c) Return inward (d) Return outward
Q 36. Long-term transactions are also called:
(a) Paper transaction (b) Capital Transaction (c) Revenue Transaction (d) Non-Monetary Transactions
Q 37. Which one is a capital transaction?
(a) Purchase of goods (b) Payment of wages (c) Sales of goods (d) Purchase of machinery
Q 38. The financial information provided by an accounting system is needed by:
(a) Owners (b) Creditors (c) Management (d) All of these
Q 39. A document prepared to authorize and describe an expenditure is termed as:
(a) Cash Memo (b) Voucher (c) Bill (d) Debit
Q 40. A percentage reduction from the list price of merchandise allowed to retailers by whole seller is
called:
(a) Commission (b) Cash Discount (c) Trade Discount (d) Allowance
Q 41. Current Assets minus Current Liabilities is equal to:
(a) Working Capital (b) Profit (c) Capital (d) Loss
Q 42. Double Entry System of accounting means:
(a) Entry in two sets of books (b) Entry in two dates
(c) Entry for two aspects of the transaction (d) Entry for one aspects of the transaction
Q 43. The activities of selecting, processing and reporting the information can be described as:
(a) Book-keeping (b) Accounting (c) Auditing (d) Costing
Q 44. Resources minus capital equities is equal to:
(a) Assets (b) Equity (c) Revenue (d) Liabilities
Q 45. The complete process of accounting is called:
(a) Journalising (b) Posting (c) Accounting Cycle (d) Business Cycle
Q 46. The modern system of recording business transactions in the books of accounts is known as:
(a) Modern System (b) Single Entry System (c) American System (d) Double Entry System
Q 47. A portion of the accounts receivable which proves to be uncollectible is termed as:
(a) Bad debts (b) Doubtful debts (c) Provision for bad debts (d) All of these
Q 48. The properties owned by a business enterprise are called:
(a) Capital (b) Liabilities (c) Assets (d) Owner’s equity
Q 49. Accounts receivable are considered as:
(a) Current Assets (b) Income (c) Deferred Receipts (d) Fixed Assets
Q 50. Bad debts arise from:
(a) Credit Sales (b) Cash Sales (c) Personal Sales (d) All of these
MATCH THE FOLLOWING
Q 1.
S.No. COLOUMN A S.No. COLOUMN B
1. Bank Overdraft (a) Fixed Liability
2. Amount invested by owner (b) Current Liability
(c) Capital

Q 2. S.No. COLOUMN A S.No. COLOUMN B

1. Debtors (a) Withdraw for official use
2. Drawings (b) To whom goods sold on credit
(c) From whom goods purchased on credit
(d) Withdrawn for personal purpose
Q 3.

S.No. COLOUMN A S.No. COLOUMN B

1. Intangible Assets (a) Assets have physical value
2. Purchases (b) Purchase of machinery
(c) Goods for resale
(d) Assets have no physical value

Q 4. S.No. COLOUMN A S.No. COLOUMN B

1. External Users (a) Liability
2. Management (b) Researchers
(c) Management Cost
(d) Internal Users
Q 5.
S.No. COLOUMN A S.No. COLOUMN B
1. Capital Expenditure (a) Converted into cash within one year
2. Current Assets (b) Paying salary to worker
(c) Cost of installing machine

Q 6.
S.No. COLOUMN A S.No. COLOUMN B
1. Goods (a) Assets
2. Rent (b) Commodities to be bought and sold
(c) Expenses
Q 7.
S.No. COLOUMN A S.No. COLOUMN B
1. Fictitious Assets (a) Income
2. Revenue (b) Expense
(c) Deferred Revenue Expenditure
(d) Machinery
Q 8.
S.No. COLOUMN A S.No. COLOUMN B
1. Trade Discount (a) Which is allowed at the time of sale
2. Liabilities (b) Bank Overdraft
(c) Which is received at the time of making payment
(d) Cash at Bank
Q 9.
S.No. COLOUMN A S.No. COLOUMN B
1. Voucher (a) Cash Book
2. Gain (b) Invoice
(c) Excess of revenue over expense
(d) Winning a court case

Q 10.
S.No. COLOUMN A S.No. COLOUMN B
1. Cash Discount (a) Which is allowed at the time of sale
2. Non-Financial character (b) Discount received
(c) Which is received at the time of making
payment
(d) Strike by employees

Q 11.
S.No. COLOUMN A S.No. COLOUMN B
1. Financial Accounting (a) Analysis and interpretation of information
2. Last step of accounting (b) Help in assisting the managers
(c) Keep a record of all financial transactions
(d) Recording the transactions
Q 12.
S.No. COLOUMN A S.No. COLOUMN B
1. Comparability (a) Payable within an year
.
2. Long-term Liability (b) Common unit of measurement
(c) Payable after a period of one year
(d) Common values are must

Q 13.
S.No. COLOUMN A S.No. COLOUMN B
1. Transactions (a) Excess of revenues over its related expenses
2. Profit (b) Winning a court case
(c) Involving values between two or more
entities
Q 14.
S.No. COLOUMN A S.No. COLOUMN B
1. Sales (a) Total revenue from selling of an asset
2. Liabilities (b) Properties of an enterprise
(c) Obligations of an enterprise
(d) Total revenue from goods and services

Q 15.
S.No. COLOUMN A S.No. COLOUMN B
1. Cost Accounting (a) Helps in assisting the managers
2. Management Accounting (b) Timeliness
3. Relevance

Q 16.
S.No. COLOUMN A S.No. COLOUMN B
1. Assets-External Liabilities (a) Current Assets - Current Liabilities
2. Working Capital (b) Total Liabilities
3. Relevance (c) Capital
(d) Fixed Assets - Fixed Liabilities

Q 17.
S.No. COLOUMN A S.No. COLOUMN B
1. Business Transaction (a) Debit Balance of Profit and Loss Account
2. Fixed Assets (b) Economic Activity
3. Nominal Assets
Q 18.
S.No. COLOUMN A S.No. COLOUMN B
1. Current assets + Fixed Assets - Capital (a) Bad Debts
2. Irrecoverable amount from debtor (b) Internal Liabilities
3. Nominal Assets (c) External Liabilities
(d) Provision for bad debts
Q 19.
S.No. COLOUMN A S.No. COLOUMN B
1. Debtors (a) Cash in hand
2. Deployment of funds in the share (b) Current Assets
(c) Investment

Q 20.
S.No. COLOUMN A S.No. COLOUMN B
1. Materials held by an enterprise (a) Turnover
2. Total sales of a particular period (b) Stock of finished goods
(c) Bad debts
(d) Stores

Q 21.
S.No. COLOUMN A S.No. COLOUMN B
1. Entity (a) Definite individual existence
2. Classification (b) Journal
(c) Ledger
(d) Assets

Q 22.
S.No. COLOUMN A S.No. COLOUMN B
1. Summarisation (a) Trial balance
2. Goods (b) In which business unit is dealing
Q 23.

S.No. COLOUMN A S.No. COLOUMN B

1. Deferred revenue expenditure (a) Manipulation of the accounts
book
2. Window dressing (b) Salary
(c) Heavy advertisement expenditure
(d) Faithful presentation

Q 24. S.No. COLOUMN A S.No. COLOUMN B

1. Reliability (a) Primary stage
2. Book keeping (b) Faithfulness

Q 25. S.No. COLOUMN A S.No. COLOUMN B

1. Recording (a) Tangible asset
2. Goodwill (b) Journal
(c) Intangible asset
(d) Ledger
Q 26. S.No. COLOUMN A S.No. COLOUMN B
1. Capital Expenditure (a) Sale of assets
2. Revenue Expenditure (b) Receiving Commission
(c) Payment of salary
(d) Purchasing of Assets
Q 27. S.No. COLOUMN A S.No. COLOUMN B
1. Purchases (a) Total revenue from goods and
services
2. Sales (b) Goods for resale

Q 28. S.No. COLOUMN A S.No. COLOUMN B

1. Trade Discount (a) Which is received at the time of making
payment
2. Cash Discount (b) Deferred Revenue Expenditure
(c) Which is allowed at the time of sales

Q 29. S.No. COLOUMN A S.No. COLOUMN B

1. Deferred Revenue Expenditure (a) Fixed Assets
2. Winning a court case (b) Fictitious Assets
(c) Profit
(d) Gain
Q 30. S.No. COLOUMN A S.No. COLOUMN B
1. Expenses A.. (a) Voucher
2. Invoice (b) Fictitious Assets
(c) Rent
(d) Goods
Q 31.
S.No. COLOUMN A S.No. COLOUMN B
1. Common unit of measurement (a) Last step of accounting
2. Analysis and interpretation of (b) Reliability
information
(c) Understandability
(d) Comparability
Q 32.
S.No. COLOUMN A S.No. COLOUMN B
1. Manipulation of accounts book (a) Book keeping
2. Primary stage (b) Fraud
(c) Window dressing

Q 33.
S.No. COLOUMN A S.No. COLOUMN B
1. Irrecoverable amount from a debtor (a) Provisions
2. Total sales of a particular period (b) Bad debts
(c) Turnover
(d) Investment