Important Questions for Class 11

Accountancy

Chapter 1 – Introduction to Accounting

Very Short Answer Questions 1 Mark

1. What do you understand by “Accounting”?

Ans: Accounting is the progression of recording financial transactions affecting a
business. The summary of financial transactions for a particular accounting period,
summarizing a company's data, financial position and cash flows by preparing
financial statements is also known as accounting.

2. What is the change in the role of an accountant?

Ans: Now accountants not only record transactions but also provide required
information to members. This will create new opportunities for the accountants to
get indulged in other scope of business management.

3. What do you mean by Asset and liabilities?

Ans: Assets are the items owned by an individual or a company that can provide
future economic benefit. Liabilities are what you owe to the other parties.

4. Define capital of the company.

Ans: Capital of the company is the mix of assets or resources a company can draw
on in financing its business.

5. Define debtors and creditors of the company.

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Ans: Creditors are those people or firms to whom money is payable or extend credit
to another party during the course of business. Debtors are those people or firms to
whom money is receivable. Debtors are bound to pay the money due to them during
the course of business.

Short Answer Questions 2 Marks

1. To whom and for what process the accountant provides information?

Ans: Accountant of the company provides information to members of the company
and shareholders, creditors, vendors, financial analysts, and government agencies
for the decision making process, which helps management for fast and correct
decision implementation.

2. Describe four nature of accounting

Ans: Accounting nature can be classified in following ways;

a) Accounting is an information system.

b) Accounting relates with financial information and transactions.

c) Accounting is mean and not an end.
d) Accounting is an art

e) Accounting is a process

3. Differentiate between Capital and working capital?

Ans: The difference between capital and working capital are:

Capital Working capital

The capital is the assets and cash in Working Capital specifies the
a business. liquidity levels of companies for
handling day-to-day expenses.

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 Capital can be Assets, Cash and cash equivalents consists
Equipments, Cash, Land and of cash, such as amount in
Buildings. etc. checking or savings accounts, as
cash equivalents are highly-liquid
assets, such as money-market
money and Treasury bills.

4. Distinguish between Expenses and expenditure of the company?

Ans: The difference between expenses and expenditure are:

Expenses Expenditure
An expense is the cost of a An expenditure signifies a
business function that a company payment with either cash or credit
spends to generate revenue. to purchase goods or services.

In the accrual accounting system, An expenditure represents the

an expense is recognized when it is disbursement of funds.
actually spent.

Examples: Rent, wages, interest, Examples: An example of an

salaries, Cost of sales, utilities expenditure is the money spent on
expense, discount allowed, office equipment that you have
cleaning expense, depreciation purchased.
expense etc.

5. Differentiate between profit and gain?

Ans: The difference between Profit and gain are:

Profit Gain

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Profit, also referred to as A gain is a general growth in the
bookkeeping profit or financial value of an asset or property.
profit, is net income made after
subtracting all dollar costs from
total revenue.

It shows the amount of money a A gain ascends if the existing price

firm has available after subtracting of something is higher than the
the explicit costs of running the original purchase price.
business.

Profit is spread to shareholders. Gain is applied in the company’s

working.

Short Answer Questions 3 Marks

1. Explain reasons why users need accounting information.

Ans: Following are the reasons why users need accounting information:

a) Owners or shareholders of the company who have invested in the company

need to know if they are getting satisfactory return for their investment.
b) Directors and managers of the company need accounting information for the
evaluation of the performance internally and externally.
c) Stockholders have the right to know how a company is handling its
investments.
d) Banks or financial lending companies can utilize the accounting data to help
in making selections such as whether to lend or how much to lend a company.

2. Define in what way accounting is the source of information.

Ans: The various ways accounting is the sources of the information are explained as
follows:
a) Helps to evaluate the flow of cash in the organization and effects due to it.

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 b) It is used as a means of announcement between a business organization and
its shareholders.

c) Provide information that relies on the accounting information of the

organization.

d) The accounting process is a basis of info, it uses business data and processes
it to generate applicable information.

3. What are the objectives of accounting?

Ans: The objectives of accounting are as follows:
a) The main objective of accounting is to keep an organized record of financial
transactions which helps the users to appreciate the day to day transactions in
an organized way so as to gain knowledge about total business.
b) To determine profit or loss of the business.
c) To represent the financial situation of the business.

d) To offer accounting data to the interested parties.

4. What are the different roles of accounting?

Ans: The different kind of roles of accounting are as follows;
a) Regulator of financial policy and construction of planning.
b) To preserve full and organized records of business transactions.

c) It can be used for Evaluation of employees' performance.

d) Nowadays accounting is used to determine the income of the company.

5. Explain the types of information external users of accounting information

are interested.
Ans: Following is the type of information external users need:

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 a) Investment created by external users including risk and reward.

b) Creditors are interested in accounting data, because it enables them to fix the
credit worthiness of the business.

c) The creditworthiness and ability of the company to pay.

d) All the information of allocations of assets of the company and compliance

are regularly carried out.

e) Amount on credit taken by the company is paid off in which aspects and time
period it takes.

Long Answer Questions 5 Marks

1. Role of accountant in today’s environment and how they help management?

Ans: Role of accountant in today’s environment can be defined as follows:
a) Accountants have various fields to work like forensic accounting, e-
commerce accounting, financial planning, etc.

b) Assisting in the direction and management of activities, such as assessing and

comparing actual performance to budget plans and directing focus to
successful or problematic areas.
c) It Helps management in the decision making process for the growth of the
company.

d) It collects the information and communicates it to the organization which

provides this information to a wide variety of stakeholders.

e) Accountants' abilities may also help the environment save money.

Environmental accountants may frequently reduce both environmental and
financial expenses by calculating the usage of alternative chemicals, methods,
or product designs.

2. Define all the four nature of accounting. Explain?

Ans: The nature of the accounting are explained below:

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 a) Economic Events: Economic events refer to an event which will happen for
the growth of the organization and consist of various transactions which are
in monetary terms. For example, buying an asset for the company,
transportation cost, labour cost to install the asset and other expenses in
installing such asset.

b) Identification, Measurement, Recording and Communication: First step

of accounting is to identify the nature of the transaction whether it is related
to accounting or not. Measurement means whether it can be measured in
monetary terms or not. If not then it will not be included in accounts and will
be treated differently. Recording comes after identifying and measuring the
transaction, it is then recorded in books of accounts. Communication is made
after the transaction is recorded to the relevant parties internally and
externally.

c) To depict the financial position of the business: A businessman is also

interested in establishing his financial position at the end of a given period.
For this resolution, a position statement called Balance Sheet is prepared in
which assets and liabilities are revealed.

d) Interested users of information: There are two types of users internally and
externally. Internal users of the information are directors, managers and
employees. External users are creditors, shareholders, debenture holders,
government, etc.

3. Define the branches of accounting. Explain?

Ans: The development of the economy and its complexity with technological
advancements has increased the importance of accounting and its uses. As due to
these reasons it has given rise to the new branches or ways of accounting which are
as:

a) Financial accounting: Financial accounting is the branch of accounting that

deals with the summarization, analysis, and reporting of a company's financial
activities. This entails the production of financial statements for public
consumption. Financial accounting's primary goal is to correctly create an
organization's financial accounts for a certain time, often known as financial

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 statements. The Profit and loss statement, balance sheet, and statement of CFOs
are the three major financial statements.

b) Cost accounting: "A structured set of methods for collecting and reporting
computation of the cost of producing things and giving services in the collection
and in detail," according to the meaning of cost accounting. Calculating fixed and
variable costs is a part of cost accounting. Fixed costs are monthly expenses that
do not change depending on the amount of output. Rent, depreciation, interest on
loans, and leasing expenditures are all examples.

c) Management accounting: The activity of finding, measuring, evaluating,

interpreting, and presenting financial information to managers in order to achieve
an organization's objectives is known as management accounting. Management
accounting enhances an organization's worth by certifying the efficiency and
effective use of limited resources, including financial resources. As a result, it
gives crucial information for employees to improve their talents.

4. Give details about the asset side of the balance sheet of the company.
Ans: Asset side of the balance sheet of the company contains:

● Non- Current Asset:

a) Fixed Asset:
i. Tangible Asset
ii. Intangible Asset

iii. Capital Work-In-Progress

iv. Intangible Assets under Development

b) Non-Current Investments

c) Deferred Tax Assets

d) Long Term Loan & Advances

e) Other Non-Current Assets

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 ● Current asset:
a) Current investment

b) Inventories

c) Trade receivables

d) Cash and cash equivalents

e) Short term loan and advances

f) Other current asset

5. Give details about the liabilities side of the balance sheet of the company.
Ans: Liabilities side of the balance sheet of the company contains the following
details:

● Non-Current Liabilities
a) Long Terms Borrowings
b) Deferred Tax Liabilities
c) Other Long Term Liabilities

d) Long Terms Provisions

● Current Liabilities
a) Short Terms Borrowings

b) Trade Payables
c) Other Current Liabilities

d) Short Terms Provisions

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