MAJLIS ARTS AND SCIENCE COLLEGE

PURAMANNUR
PG DEPARTMENT OF COMPUTER SCIENCE
(Affiliated to the University of Calicut)

FINANCIAL AND MANAGEMENT

ACCOUNTING
FIRST MODULE

Second Semester BCA

(Academic Year 2019-20 Onwards and 2017 Admissions)

 Questions and Answers based on First Module

Module I

(Short Answer Question)

1. Define accounting?
Accounting may be defined as the process of recording, classifying, summarizing and
interpreting the financial transactions and communicating the results there of to the persons
interested in such information.
2. What is accountancy?
Accountancy is the practice of recording, classifying, and reporting on business transactions
for a business. It provides feedback to management regarding the financial results and status
of an organization.
3. What is financial Accounting?
Financial accounting is the process of preparing financial statements that companies’ use to
show their financial performance and position to people outside the company, Including
investors, creditors, suppliers, and customers.
4. Define accounting principles
Accounting principles may be defined as those rules and procedure which are adopted by the
accountants universally in recording the accounting transaction.
5. What is accounting conventions (Doctrine of Accounts?)
Accounting conventions are a set of common practices that act as guidelines while recording
business transactions in the financial statements. Accounting conventions are guidelines that
are commonly accepted by accounting professionals and bodies without any legal obligation.
6. Define equity
Equity is the amount of capital invested or owned by the owner of a company. The equity is
evaluated by the difference between liabilities and assets recorded on the balance sheet of a
company.
7. What do you mean by Capital?
The amount invested by the owner in the business is known as capital. It refers to the money
or money’s worth invested in a business.
8. What is asset?
An asset is a resource that owned or controlled by a company and will provide a benefit in
 current and future periods for the business.
9. What is debtor?
Debtors are the person who owes money to the business. In credit sales the customers buy the
goods or services and agree to pay at a future date. These customers become debtors.
10. What is Creditors?
A creditor could be a bank, supplier or person that has provided money, goods, or services to
a company and expects to be paid at a later date.
11. What is a drawing?
It is the amount of cash or goods withdrawn by the proprietor from business for his personal
use
12. What is Generally Accepted Accounting Principles (GAAP)?
A set of rules, conventions, standards and procedures established for reporting financial
information are known as GAAP.
13. What is business Transactions?
Transaction is an event which involves transfer of money or money’s worth between the
business and outsiders including the owner
14. What is double entry system?
Every transaction has two aspects or elements. One is receiving aspects and the other is
giving aspects. The receiving aspects of a transaction are known as debit and the giving
aspects of transaction are known as credit. The method of recording the two fold aspects of
every transaction is called double entry system.
15. What is account?
Account is the individual record of an asset, a liability, revenue, an expense or capital, in a
summarized manner.
16. What is the difference between Accounting convention and accounting concepts?
The accounting concepts mean the necessary conditions or assumptions required to be
followed while recording the transactions. On the other hand accounting convention mean
customs and traditions based on which accounting statements like Profit and Loss Account
and Balance Sheet are to be drawn.
17. What is accounting equation?
The financial position of a company is measured by the following items:
 Assets
 Liabilities
 Owner's Equity
 The basic accounting equation is as follows
Asset= Liability+Capital
(Short Essay Questions)

18. What are the different systems of recording transactions?

There are mainly three systems of recording transactions they are follows:
 Cash system: Under this system, transactions relating to actual cash receipts and actual
cash payments are recorded. A transaction is recorded only when cash is received or
paid. This means that credit transaction are not recorded.
 Mercantile system (Accrual system): Under this system, all transaction relating to a
particular period is recorded. It takes into account the revenue for the whole accounting
period whether received or not. Likewise expenses for the whole period whether paid or
not.
 Hybrid or mixed system: Under this system of accounting , revenues and assets are
recorded on cash basis while expenses and liabilities are recorded on mercantile system.
19. What are the different types of business transactions?
Business transactions are the following types
(a) Cash transaction: A transaction in which cash is paid or received immediately at the time
when transaction occurs is known as cash transaction.
(b) Credit transaction: In a credit transaction, the cash does not change the hands
immediately at the time when transaction occurs. In other words, the cash is received or
paid at a future date.
(c) Non-cash transaction: This transaction does not involve any payment or receipt of cash
either immediately or at a later date
20. Explain the various accounting conventions used in accounting
 Consistency Convention
The accounting convention of consistency states that once adopted, a business must
continue to follow the same accounting principles and methods in the future accounting
periods. Thus, financial results of two or more accounting periods can be compared
only when convention of consistency is followed. Such a comparison helps the
management in formulating policies and take decisions.
 Conservatism Convention
Conservatism convention of accounting is a guideline for recording business transactions
that is based on the principle: ‘Anticipate no profit, but provide for all possible losses.
 The conservative approach of accounting advises the accounting professionals
to record profits and assets only when they are realized However, it must record losses
even if it is uncertain about their occurrence.
 Materiality
The materiality convention of accounting states that the business should include only the
important or relevant facts in the financial statements. According to this convention
only the material or important facts about the business are to be disclosed through the
financial statements. All other unimportant or less important information should either
be totally ignored or recorded as foot notes.
 Full Disclosure
This accounting convention states that all relevant or material information must be
disclosed while preparing accounting records of a business entity. This is because these
financial statements are used by multiple internal and external stakeholders like
management, employees, creditors, etc.
21. How are account classified?
Accounts are classified into following categories:
 Personal Account
Personal Accounts are the ones that are related with individuals, companies, firms, group
of associations etc. Thus, these persons could include natural persons, artificial persons
or representative persons.
 Real Account
Real Accounts are the ones that are related with properties, assets or possessions.
Furthermore, these properties can be both physically existing as well as non physical in
nature. Thus, Real Accounts can be of two types: Tangible Real Accounts and Intangible
Real accounts.
 Nominal Account
Nominal Accounts relate to income, expenses, losses or gains. These include Wages A/c,
Salary A/c, Rent A/c etc.
22. Explain the rules of accounting or what the 3 Golden rules of accounting are
Accounting rules are statements that establish guidance on how to record transactions. As
per accounting rules all the accounting transactions should be recorded in the books of entity
using double entry accounting method. Double entry accounting method means for each
transaction two (or more) accounts are involved, one account shall be debited and the other
account shall be credited with the same amount.
Golden rules of accounting are the basic accounting rules on the basis of which accounting
entries are recorded.
 Personal Account:
The rule related to Personal account states debit the receiver and credit the giver. In
other words, if a person receives something, receiver’s account shall be debited and if a
person gives something, giver’s account shall be credited.
 Real Account:
The rule related to real account states debit what comes in, credit what goes out. In other
words, if something comes into business, it shall be debited and if something goes out of
business, it shall be credited.
 Nominal Account:
The rule related to nominal account states that debit all expenses and losses, credit all
incomes and gains. In other words, if any expense or loss is incurred for the business,
expense or loss account shall be debited and if any income or gain is earned in business,
income account or gain/profit account shall be credited.
(Essay Questions)
23. Explain the characteristics of Financial Accounting
Following are the characteristics features of Financial Accounting:
1) Monetary Transactions:
In financial accounting only transactions in monetary terms are considered. Transactions
not expressed in monetary terms do not find any place in financial accounting,
2) Historical Nature:
Financial accounting considers only those transactions which are of historical nature
i.e the transaction which have already taken place. No futuristic transactions find any
place in financial accounting,
3) Legal Requirement:
Financial accounting is a legal requirement. It is necessary to maintain the financial
accounting and prepare financial statements there from. It is also obligatory to get
these financial statements audited.
4) External Use:
Financial accounting is for those people who are not part of decision making process
regarding the organization like investors, customers, suppliers, financial institutions
etc. Thus, it is for external use.
5) Disclosure of Financial Status:
 It discloses the financial status and financial performance of the business as a whole
24. What are the objectives of financial accounting?
 To identify financial events and transactions that occurs in an organization.
 To measure the value of these occurrence in terms of money
 To organize the accumulated financial data into meaningful information
 To analyses interpret and communicate that information to persons within and
outside the organization
 To provide information about the performance and financial position of firm
 To provide information for directing and controlling effectively the firm’s resources
 To provide necessary information for financial forecasting, formulation of various
business policies and devising remedial measures for the deviations between the
actual and budgeted performance.
 To provide necessary data to the government for taking proper decisions relating to
duties, taxes, price control etc.
25. What is the limitation of financial accounting?
 It provides only past data
 It does not show profit or loss of each product, job, process etc.
 It fails to exercise control over resources.
 It does not measure organizational efficiency
 It fails to provide adequate data for price fixation
 It does not provide data for comparison of cost
 It fails to take into account the impact of price level changes.
 It cannot disclose controllable and uncontrollable costs.
 It provides only limited information to management.
26. What do you understand by accounting principles? Explain briefly the various accounting
concepts
The following are some of the important accounting concepts.
1. Separate Entity Concept
2. Dual Aspect Concept
3. Going Concern Concept
4. Money Measurement Concept
5. Cost Concept
6. Accounting Period Concept
 7. Realisation Concept
8. Matching Concept
9. Accrual Concept
10. Objective Concept
 Separate Entity Concept
A business is considered to be different from the persons who own it. The accounting system
deals only with the accounts of the firm and not that of the owners. Otherwise, the affairs of
the business would get mixed up with the affairs of the owners. We can say that business and
businessman are two separate entities.
 Dual Aspect Concept
Modern accounting is based on the dual aspect concept. For every debit, there should be a
corresponding credit. Hence, the total of the debits will always be equal to the total of the
credits. Assets of a firm are purchased by the funds provided by the owners and the creditors.
Therefore, the total of the assets should always be equal to the total of the liabilities or
equities.
 Going Concern Concept
This concept assumes that every business will continue for an indefinite period of time People
will not like to deal with a business that is to be closed down. Suppliers may not provide
goods, workers may not provide their services and financial institutions may not provide
credit facilities.
 Money Measurement Concept
All the transactions of a business are recorded only in terms of money. Because, money is the
medium of exchange and a common measure of value.
 Cost Concept
The meaning of this concept is that an asset will be recorded at its cost, that is price paid or
to be paid for acquiring it. Any change in the market value of the asset is not recorded. The
market value may fluctuate from time to time and create confusion if the change in value is
recorded.
 Accounting Period Concept
The business activity is a continuous process and we cannot wait till the end of the business
to evaluate its financial position. Hence for reporting purpose, the entire life of a business is
divided into different accounting period. A period normally may cover 12 months. A profit
and loss account is prepared once in a year and the balance sheet is prepared as on the
closing date of the accounting period.
  Realisation Concept
This concept is related to realization of revenue which arises from sale of goods or services.
Revenue arises when title to goods is transferred or when services is rendered to the
customer. In the case of a credit sale, revenue arises when the sale is made, and not when the
cash is received. Likewise, when an advance is received for supply of goods, it does not
amount to revenue. Revenue, in fact, arises only when goods are supplied.
 Matching Concept
The meaning of expenses against revenues for ascertaining the net profit or loss of a business
is known as the matching concept. The matching concept required that costs should be
recognized as expenses in the period in which the associated revenue is recognized.
 Accrual Concept
Under this concept, revenue recognition depends on its realization and not on actual receipt.
Likewise, costs are recognized when they are incurred and not when paid.
 Objectivity Concept
As per this concept, all accounting must be based on objective evidence. In other words, the
transaction recorded should be supported by various documents. Only in such an event, it
would be possible for the auditors to verify accounts and certify them as true or otherwise.
The evidence substantiating the business transactions should be objective and free from the
bias of the accountants.
27. What is double entry system? What are its advantages?
 Systematic and Scientific Method
Double entry book-keeping is scientific and systematic system of recording the financial
transactions of the business. It is guided by specific rules, principles and techniques.
 Complete System of Accounting
Double entry system records both aspects (debit and credit) of each transaction. So, it is a
complete system of book keeping.
 Suitable For Large Companies
It is suitable for large business companies with large volume of financial transactions and
resources.
 Ensure Arithmetical Accuracy
Trial balance is prepared under double entry system. Therefore, it ensures arithmetical
accuracy of accounting records.
 To Obtained Profit or Loss
Profit or loss of a company can be obtained by preparing profit and loss account at the end
of the accounting period.
 To Know the Financial Position
Balance sheet is prepared at the end of the year. It helps to know the actual financial position
of the business.
 Helps Decision Making
Double entry system provides financial data, profit, loss and financial position of the
business firm. So it helps the management to take appropriate decision for the betterment of
business.
 Comparison of Results
Financial results of current year can be compared with the result of previous year which
helps the management for future planning.