Introduction to Book- Keeping and Accountancy
Short Questions
1. What is Book-keeping?
Answer: Book-keeping is the process of recording business transactions systematically in the books of accounts.
2. What are goods in accounting?
Answer: Goods are items a trader buys or manufactures for sale to earn profit.
3. What is capital in a business?
Answer: Capital is the amount invested by the owner in the business.
4. What are drawings?
Answer: Drawings are cash or goods withdrawn by the owner for personal use.
5. What is goodwill?
Answer: Goodwill is the reputation of a business valued in monetary terms.
6. What is a debtor?
Answer: A debtor is a person who owes money to the business for goods or services on credit.
7. What is a cash transaction?
Answer: A cash transaction involves immediate payment or receipt of cash.
8. What is a trade discount?
Answer: Trade discount is an allowance given on the catalogue price of goods at the time of sale.
9. What is a solvent person?
Answer: A solvent person has assets equal to or more than their liabilities.
10. What is the accrual basis of accounting?
Answer: Accrual basis records revenue when earned and expenses when incurred, regardless of cash flow.
Long Questions
1. Explain the importance of book-keeping for a business.
Answer: Book-keeping maintains permanent records of transactions, helping track profit, loss, assets, and liabilities. It provides financial information for decision-making, controls business activities, and serves as evidence in legal disputes. It also helps calculate tax liabilities accurately.
2. What is the difference between book-keeping and accountancy?
Answer: Book-keeping involves recording and classifying transactions, forming the primary stage of accounting. Accountancy includes book-keeping, plus summarizing, analyzing, and interpreting financial data. Book-keeping is done by junior staff, while accountancy requires senior staff with analytical skills.
3. Describe the objectives of book-keeping.
Answer: Book-keeping aims to record all financial transactions systematically and accurately. It provides a permanent record for future reference, helps determine profit or loss, and tracks assets and liabilities. It also compares business progress with previous years.
4. What are the qualitative characteristics of accounting information?
Answer: Accounting information must be reliable for accurate judgments, relevant to influence decisions, understandable to users, and comparable across firms or periods. These qualities ensure financial data is useful, clear, and consistent for stakeholders.
5. Explain the cash basis of accounting with an example.
Answer: In cash basis accounting, revenue and expenses are recorded only when cash is received or paid. For example, a doctor records fees when patients pay cash, not when services are provided. This method is simple but less comprehensive.
6. What is the dual aspect concept in accounting?
Answer: The dual aspect concept states that every transaction has two effects, a debit and a credit. For example, if a business buys furniture for cash, cash decreases (credit), and furniture increases (debit). This forms the basis of double-entry book-keeping.
7. What is the importance of accounting standards?
Answer: Accounting standards ensure uniformity, comparability, and reliability in financial statements. They help accountants follow consistent practices, make financial data understandable, and meet legal requirements. This promotes trust and better decision-making for stakeholders.
8. Explain the conservatism concept in accounting with an example.
Answer: The conservatism concept advises recording potential losses but not anticipating profits. For example, if closing stock is valued at ₹25,000 (cost) or ₹35,000 (market), the lower cost of ₹25,000 is recorded to avoid overstating assets.
9. What is the difference between capital and revenue expenditure?
Answer: Capital expenditure is for acquiring or improving fixed assets, like buying machinery, benefiting the business long-term. Revenue expenditure covers daily operating costs, like rent or salaries, with short-term benefits. Capital expenditure is non-recurring, while revenue expenditure is regular.
10. What is the role of International Financial Reporting Standards (IFRS)?
Answer: IFRS, issued by the IASB, standardizes how transactions are reported globally, improving financial reporting consistency. It ensures financial statements are comparable and reliable worldwide. In India, IFRS is adapted as Ind AS for compatibility with local practices.
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