Introduction to Book- Keeping and Accountancy
EXERCISE
Q.1 Answer in One Sentence:
1. What is Book-keeping?
Answer: Book-keeping is the process of recording business transactions systematically in the books of accounts.
2. What is meant by Goods?
Answer: Goods are the commodities, merchandise, or articles a trader deals in for the purpose of sale to earn profit.
3. What is Capital?
Answer: Capital is the total amount invested by the owner in the business or the excess of assets over liabilities.
4. What is Drawings?
Answer: Drawings are the cash or goods withdrawn by the owner from the business for personal use.
5. What is Goodwill?
Answer: Goodwill is the reputation of a business valued in monetary terms, arising from its superior earning capacity.
Q.2 Give the word, term, or phrase which can substitute each of the following statements:
1. Recording of business transactions.
Answer: Book-keeping
2. Amount invested in business by the proprietor.
Answer: Capital
3. A person to whom amount is payable.
Answer: Creditor
4. Exchange between two persons.
Answer: Transaction
5. Excess of expenses over income.
Answer: Loss
6. A person whose assets are sufficient enough to meet business obligations.
Answer: Solvent
7. Art and science of recording business transactions.
Answer: Book-keeping
8. Property of any description owned by Proprietor.
Answer: Asset
9. Assets which remain in the business for only for short time and can be converted into cash very easily.
Answer: Current Assets
10. Allowance is given on catalogue price of goods.
Answer: Trade Discount
Q.3 Select the most appropriate alternatives from those given below and rewrite the statements:
1. Surplus of income over expenses is Profit.
a) Profit b) Deficit c) Loss d) Financial Statements
2. In Cash basis of accounting, actual cash receipts and actual cash payments are recorded.
a) Accrual b) Hybrid c) Cash d) Mercantile
3. Amount which is not recoverable from customer is known as Bad Debts.
a) Bad Debts b) Debts c) Debtors d) Doubtful debts
4. Accounts must be honestly prepared and they must disclose all material information is known as Disclosure Concept.
a) Entity Concepts b) Dual Aspect Concept c) Disclosure Concept d) Cost Concept
5. A commodity in which a trader deals is known as Goods.
a) Goods b) Income c) Property d) Expenditure
6. Goodwill means a reputation of a business valued in terms of money.
a) Trademark b) Assets c) Patents d) Goodwill
7. According to AS-3 cash flow statement is prepared and presented for the period for which the profit and loss account is prepared.
a) AS-3 b) AS-10 c) AS-6 d) AS-2
8. The immediate recognition of loss is supported by principle of Conservatism.
a) Conservatism b) Objective c) Matching d) Consistency
9. Brief explanation of an entry is called as Narration.
a) Folio b) Narration c) Posting d) Journalising
10. An act of exchange of things or services between the two parties is termed as Transaction.
a) Ledger b) Transfer c) Transaction d) Business
Q.4 State whether the following statements are true or false with reasons:
1. Book-keeping and accounting are one and the same thing.
False.
Reason: Book-keeping is the primary stage of recording and classifying transactions, while accounting involves recording, classifying, summarizing, analyzing, and interpreting financial data.
2. Conservatism means to follow safe side.
True.
Reason: The conservatism principle advises anticipating no profits but providing for all possible losses, ensuring a cautious approach in accounting.
3. The double entry system is based on “Dual Aspect” concept.
True.
Reason: The dual aspect concept states that every transaction has two effects (debit and credit), which is the basis of the double-entry book-keeping system.
4. Bank overdraft is an asset of the business.
False.
Reason: Bank overdraft is a liability, as it represents an amount owed by the business to the bank.
5. Solvent person is a person whose assets are more than his liabilities.
True.
Reason: A solvent person has assets equal to or greater than liabilities, enabling them to meet their financial obligations.
6. Cash discount does not appear in the books of accounts.
False.
Reason: Cash discount is recorded in the books as it is a concession given for prompt payment and affects the financial records.
7. A transaction is concerned with money or money’s worth.
True.
Reason: Only monetary transactions or those with money’s worth are recorded in the books of accounts.
8. Accounting is the language of business.
True.
Reason: Accounting communicates the financial results of business operations to stakeholders, making it the language of business.
9. In earlier times of civilization, accounting was done by owners.
False.
Reason: In earlier times, accounting was done by agents who managed the properties of wealthy people, not necessarily the owners.
10. Book-keeping is useful to find out all tax liabilities.
True.
Reason: Book-keeping provides accurate financial records, which are essential for calculating tax liabilities like income tax, GST, etc.
Q.5 Do you agree or disagree with the following statements:
1. Accounting is useful only to the owner.
Disagree.
Reason: Accounting is useful not only to the owner but also to stakeholders like management, investors, creditors, government, and customers for decision-making and assessing financial position.
2. Book-keeping is an art, science.
Agree.
Reason: Book-keeping is both an art (systematic recording) and a science (based on rules and principles) of recording financial transactions.
3. Bills Payable is an asset of the business.
Disagree.
Reason: Bills Payable is a liability, as it represents an amount the business owes to others.
4. In Book-keeping and Accountancy only non-monetary transactions are recorded.
Disagree.
Reason: Only monetary transactions are recorded in book-keeping and accountancy, as they can be expressed in terms of money.
5. The Assets which give long term benefit to the business are Fixed Assets.
Agree.
Reason: Fixed assets, like land, building, and machinery, provide long-term benefits to the business.
Q.6 Complete the following sentences:
1. Revenue arising as a result of business transactions is known as Income.
2. Excess of gross profit over operating expenses is Net Profit.
3. An expenditure which is basically revenue in nature but benefit of which is not exhausted within one year is called as Deferred Revenue Expenditure.
4. The amount deducted by the seller from the list price of goods at the time of sale is Trade Discount.
5. A person to whom business owes money for the goods or services is known as Creditor.
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