Ch.# 1 INTRODUCTION ACCOUNTING EQUATION AND ACCOUNTING
| Chapter # 1 | INTRODUCTION ACCOUNTING EQUATION AND ACCOUNTING | |||||||||
| Q.1: | Define Business? | |||||||||
| Ans: | Any activity undertaken for the purpose of earning profit is called business. | |||||||||
| Q.2: | What are different classes of business? | |||||||||
| Ans: | i) Trading ii) Manufacturing iii) Servicing | |||||||||
| Q.3: | Define trading? | |||||||||
| Ans: | A business in which goods are purchased and sold without any modification is called trading. | |||||||||
| Q.4: | Define manufacturing? | |||||||||
| Ans: | A business in which goods are purchased and resold after some modification is called manufacturing. | |||||||||
| Q.5: | Define servicing? | |||||||||
| Ans: | A business in which services are purchased and sold in called servicing. | |||||||||
| Q.6: | What is transaction? | |||||||||
| Ans: | Any dealing between two or more persons in the business for good or services which effects financial position of a business is called transaction. | |||||||||
| Q.7: | Define trader? | |||||||||
| Ans: | A person who performs trading is called trader. | |||||||||
| Q.8: | Define manufacturer? | |||||||||
| Ans: | A person who invests the money or thing in the business is called proprietor or owner. | |||||||||
| Q.9: | What is proprietor? | |||||||||
| Ans: | A person who invests the money or things in the business is called proprietor or owner. | |||||||||
| Q.10: | Define capital? | |||||||||
| Ans: | A proprietor money or things which he invests in the business is called capital. In other words a proprietor interest in the business of called capital. | |||||||||
| Q.11: | What do you know about entity concept? | |||||||||
| Ans: | A business has a separate entity from its owner or proprietor. | |||||||||
| Q.12: | Define drawing? | |||||||||
| Ans: | The cash or goods taken away from business by the owner for his personal or Private use are called drawings. | |||||||||
| Q.13: | Define purchases / merchandise? | |||||||||
| Ans: | Buying or purchases of goods for resale purposes are called purchases. | |||||||||
| Q.14: | Define cash purchases? | |||||||||
| Ans: | Purchase of goods for cash are called cash purchases. | |||||||||
| Q.15: | What are credit purchases? | |||||||||
| Ans: | Purchase of goods on account / credit are called credit purchases. | |||||||||
| Q.16: | What are purchases return / return outward / return to supplier? | |||||||||
| Ans: | When goods purchased are returned to suppliers / creditors from whom they were purchased, due to any reason, are called purchase return. | |||||||||
| Q.17: | Define sales / turnover? | |||||||||
| Ans: | When goods are sold by business to any person at particular price are called sales. | |||||||||
| Q.18: | What are cash sales? | |||||||||
| Ans: | When goods are sold for cash, are called cash sales. | |||||||||
| Q.19: | What are credit sales? | |||||||||
| Ans: | When goods are sold on account (payment will be received latter) are called credit sales. | |||||||||
| Q.20: | What is sales return or return inward / return to seller? | |||||||||
| Ans: | When goods are returned by customer to business due to any reason are called sales return. | |||||||||
| Q.21: | What is trade discount and what will be its accounting treatment? | |||||||||
| Ans: | When concession or allowance or rebate is given by seller to buyer on list rice of goods at the spot of selling is called trade discount and there is no accounting treatment of trade discount. | |||||||||
| Q.22: | What is cash discount? | |||||||||
| Ans: | A discount which is allowed or received at the time of cash receipt or payment on credit sales or purchases is called cash discount. | |||||||||
| Q.23: | What are types of cash discount? | |||||||||
| Ans: | i) Discount allowed ii) Discount received | |||||||||
| Q.24: | What is discount allowed? | |||||||||
| Ans: | A discount which is allowed by seller to buyer at the time of early receipt against credit sales is called discount allowed. | |||||||||
| Q.25: | What is discount received? | |||||||||
| Ans: | A discount which is received by buyer from seller at the time of early payment against credit purchases is called discount received. | |||||||||
| Q.26: | Define creditor? | |||||||||
| Ans: | A person from whom business purchase goods on credit is called its creditor. | |||||||||
| Q.27: | Define debtor? | |||||||||
| Ans: | A person to whom business sells goods on credit is called its debtor. | |||||||||
| Q.28: | What are liabilities? | |||||||||
| Ans: | The debtors obligation / responsibilities due by business to it proprietor and others are called its liabilities. | |||||||||
| Q.29: | What are assets: | |||||||||
| Ans: | Tangible or intangible resources (having certain value) from which expected future economic benefits are obtained are called assets. | |||||||||
| Or | ||||||||||
| Resources which are expected to be used for more than one accounting periods are called assets. | ||||||||||
| Or | ||||||||||
| Resources which are held by an enterprise for use in the production of further goods or services are called assets. | ||||||||||
| Q.30: | Give any two types of assets? | |||||||||
| Ans: | i) Tangible assets ii) Intangible assets | |||||||||
| Q.31: | Define tangible assets and give their two examples? | |||||||||
| Ans: | Assets having their physical form are called tangible assets. For example, building, land etc. | |||||||||
| Q.32: | What is meant by intangible assets and give their two examples? | |||||||||
| Ans: | Assets which have no physical form but they are only felt are called intangible assets. For example, good will, patent. | |||||||||
| Q.33: | What do you mean by “expense”? | |||||||||
| Ans: | A part expenditure whose benefit is received or enjoyed during a particular accounting period is called expense. | |||||||||
| Or | ||||||||||
| Cost that is allocated to current period is called expense. | ||||||||||
| Q.34: | What is meant by “Income? / Revenue? | |||||||||
| Ans: | A revenue received against expense is called income. | |||||||||
| Or | ||||||||||
| A revenue part of income which is allocated to current period is called income. | ||||||||||
| Q.35: | What is book – keeping? | |||||||||
| Ans: | An art of recording business transactions in the books of account in a systematic manner is called book – keeping. | |||||||||
| Q.36: | Give any three objectives of book – keeping? | |||||||||
| Ans: | i) To keep written record of business. ii) To provide financial data for management decisions. iii) To provide periodic results. | |||||||||
| Q.37: | What is accounting? | |||||||||
| Ans: | The art of recording, analyzing, classifying, summarizing, reporting, interpreting and projecting business information (transactions) is called accounting. | |||||||||
| Q.38: | Give any three objectives of accounting? | |||||||||
| Ans: | i) To provide information about the accounting period results. ii) To provide information about financial position of business. iii) To provide information to management for future planning. | |||||||||
| Q.39: | Write any two limitations of accounting? | |||||||||
| Q.40: | Differentiate between book keeping and accounting. | |||||||||
| Ans: |
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| Q.41: | Give any two advantages of accounting? | |||||||||
| Ans: | i) It provides useful information for making economic decisions. ii) It helps investors and creditors. | |||||||||
| Q.42: | Write the names of any three branches of accounting? | |||||||||
| Ans: | i) Financial accounting ii) Cost accounting iii) Management accounting | |||||||||
| Q.43: | Define “Account: | |||||||||
| Ans: | Summarized record of transactions relating to a particular person or thing is called an account. | |||||||||
| Q.44: | Define voucher? | |||||||||
| Ans: | Any written evidence in support of business transaction called voucher. | |||||||||
| Q.45: | What are bases of accounting? | |||||||||
| Ans: | i) Cash basis accounting ii) Accrual basis accounting | |||||||||
| Q.46: | Define cash basis accounting? | |||||||||
| Ans: | A system of accounting in which transactions are recorded when cash is actually paid or received is called cash basis accounting. | |||||||||
| Q.47: | Define “Accrual basis accounting”? | |||||||||
| Ans: | A system of accounting in which transactions are recorded when these are incurred (become due) for payment or receipt. | |||||||||
| Q.48: | What is invoice? | |||||||||
| Ans: | A document given by the seller to the buyer for credit sales of good is called invoice. | |||||||||
| Q.49: | Name any four users of accounting information or parties interested in accounting information? | |||||||||
| Ans: | i) Owner ii) Management iii) Employees iv) Investors | |||||||||
| Q.50: | What is freight? | |||||||||
| Ans: | The transport charges which are paid by business on transportation of goods and assets is called freight. | |||||||||
| Q.51: | What do you know about freight inward? | |||||||||
| Ans: | A freight paid on purchase of goods is called freight inward or freight on purchase. | |||||||||
| Q.52: | What is meant by freight outward? | |||||||||
| Ans: | A freight paid on sales of goods is called freight outward or freight on sales. | |||||||||
| Q.53: | Define commission? | |||||||||
| Ans: | A remuneration for services performed by one person to another normally on the percentage basis is called commission. | |||||||||
| Q.54: | Define Salary? | |||||||||
| Ans: | A fixed remuneration for services performed by one person to another for fixed period id called salary. | |||||||||
| Q.55: | Define wages? | |||||||||
| Ans: | A remuneration which is normally paid on the basis of work performed by one person for another is called wages. | |||||||||
| Q.56: | What is meant by “Dual concept”? | |||||||||
| Ans: | It means “For every debit, there is a credit”. | |||||||||
| Q.57: | What is “Accounting period”? | |||||||||
| Ans: | A period which is determined for determination of profit and loss of nay business over its whole life. Generally, it is period of one year. | |||||||||
| Q.58: | What is matching concept? | |||||||||
| Ans: | A concept which requires that revenues of particular accounting period should be matched against expenses of that period. | |||||||||
| Q.59: | What do you know about “gong concern”? | |||||||||
| Ans: | Going concern concept shows the assumption of long period existence of a business or existence of business more than one accounting period. | |||||||||
| Q.60: | Define accounting equation? | |||||||||
| Ans: | A method by which the financial position of a business can be checked at glance is called accounting equation. | |||||||||
| or | ||||||||||
| A statement which shows the equality of business assets and liabilities is called accounting equation. | ||||||||||
| Q.61: | What is accounting equation? | |||||||||
| Ans: | Assets = Liabilities + owner’s equity | |||||||||
| Q.62: | Define owner’s equity? | |||||||||
| Ans: | Capital Invested by the proprietor is called owners equity. | |||||||||
| Q.63: | Give diagram of accounting cycle? | |||||||||
| Ans: |
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