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Short Answers
1. Define Accounting.
Answer
Accounting is the art of recording, classifying, summarising and communicating financial information
to users for correct decision making.
Answer
The end product of financial accounting are Trading account, Profit and loss account and Balance
sheet.
Answer
Answer
Answer
Long term lenders are interested in repaying capacity of the business, profitability, liquidity,
operational efficiency, potential growth of business.
Answer
External users of information are the individual or the organisations that have direct or indirect
interest in the business firm, however, are not a part of management. They do not have direct
access to the internal data of the firm and uses published data or reports like profit and loss
accounts, balance sheets, annual reports, press releases, etc. Some examples of external users are
government, tax authorities, labour unions, etc.
Answer
→ For Planning: Management would like to know whether sales are increasing or decreasing also the
speed of increase in the cost of production which helps the management in estimating future sales
and expenses.
→ For Decision making: Management needs information to take number of decisions such as what
will be the selling price of goods and how much discount they should offer.
→ For Controlling: Management would like to know that cost incurred is manufacturing the product
is reasonable and that no department is overspending.
Answer
Nature They have debit balance to the firm. They have credit balance to the firm.
Payment Payments are received from them. Payments are made to them.
Shown They are shown as assets in the They are shown as liabilities in the
Balance sheet under Current Assets. Balance Sheet under Current Liabilities.
10. 'Accounting information should be comparable'. Do you agree with this statement? Give two
reasons.
Answer
→ Comparability is needed to make inter-firm comparisons, i.e., to find out how a firm has
performed as compared to the other firms.
→ Comparability is needed to make inter-period comparisons, i.e., to find out how it has performed
as compared to the previous years.
11. If the accounting information is not clearly presented, which of the qualitative characteristic of
the accounting information is violated?
Answer
If the accounting information is not clearly presented, then it will violate the 'Reliability and
Understandability' qualitative characteristics of accounting because if accounting information is not
clearly presented then it will not be reliable and also cannot be understood easily.
12. The role of accounting has changed over the period of time"- Do you agree? Explain.
Answer
The role of accounting has now shifted from that of a mere recording of business transactions to
that of providing information to managers and other various interested parties in order to help them
in making appropriate decisions. It now becomes an information system.
Answer
• Fixed Assets: Fixed Assets refers to those assets which are held for continued use in the business
for the purpose of producing goods and services and not meant for resale. Examples: Plant and
Machinery, Land and Building etc.
• Revenue: Revenues refer to the amount received from day to day activities of the business, likesale
proceeds of goods and rendering services to the customers. Example: Commission received,
dividend, royalty etc.
• Expenses: Expense is the cost incurred in producing and selling the goods and services. Example:
wages, depreciation, salaries etc.
• Short-term liability: Those liabilities which are to be paid in near future (normally within one year).
Example: Bank Overdraft, Bills payable etc.
• Capital: It refers to the amount invested by the proprietor in a business enterprise. It is the amount
with the help of which goods and assets are purchased in the business.
Answer
Revenues is the income of a regular nature such as receipts from sale of goods, rent, commission
etc.
Expense is the cost incurred in producing and selling the goods and services.
15. What is the primary reason for the business students and others to familiarise themselves with
the accounting discipline?
Answer
Every monetary transaction must be recorded in such a manner that various accounting users must
understand and interpret these results in the same manner without any ambiguity. The primary
reason to study accounting discipline because it helps in the learning:
• the various aspects of accounting.
• how to maintain books of accounts.
• how to summarise accounting information.
• how to interpret the accounting information with relative accuracy.
Long Answers
Answer
Accounting is the art of recording, classifying , and summarising in a significant manner and in terms
of money, transactions and events which are, in part at least, of financial character, and interpreting
the results thereof.
Objectives of Accounting are:
→ To keep systematic record of business transactions: The main objective of accounting is to keep
complete record of business transaction according to specified rules. It helps to avoid the possibility
of errors and fraud.
→ To calculate Profit and loss: Accounting helps in ascertaining the net profit or loss suffered on
account of business transaction during a particular period. For this purpose trading and profit and
loss account are prepared. It gives information regarding how much of goods have been purchased
and sold, expenses incurred and amount earned during a year.
→ To ascertain the financial position of the business: Ascertaining profit or loss is not sufficient for a
businessman. The businessman must also know the financial health of the business. This purpose is
served by preparing the balance sheet that facilitates in ascertaining the true financial position of
the business.
→ To ascertain the progress of business from year to year: Accounting helps in assessing the
progress of business from year to year, as accounting facilitates the comparison both inter-firm as
well as intra-firm.
→ Recording of financial transactions only: Only those transactions and events are recorded in
accounting which are of financial character. There are so many events which are important for
business but cannot be expressed in terms of money will not be recorded in accounting such as
strike by employees etc.
→ Recording in terms of money only: Each business transactions are recorded in terms of money
only. For example, if a business possess 300 chairs and 100 tables, then their monetary values is
recorded in the books, i.e. 300 chairs costing Rs 60,000, 100 tables costing Rs 50,000. Thus the total
value of assets is Rs 1,10,000.
→ Recording: Accounting is the art of recording business transactions according to some specified
rules. In a small business, all transaction are recorded in a book called 'Journal' but when the
transactions becomes large the journal is further subdivided into various subsidiary books.
→ Classifying: After recording the transaction is Journal and subsidiary books, the transactions are
classified and posted under their respective accounts. The books in which various accounts are
opened is called 'Ledger'.
→ Summarising: All business transactions are summarised in the form of Trial Balance, Trading
Account, Profit and Loss Account and Balance Sheet that provides necessary information to various
users.
→ Interpretation of the results: The results of the business are presented in form of graphs,
statements, charts so that interested parties such as proprietors, managers, creditors etc. can have
full information about the profitability and the financial position of the business.
Answer
• Investors and potential investors: information on the risks and return on investment;
• Unions and employee groups: information on the stability, profitability and distribution of wealth
within the business;
• Lenders and financial institutions: information on the creditworthiness of the company and its
ability to repay loans and pay interest;
• Suppliers and creditors-information on whether amounts owed will be repaid when due, and on
the continued existence of the business;
• Customers-information on the continued existence of the business and thus the probability of a
continued supply of products, parts and after sales service;
• Government and other regulators- information on the allocation of resources and the compliance
to regulations;
• Competitors: information on the relative strengths and weaknesses of their competition and for
comparative and benchmarking purposes.
4. What do you mean by an asset and what are different types of assets?
Answer
Any valuable thing that has monetary value, owned by a business is called an asset. Example:
Building, stock, furniture etc.
→ Fixed Assets- These are those assets that are held for the continued use in the business for the
purpose of producing goods and services. These assets are not meant for sale, For example, land,
building machinery, etc.
→ Current Assets- These are those assets which are meant for sale or which the management would
want to convert into cash within one year. For example, cash, debtors, stock, etc.
5. Explain the meaning of gain and profit. Distinguish between these two terms.
Answer
Profit is the excess of total revenues over total expenses of a business enterprise for an accounting
period whereas Gain is the monetary benefit, profit or advantage resulting from events or
transactions which are incidental to business such as sale of fixed assets.
Answer
→ Reliability: Accounting information must be reliable, so that business owners can be reasonably
assured that accounting information presents an accurate picture of the company. All accounting
information is verifiable and can be verified from the source document (voucher), via cash memos,
bills, etc. Hence, the available information should be free from any errors and unbiased.
→ Relevance: It means that essential and appropriate information should be easily and timely
available and any irrelevant information should be avoided. The users of accounting information
need relevant information for decision making, planning and predicting the future conditions.
→ Understandability: Accounting information should be presented in such a way that every user is
able to interpret the information without any difficulty in a meaningful and appropriate manner.
Answer
The role of accounting has been changing over the period of time. In the modern world, the role of
accounting is not only limited to record financial transactions but also to provide a basic framework
for various decision making, providing relevant information to various users and assists in both short
run and long run planning. The role of accounting in the modern world are given below.
→ Assisting management- Management uses accounting information for short term and long term
planning of business activities, to predict the future conditions, prepare budgets and various control
measures.
→ Comparative study- In the modern world, accounting information helps us to know the
performance of the business by comparing current year's profit with that of the previous years and
also with other firms in the same industry.
→ Substitute of memory- In the modern world, every business incurs large number of transactions
and it is beyond human capability to memorise each and every transaction. Hence, it is very
necessary to record transactions in the books of accounts.
→ Information to end user- Accounting plays an important role in recording, summarising and
providing relevant and reliable information to its users, in form of financial data that helps in
decision making.
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NCERT Solutions for Class 11th: Ch 2
Theory Base of Accounting Accountancy
0
Short Questions
1. Why is it necessary for accountants to assume that business entity will remain a going concern?
Answer
It is necessary for accountants to assume that business entity will remain a going concern because
→ It helps in recording fixed assets at their original cost and depreciation is charged on these assets
without reference to their market value. For example: if a machinery is purchased which would last
for next 5 years, the cost of this machinery will be spread over the next 5 years for calculating the
net profit or loss of each year. The full cost machinery would not be treated as an expense in the
year of its purchase itself.
→ It is also because of this concept that outside parties enter into long-term contracts with the
enterprise, give loans and purchase the debentures and shares of enterprise.
2. When should revenue be recognised? Are there exceptions to the general rule?
Answer
Revenue is recognised only when it is realised i.e., when a legal right to receive it arises. Thus credit
sales are treated as revenue on the day sales are made and not when cash is received from the
buyers. Similarly, rent for the month of March even if received in April month will be treated as
revenue of the financial year ending 31st March.
There are two exceptions to this rule:
→ In case of sales on installment basis, only the amount collected in installments is treated as
revenue.
→ In case of long-term construction contracts, proportionate amount of revenue, based on part of
the contracted completed by the end of the financial year is treated as realised.
Answer
Answer
According to the realisation concept, revenue is recognised when a legal right to receive it arises.
Therefore, when the goods are invoiced, it is treated as the transfer of ownership of goods from the
seller to the buyer and hence the revenue is recognised.
(i) If a firm believes that some of its debtors may ‘default’, it should act on this by making sure that
all possible losses are recorded in the books. This is an example of the ___________ concept.
► conservatism
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the
___________ concept.
► business entity concept
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the
___________ concept.
► dual aspect
(iv) The ___________ concept states that if straight line method of depreciation is used in one year,
then it should also be used in the next year.
► consistency
(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock
may be increased. Normal accounting procedure is to ignore this because of the ___________.
► conservatism
(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the
___________.
► revenue recognition
(vii) The management of a firm is remarkably incompetent, but the firms accountants can not take
this into account while preparing book of accounts because of ___________ concept.
► money measurement
Long Answers
1. ‘The accounting concepts and accounting standards are generally referred to as the essence of
financial accounting’. Comment.
Answer
Financial accounting is concerned with the preparation of the financial statements and provides
financial information to various accounting users. It is performed according to the basic accounting
concepts like Business Entity, Money Measurement, Consistency, Conservatism, etc. These concepts
allow various alternatives to treat the same transaction. For example, there are a number of
methods available for calculating stock and depreciation, which can be followed by various firms.
This leads to wrong interpretation of financial results by external users due to the problem of
inconsistency and incomparability of financial results among different business entities. In order to
mitigate inconsistency and incomparability and to bring uniformity in preparation of the financial
statements, accounting standards are being issued in India by the Institute of Chartered Accountant
of India. Accounting standards help in removing ambiguities and inconsistencies. Hence, accounting
standards and accounting concepts are referred as the essence of financial accounting.
2. Why is it important to adopt a consistent basis for the preparation of financial statements?
Explain.
Answer
It is important to adopt a consistent basis for the preparation of financial statements because it
helps in comparability of financial statements. For Example: if a firm choose straight line method for
showing depreciation but in the next accounting period switched over to written down method then
the results of this year cannot be compared to that of the previous years. However, it does not mean
that firm cannot changes its accounting policies. A better method, if available which will lead to
better presentation and better understanding of the financial results, the firm may adopt but it must
be stated clearly by way of footnotes to enable the users of the financial statements to be aware of
the changes.
3. Discuss the concept-based on the premise 'do not anticipate profits but provide for all losses'.
Answer
According to the Conservatism Principle, all anticipated loss should be recorded in books of
accounts, but all anticipated gains should be ignored until they are recognized. For example, stock is
valued at cost or market price, whichever is lower. If the market price is lower than the cost price,
loss should be accounted; whereas, if the former is more than the latter, then this profit should not
be recorded until unless the stock is sold. There are numerous provisions that are maintained based
on the conservatism principle like, provision for discount to debtors, provision for doubtful bad
debts, etc. This principle is based on the common sense and depicts pessimism. This also helps the
business to deal uncertainty and unforeseen conditions.
4. What is matching concept? Why should a business concern follow this concept? Discuss?
Answer
Matching Concept states that all expenses incurred during the year, whether paid or not, and all
revenues earned during the year, whether received or not, should be taken into account while
determining the profit of that year. For Example: When some expense such as insurance premium is
paid partly for the next year also, the part relating to next year will be shown as expense only next
year not this year.
This concept is very important for correct determination of net profit. It is possible that in the same
accounting period, the business may either pay or receive payments that may or may not belong to
the same accounting period. This leads to either overcasting or under-casting of the profit or loss,
which may not reveal the true efficiency of the business and its activities in the concerned
accounting period. Similarly, there may be various expenditures like, purchase of machinery,
buildings, etc. These expenditures are capital in nature and their benefits can be availed over a
period of time. In such cases, only the depreciation of such assets is treated as an expense and
should be taken into account for calculating profit or loss of the concerned year. Thus, it is very
necessary for any business entity to follow the matching concept.
5. What is the money measurement concept? Which one factor can make it difficult to compare the
monetary values of one year with the monetary values of another year?
Answer
Money Measurement Concept states that only those transactions and events are recorded in
accounting which are capable of being expressed in terms of money. An event even though may very
important for business, will not be recorded in the books of accounts unless its effect can be
measured in terms of money. For Example: a business have 5 machines then this thing cannot be
added up unless expressed in terms of money. In order to record this item, we must have to
expressed it in monetary terms say Rs. 1,00,000. Thus, money measurement concept enables
consistency in maintaining accounting records.
But on the other hand, the adherence to the money measurement concept makes it difficult to
compare the monetary values of one period with that of another. It is because of the fact that the
money measurement concept ignores the changes in the purchasing power of the money, i.e. only
the nominal value of money is concerned with and not the real value. What Rs 1 could buy 10 years
back cannot buy today; hence, the nominal value of money makes comparison difficult. In fact, the
real value of money would be a more appropriate measure as it considers the price level (inflation),
which depicts the changes in profits, expenses, incomes, assets and liabilities of the business.
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Recording Of Transaction - I
Recording of transaction- I is a process of accounting transactions of business in several
books of accounts like cash book, journal book, ledger account, profit & loss account, etc.
These entries are a source of documents which act as evidence for all the transactions taking
place in the company. The main reason for the recording of the transaction- I, is to ascertain
the financial status of an organization at the end of every financial year.
The recording of transaction – I, involve steps like recognizing the transaction to register and
prepare the source documents which are registered in the basic book called journal. It is then
reported in private accounts in the principal book called Ledger.
Important Questions for Class 11 Business Studies TS Grewal Accountancy Class 11 Solutions
(iv) Plan financial statement Balance Sheet and Profit & Loss account
Nominal Account- Credit all incomes and debit all losses & expenses
Personal Account- Credit the provider and debit the taker
Real Account- Credit what goes out and debit what comes in
Principal of Recording Transaction
The personal account trade with the credit or lending of money by a company
The account of assets and liabilities deals in the real account
The expense and the revenue of a company deals in the nominal account
The documents are the physical evidence for the transaction that took place
It gives all the necessary and key details like the time, date, amount and the nature of the
transaction
In the court of law, it can act as a proof
In the auditing process, the documents help in verifying the transaction
If the sale and purchase of a product are Rs. 1,000 on credit, it is supported by sale and
purchase invoice/bill copy
If the sale and purchase of a product are Rs. 5,000, it is supported by a cash memo
If the goods purchased is returned on credit Rs. 400, it is supported by a debit note
The above mentioned is the concept, that is elucidated in detail about ‘Recording Of
Transaction – I’ for the Commerce students. To know more, stay tuned to BYJU’S.
Recording Of Transaction - II
The Recording of Transaction-II is a method of accounting special journals, each intended for
reporting all the transactions of a related nature. Here, all the transactions are registered in
one book, all sales made on credit are registered on another book, all credit purchases are
registered in yet another book and so on and so forth. These special journals are also called as
subsidiary books or daybooks. Few transactions that are not recorded in the special journal
are recorded in the journal proper. This special journal of Recording of Transaction-II is
economical and helps in dividing the labor in accounting work.
Important Questions for Class 11 Business Studies TS Grewal Accountancy Class 11 Solutions
Prompt and Effective Recording – For a small business, the transactions are initially
recorded in the journal and then entered in the ledger account. However, for large
companies, the number of transactions are more and becomes unmanageable to report
each transaction. Therefore, for prompt, effective, and precise recording of a transaction,
the journal is divided into special journals.
Comparable Nature- In an organization there are many similar and repeated transactions. It
is easier and more helpful to record an identical transaction in one record book and helps in
segregating employees work. This can be done with the help of a special journal.
Economical- The subsidiary book is cost-effective as it saves time and enhances the
effectiveness of the workers.
Easy Posting- All the related transactions are entered in one book so, it makes it easy to
repost it in a ledger as it has already been segregated. Such as all sales made on credit are
recorded in credit sales book.
Comprehensive data in one book- All the similar data such as a purchase made on credit
sale, cash payment, cash receipts are clearly and promptly available in one book.
Cash Book– The book is managed to register the cash payment and cash receipt. The entire
transactions made to the bank and withdrawal from the bank is recorded in the book.
Sales Book- All the sale of services and goods made on credit by the company is recorded in
the book
Purchased Book- All the credit purchase of services and goods made by the company is
recorded in the book
Sales Return Book or Return Inward Book- All goods returned by the customers which have
sold to them previously on credit are recorded in the book
Purchase Return Book or Return Outward Book- All the goods returned to the vendors
which were earlier purchased on credit from them are recorded in the book
Journal Proper- In this book, all the transaction which cannot be recorded in any books are
filed in this book.
The above mentioned is the concept, that is elucidated in detail about ‘Recording Of
Transaction – II’ for the Commerce students. To know more, stay tuned to BYJU’S.
Generally while making a comparison between the company’s cash book and bank balance,
the balance does not tally. Therefore, it is important to determine the cause for the difference
and display them in the bank reconciliation statement and then tally the two balances. The
bank reconciliation statement helps in explaining the differences in the amount between the
company’s cash book and bank balance.
The cash book and the bank passbook differences are caused by
The difference in timing recording the transactions- The difference in timing can be caused
by many factors. Few factors are
o Bank issued cheque but not yet deposited for payment
o Paid cheque in the bank but yet not cleared
o Bank made direct debit from the customer’s side
o Cheque/ amount deposited directly to the bank account
o Dividends and Interest collected by the bank
o Bank made direct payment from the customer’s side
o Cheques deposited/bills discounted dishonored
Errors made by the company or by the bank.- In a few occasions, the error in two balances
can be made from the bank side or in the company’s cash book. Few errors can be.
o Errors made while registering the transaction by the company
o Errors made while registering the transaction by the bank
Documenting of bank reconciliation statement without adjusting the cash book balance.
Filing of bank reconciliation statement after adjusting the cash book balance.
The above mentioned is the concept, that is elucidated in detail about ‘Bank Reconciliation
Statement’ for the Commerce students. To know more, stay tuned to BYJU’S.
In other words, a trial balance is a worksheet record book that reflects the debit and credit
balance of all the registered accounts. This worksheet statement is used to prepare the final
account report of the company. Trial balance also determines the accuracy of the account.
However, it doesn’t ensure that the account is error-free but surely gives mathematical
precision.
1. To determine the financial efficiency of the ledger accounts- The trial balance helps to
keep a record all the credit and debit transactions properly in the ledger and to check if the
accounts have been balanced correctly. If both the balance is correct then it is assumed that
the record of the trial balance is correct.
2. To help in rectification of errors- Whenever the trial balance does not tally management
should know that there is at least one error in the accounting process. Few errors that occur
are.
1. Total Method- In this method, the total balance of the credit and debit is determined in an
individual column and displayed in the trial balance. Both the columns total should be equal
as it is based on the double entry system.
2. Balances Method- This method is used widely and is prepared by determining the balance
of all the ledger account and then summing up the debit and credit total of the trial balance to
ensure accuracy.
3. Total-cum-balance Method- This method is the amalgamation of both the total and
balance method. In this method, four columns for the amount is made. Two for writing credit
and debit totals and the other two for credit and debit balance of the account.
Capital – –
Equipment – –
Cash in Hand – –
Cash at Bank – –
Debtors – –
Receivable Bills –
Purchases –
Inwards Carriage –
Outwards Carriage –
Sales –
Sales Return –
Purchases Return –
Interest Paid
Salaries
Bills Payable
Creditors
Drawings
Total —- —-
The above mentioned is the concept, that is elucidated in detail about ‘Trial Balance and
Rectification Of Errors’ for the Commerce students. To know more, stay tuned to BYJU’S.
Trial Balance and Rectification Of Errors
Trial Balance is a statement which accounts all the balances of the Personal account, Real
account, and Nominal account regardless of either Revenue or Capital A/c. It comprises of 2
columns viz., debit and credit. If the transactions are documented systematically by providing
dual sided effect and later posted methodically, then the sum total of both the columns would
be similar.
In other words, a trial balance is a worksheet record book that reflects the debit and credit
balance of all the registered accounts. This worksheet statement is used to prepare the final
account report of the company. Trial balance also determines the accuracy of the account.
However, it doesn’t ensure that the account is error-free but surely gives mathematical
precision.
1. To determine the financial efficiency of the ledger accounts- The trial balance helps to
keep a record all the credit and debit transactions properly in the ledger and to check if the
accounts have been balanced correctly. If both the balance is correct then it is assumed that
the record of the trial balance is correct.
2. To help in rectification of errors- Whenever the trial balance does not tally management
should know that there is at least one error in the accounting process. Few errors that occur
are.
1. Total Method- In this method, the total balance of the credit and debit is determined in an
individual column and displayed in the trial balance. Both the columns total should be equal
as it is based on the double entry system.
2. Balances Method- This method is used widely and is prepared by determining the balance
of all the ledger account and then summing up the debit and credit total of the trial balance to
ensure accuracy.
3. Total-cum-balance Method- This method is the amalgamation of both the total and
balance method. In this method, four columns for the amount is made. Two for writing credit
and debit totals and the other two for credit and debit balance of the account.
Capital
Creditors
Drawings
Total —- —-
The above mentioned is the concept, that is elucidated in detail about ‘Trial Balance and
Rectification Of Errors’ for the Commerce students. To know more, stay tuned to BYJU’S.
Accounting Process
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Process
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Accounting process starts with transactions that are recorded in waste book.
Then from there the transactions are recorded in the Journal, which is classified on the basis
of similarity of transactions usually called subsidiary journals like; Purchases Day Book, Sales
Day Book, Purchases Returns Book, Sales Returns Book, Bills Receivable Book, Bills Payable
Book, Cash Book further taking the forms of simple cash book, double column cash book,
triple column cash book, petty cash book, multi column cash book, etc. and Journal proper.
The next stage is, when entries passed in journal are further posted in Ledger. Ledger is set of
accounts: real, personal as well as nominal accounts.
After posting all the journal entries to ledger, ledger accounts are balanced and from all the
balances a summary statement known as Trial Balance is prepared to check the arithmetical
accuracy of records.
Trial Balance is used to prepare the Final Accounts. From Trial Balance all the nominal
accounts are taken to prepare Manufacturing account, Trading account and Profit and Loss
account respectively as the case may be, and all the real and personal accounts are taken to
prepare the Balance sheet.
Closing Balance Sheet of one accounting year becomes the Opening Balance Sheet of the next
Accounting year. Then, next year transactions enter the accounting process and this cycle
continues, making it Accounting Cycle.
Final accounts i.e. Trading Account, Profit and Loss Account and Balance Sheet are further
analyzed with the help of accounting tools and techniques and then conclusions are drawn and
then communicated to the interested parties for decision making.
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The theory base of accounting includes principles, concepts, rules and guidelines developed
which are necessary to make the accounting information meaningful and reliable so that users
can make decisions.
The Institute of Chartered Accountants of India, (ICAI), which is the regulatory body for
standardization of accounting policies in India, has issued Accounting Standards which are
expected to be uniformly adhered to, in order to bring consistency in the accounting practices.
These are:
Generally Accepted Accounting Principles refer to the rules or guidelines adopted for recording
and reporting of business transactions in order to bring uniformity in the preparation and
presentation of financial statements.
The basic accounting concepts are referred to as the fundamental ideas or basic assumptions
underlying the theory and practice of financial accounting and are broad working rules of
accounting activities.
This concept assumes that business has distinct and separate entity from its owners. For the
purpose of accounting, business and its owners are to be treated as two separate entities.
Business assets and personal assets of the proprietor and business liabilities and personal
liabilities of the proprietor are to be kept separate. Only business transactions should be
recorded in accounting books.
The concept of money measurement states that only those transactions and happenings in an
organisation, which can be expressed in terms of money are to be recorded in the book of
accounts.
Also, the records of the transactions are to be kept not in the physical units but in the monetary
units. Any transaction not expressed in terms of money should not be recorded e.g. Goods
purchased can be recorded but loyalty of workers towards the business cannot be recorded.
The concept of going concern assumes that a business firm would continue to carry out its
operations indefinitely (for a fairly long period of time) and would not come to an end in the
near future.
So, difference must be made in fixed assets and current assets and capital items and revenue
items.
Accounting period refers to the period of time at the end of which the financial statements of
an enterprise are prepared to know the amount of profits or losses during that period and to
know its financial position i.e. position of its assets and liabilities, at the end of that period.
These financial statements are prepared in the form of Income statement and Position statement
i.e. Statement of Profit and Loss and Balance Sheet.
Generally a period of twelve months is considered an accounting period which may be calendar
year or Government’s financial year commencing with first day of April and ending with the
last day of March next or any other such period.
Cost Concept
The cost concept requires that all assets are recorded in the books of accounts at their cost price,
which includes cost of acquisition, transportation, installation and making the asset ready for
the use e.g.an asset purchased for₹ 30,000 on which carriage ₹ 500 has been paid should be
recorded at ₹ 30,500.
Dual aspect or Duality concept states that every transaction has a dual or twofold effect on
various accounts and should therefore be recorded at two places e.g. when goods are purchased
for cash ,goods are increasing stock and cash is decreasing ,both of which must be recorded
and should be same in books.
Revenue Recognition
Revenue is the gross receipts of cash arising from the sale of goods and services by an
enterprise and interest, royalties and dividends etc.
According to this concept of revenue recognition, the revenue for a business transaction should
be considered realized when legal right to receive it arises e.g. When goods are sold ,revenue
should be recorded though the cash is received after a few days or a bill of exchange is received
that will mature after two months.
Matching concept
Excess of Revenues over Expenses represent Profit and vice-versa. It follows from this that the
revenue and expenses incurred to earn this revenue must belong to the same accounting period.
This concept requires that all material and relevant facts concerning financial performance of
an enterprise that can affect the decision making by the users of accounting information must
be fully and completely disclosed in the financial statements.
Consistency concept
This concept states that accounting policies and practices followed by enterprises should be
uniform and consistent over the period of time so that results are comparable.
Results are comparable when the same accounting principles are consistently being applied by
different enterprises for the period under comparison, or the same firm for a number of periods.
If however there is a change in the methods or policies, it must be mentioned.
Conservatism concept
This concept requires the business to play safe. It means that business transactions should be
recorded in such a manner that profits are not overstated.
All anticipated losses should be accounted for but all unrealized gains should be ignored. It
means that profits are to be recorded only when actually become due, but provisions for any
possible losses must be made.
Materiality concept
This concept states that accounting should focus on material facts means important from effect
on decision making point of view.
If the item is likely to influence the decision of a reasonably prudent investor or creditor, it
should be regarded as material, and shown in the financial statements i.e. Income Statement as
well as Balance Sheet.
Objectivity concept
According to this concept, accounting transactions should be recorded in the manner so that it
is free from the bias of accountants and others. It should not be affected by the prejudices of
the persons using this information.
Systems of Accounting
There are two systems of recording business transactions, double entry system and single entry
system. Under double entry system every transaction has two-fold effects where as single entry
system is known as incomplete records.
Basis of Accounting
The two broad approach of accounting are cash basis and accrual basis. Under Cash basis
transactions are recorded only when cash are received or paid. Whereas under Accrual basis,
revenues or costs are recognized when they occur rather than when they are paid.
Accounting Standards
Accounting standards are written statements of uniform accounting rules and guidelines in
practice for preparing the uniform and consistent financial statements. These standards cannot
over ride the provisions of applicable laws, customs, usages and business environment in the
country.
AS 2 Valuation of Inventories
AS 6 Depreciation Accounting
AS 7 Construction Contracts
AS 9 Revenue Recognition
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 19 Leases
AS 24 Discontinuing Operations
AS 26 Intangible Assets
AS 28 Impairment of Assets
This category gives the knowledge of the rules of Double Entry Book Keeping and the
method of recording transactions in various types of journals.
12 02, 2016
Double Entry system of Book-keeping requires record of both the aspects of a transaction into
accounting books, one Dr. and the other Cr.
9 02, 2016
Balance Sheet Equation also known as Accounting Equation is the basis of Double Entry System of
Book-Keeping. As per this equation, the total amount of Assets should be equal to the total amount
of Liabilities along with Capital.
9 02, 2016
A student can use any method for rules of Double entry, Basic Book Keeping method or Balance
Sheet Equation method. Here are some simple transactions for practice.
9 02, 2016
Vouchers in Accounting
When there is no documentary for any items, voucher may be prepared showing the necessary
details and got approved by appropriate authority within the firm.
9 02, 2016
Journal
Journal is the book of original entry in which the transactions are entered for the first time from the
source documents, in the form of journal entries, after which the entries are transferred to the
ledger, the principal book of entry.
9 02, 2016
Subsidiary Journals
The journal is subdivided into a number of books of original entry, on the basis of similarity of
transactions and for the purpose of efficiency in the recording work, popularly known as special
journals........
9 02, 2016
Cash Book
Cash book is a book generally made on monthly basis, in which all cash transactions i.e. cash receipts
and cash payments are recorded and discloses cash and bank balance at the end of the period.
9 02, 2016
Here is the summary of basic cash transactions ,to be entered in Cash book, for a ready reference
and revision.
9 02, 2016
Petty cash book is used to record small receipts and payments, separately from regular cash book, to
avoid making the work of cash book simple and less cumbersome. Petty cashier is appointed in
addition to the head cashier.
9 02, 2016
Journal Proper
The transactions which cannot be recorded in any of the above mentioned subsidiary journals, is to
be recorded in Journal Proper also called Journal Residual.
12Next
All Categories
This category includes all the posts relating to preparation of Ledger,Trial Balance and Bank
Reconciliation Statement.
10 02, 2016
Ledger
In case the debit side total is more than the credit side total, the difference is written on the credit
side and is called debit balance and, if the credit side total is more than the debit side total, it is put
to debit side.
10 02, 2016
Trial Balance
Trial Balance is the summary statement containing the Ledger Balances , where the total of Debit
and Credit balances should always be the same.
10 02, 2016
Bank Reconciliation Statement is a statement that shows the reasons of difference between the
bank balance shown by the Cash Book and the bank balance shown by the Pass Book .....
10 02, 2016
Calculate the difference of both the sides and put that amount on the side having short total. Give
the name of that side having short total to the bank balance as per the other book ....
This category includes the posts relating to the theory portion on Reserves and Provisions and
deals with the Important methods of charging depreciation
Rectification of Errors
Home/Accountancy/Accountancy - Class 11th/Rectification of Errors
This category explains the types of Accounting Errors and their method of rectification.
10 02, 2016
Types Of Accounting Errors
These are mistakes due to omission of entries in the subsidiary journals, omission of posting,
omission of carry forward etc. The omission can be complete or partial affecting single side or both
the sides of the Trial Balance.
10 02, 2016
(a) Credit sales to Dinesh ₹ 5,000 were posted to Karan as ₹ 500.`(b) Credit purchases from Amar ₹
9,000 were posted to the debit of Aman as ₹ 900.
10 02, 2016
Errors can be Errors of Principle , Clerical errors or Compensating Errors. Clerical errors can be errors
of Omission or Commission.
10 02, 2016
Rectification Of Errors
When all the single sided errors are removed using suspense account the balance of suspense
account becomes nil. If, after removing the error there still remains some.....
10 02, 2016
In case of rectification of single sided error, an indication of mistake is to be given in particulars like
In case of no.7 error above, instead of ‘To undercasting of Purchases book’,It could be written as
‘Mistake in total of Purchases book’.
10 02, 2016
In the sales book total of page no. 6 was carried forward to page 7 as ₹ 1,000 instead of ₹ 1,200 and
total of page 8 was c/f to page 9 as ₹ 5,600 instead of ₹ 5,000.
10 02, 2016
Cheque for ₹ 5,800 received from Arzoo in full settlement of her account of ₹ 6,000, was
dishonoured. No entry was passed in the books on dishonour of the cheque.
10 02, 2016
This category includes the posts relating to Trading and Profit and Loss Account as well as
Balance Sheet of a sole trader or in case of one man business.
10 02, 2016
The basic objective of accounting is to know about the profit or loss during the previous year &
present financial position at the end of the accounting year.........
10 02, 2016
These are the formats for preparing Financial Statements for sole proprietor. The format however is
not prescribed in definite form.
10 02, 2016
Any information given outside the Trial Balance is called adjustment or additional information. It is
important to note that every item appearing outside the trial balance should be treated at two
places.
10 02, 2016
Any information given outside the Trial Balance is called adjustment or additional information. It is
important to note that every item appearing outside the trial balance should be treated at two
places.
10 02, 2016
Financial Statements Adjustments Part-3
All the adjustments given outside the Trial Balance should be treated at two places.
10 02, 2016
Every item appearing outside the Trial Balance should be treated at two places.
10 02, 2016
Sometimes the goods are purchased but in transit, such goods should be considered as Goods-in-
transit and added to creditors in the balance sheet also.
All Categories
This category includes the posts on Accounts relating to Not-for-profit organisation like
Receipts and Payments account,Income and expenditure Account and preparing Balance
Sheet.
20 05, 2018
are formed for the purpose of promoting commerce, art, science, religion, charity or any other
useful object.
intend to spend their income in promoting their objectives, and
prohibit […]
Important Questions for Class 11 Business Studies TS Grewal Accountancy Class 11 Solutions
Fundamentals of Accounting
Assets- The economic value of an item which is possessed by the enterprise is referred to as
Assets. To put it in other words, assets are those items that can be transformed into cash or
that generates income for the enterprise shortly. It is useful in paying any expenses of the
business entity or debt.
Liabilities- The economic value of an obligation or debt that is payable by the enterprise to
other establishment or individual is referred to liability. To put it in other words, liabilities
are the obligations that are rising out of previous transactions, which is payable by the
enterprise, through the assets possessed by the enterprise.
Owner’s Equity- Owner’s equity is one of the 3 vital segments of a sole proprietorship’s
balance sheet and one of the main aspects of the accounting equation: Assets = Liabilities +
Owner’s Equity. It depicts the owner’s investment in the trade minus the owner’s
withdrawal from the trade + the net income since the business concern commenced.
Objectives of Accounting
Maintaining Records- Unlike the human brain which cannot store unlimited information,
accounting can take the charge and keep the records of all the monetary transactions with a
company.
Profit & Loss- In business, the profit and loss statement defines whether the company is in
profit and loss. Here, expenditure and income determine profit and loss.
The utility of Resources- Resources is an important and significant part of any business and
for an organization to operate smoothly. It reports the company about the various projects
along with its timing. Therefore, it becomes secure for the management to take record of
the project before putting in the money.
The above mentioned is the concept, that is elucidated in detail about ‘Introduction to Acco