TS Inter 1st Year Accountancy Study Material Chapter 1 Book Keeping and Accounting

Telangana TSBIE TS Inter 1st Year Accountancy Study Material 1st Lesson Book Keeping and Accounting Textbook Questions and Answers.

TS Inter 1st Year Accountancy Study Materia 1st Lesson Book Keeping and Accounting

Short Answer Questions:

Question 1.
State any 5 advantages of accounting.
Answer:
Advantages of Accounting : The following are the main advantages of Accounting :

1. Net Result of Business Operations:
Accounting provides the operational result (Profit and Loss) of business for a given period of time.

2. Ascertainment of Financial Position :
The proprietor requires a full picture of his financial position to plan for the next year’s business. Balance sheet provides the financial status of the business.

3. Facilitates Comparative Study:
Accounting provides the facility of comparative study of the various aspects of the business with that of previous year and helps the business man to take necessary decisions.

4. Control over Assets :
In the course of business, the proprietor acquires various assets like building, machinery, furniture etc., which are well protected by generating records.

5. Helps Management :
Accounting helps management on important issues like ascertainment of cost and price fixation of goods and services.

6. Evidence :
Accounting records act as an approved evidence in legal matters.

Question 2.
Give limitations of accounting.
Answer:
Limitations of Accounting : The following are the limitations of Accounting :

1. Records only monetary transactions :
Accounting considers monetary transactions only, non-monetary transactions like skills of human resources, quality, organization culture, units of production sales etc., are ignored in accounting.

2. Historical in nature :
Accounting considers only historical transactions, i.e., transactions which have occurred in the past only recorded in accounting books. Transactions relating to future estimations or forecasts are not considered in accounting.

3. Price level changes are not considered :
Accounting does not consider price level changes which may occur from time to time, thus, it doesn’t reflect the current position.

4. Does not provide realistic information :
Accounting may not provide realistic information which in turn affects the overall results of the business concern.

Question 3.
State any 5 basic differences between Book-keeping and Accounting.
Answer:
The following are the differences between Book-keeping and Accounting.

Basis of difference	Book – Keeping	Accounting
1. Scope	It is concerned with recording business transactions only.	It is concerned with not only recording of transactions but also classifying, analysing interpreting the results of the business.
2. Objective	The objective is to maintain systematic records of the business.	The objective is to ascertain the profitability and financial position of the business.
3. Nature	This is routine and clerical in nature.	It is analytical and executive in nature.
4. Responsibility	A book-keep is responsible for recording business transactions only.	An accountant is responsible for preparation of final accounts and revealing the net results of the business.
5. Staff Involved	Book-keeping is done by junior level staff in accounting department.	Senior staff or an accountant performs the accounting work.
6. Supervision	A book-keeper does not supervise the work of an accountant.	An accountant can check and supervise the work of the book¬keeper.

Question 4.
Explain the steps involved in Accounting process.
Answer: Accounting process involves the following steps :
1. Identifying :
Identifying the business transaction from the source document.

2. Recording :
The next step of accounting process is to keep a systematic record of all business transactions, in orderly manner, soon after their occurence in the journal or subsidary books.

3. Classifying :
This is concerned with the classification of the recorded business transactions so as to group the similar transactions at one place i.e., in ledger by extracting the balance or total of accounts.

4. Summarising:
It is the process of finding the total of balances of all accounts so as to prepare trial balance.

5. Reporting :
The information from the trial balance is used to prepare profit and loss account and a balance sheet in a manner useful to uses of accounting information.

6. Analysing:
It establishes the relationship between the items of profit and loss account and balance sheet. The purpose of analysing is to identify the financial strength and weakness of. the business enterprise.

7. Interpreting :
It is concerned with explaining the meaning and significance of the relationship so established by the analysis. Interpretation should be useful to the users, so as enable them to take correct decisions.

Question 5.
State the objectives of accounting.
Answer:
The main objectives of accounting are :

1. To maintain accounting records.
2. To find out the result of operations.
3. To ascertain the financial position.
4. To communicate the information to users.

Question 6.
State the general features of IFRS.
Answer: IFRS :
1. International Financial Reporting Standards (IFRS) are the standards issued by IFRS Foundation and the International Accounting Standards Board (IASB).
2. It provides a common / uniform global language for business affairs, so that the company accounts are understood and compared across international boundaries.
3. IFRS Standards have been steadily replacing the accounting standards of many countries. At present 160 countries are implementing IFRS.
4. The General Features of IFRS include :

1. Fair presentation and compliance with IFRS.
2. Going concern.
3. Accrual basis of accounting.
4. Materiality and aggregation.
5. Off-setting allowed only under specific conditions.
6. Frequency of reporting.
7. Compare the information.
8. Consistancy of presentation.

Question 7.
Briefly explain any 5 concepts of accounting. –
Answer:
The term concept means an idea or thought. Basic Accounting concepts are the fundamental ideas or basic assumptions underlying the theory and practice of financial accounting. These concepts are termed as Generally Accepted Accounting Principles.

1. Business Entity Concept :
Business is treated separate from the proprietor. All the transactions are recorded in the books of business but not in the books of proprietor. The proprietor is also treated as creditor of the business. When he contributes capital he is treated as a person who has invested his amount in the business. Therefore, capital appears on the liabilities side of the balance sheet of the business.

2. Going Concern Concept:
The concept relates with the long life of the business. The assumption is that business will continue to exist for unlimited period unless it is dissolved due to some reason or other. When the final accounts are prepared, recording is made for outstanding expenses and prepaid expenses because of the assumption that business will continue.

3. Cost Concept:
According to this concept, an asset is recorded at cost i.e., the price which is paid at the time of acquiring it, in the books of account. In Balance Sheet, these assets appear not at cost price every year but depreciation is deducted and they appear at the amount which is cost less depreciation. Under this concept, all such events are ignored which affect the business but no cost. Ex. Death of a director.

4. Accounting Period Concept :
Every business man wants to know the result of his investment and efforts after a certain period. Usually one year period is regarded as ideal for this purpose. It may be 6 months or 2 years also. This period is called accounting period.

It depends upon the nature of business and object of the proprietor of business. From taxation point of view one year period is necessary as income tax is payable every year.

5. Duel Aspect Concept:
Under this concept, every transaction has got a two fold aspect,
i) Receiving the benefit and ii) Giving of that benefit. For instance, when a firm acquires an asset, (receiving the benefit) it must pay cash (giving of that benefit).

Therefore, two accounts are to be passed in the books of accounts, one for receiving the benefit and other for giving the benefit. Thus, there will be a double entry for every transaction – debit for receiving the benefit and credit for giving the benefit.

Question 8.
Briefly explain accounting conventions.
Answer:
Accounting conventions are customs or traditions guiding the preparation of accounts. They are adopted to make financial statements clear and meaningful.

The following are the four accounting conventions :
1. Convention of disclosure:
Accounting statements should disclosefully and completely all the significant information, based on which decisions are taken by various interest parties. It involves proper classification and explanation of accounting information which are published in financial statements.

2. Convention of materiality :
According to this conventions only those events should be recorded which have a significant bearing and insignificant things should be ignored. The avoidence of insignificant. Things will not materially affect the records of the business.

3. Convention of consistency :
The convention of consistency facilitates comparison of performance of a business unit from one accounting period to another is possible when the accounting principles followed by the firm are consistently applied over the years. Ex.: An organisation should not change the method of depreciation or valuation of stocks every year.

4. Convention of conservatism:
According to this convention, the principle of anticipate no profit but provide for all possible losses” should be applied. The principle of conservatism requires that in the situation of uncertainly of doubt, the business – transactions should be recorded in such a manner that the profits and assets are not overstated and the losses and liabilities are not understated.

Question 9.
Write a brief note on accounting standards.
Answer:

1. To promote world-wide uniformity in published accounts, the International Accounting Standards Committee (IASQ has been set up in June 1973 with nine nations as founder members. The purpose of this committee is to formulate and publish in public interest, standards to be observed in the presentation of audited financial statements and to promote their world-wide acceptance and observance.
2. In our country, the Institute of Chartered Accountants of India (ICAI) has constituted Accounting Standard Board (ASB) in 1977. The ASB has been empowered to formulate and issue accounting standards that should be followed by all business concerns in India.
3. Accounting Standard is a principle that guides and standardizes accounting practices. Accounting standards ensures uniformity in presentation of financial statements and facilitates interfirm comparison within the industry. They also ensure creditability and reliability of financial statements.,
4. At present there are 35 Indian. Accounting Standards (IAS) and are mandatory and to be complied with from the date from which they come into force in presenting audited financial statements.

Very Short Answer Questions:

Question 1.
What is transaction ?
Answer:
Transactions :

1. Transactions are those activities of a business, which involve transfer of money or goods or services between two persons or two accounts.
2. For example, purchase of goods, sale of goods, borrowing from bank etc.
3. Transactions are of two types namely cash and credit transactions. Every transaction brings about change in the financial position of business.

Question 2.
What is Book-keeping ?
Answer:

1. Book-keeping is the art of recording business transactions in regular and systematic manner.
2. According to Carter “Book-keeping is the science and art of correctly recording the books of accounts all those business transactions that result in transfer of money or money’s worth.

Question 3.
Define Accounting.
Answer:

1. Accounting is called as the “Language of Business”.
2. The American Institute of Public Accountants defined accounting as “the art of recording, classifying and summerising in significant manner and interms of money transactions and events which are in part, atleast of financial character and interpreting the results thereof.

Question 4.
What is Accounting cycle ?
Answer:

1. An accounting cycle is a complete sequence of accounting process that begins with the recording of business transactions and ends with the preparation of final accounts.
2. These include journal, ledger, trial balance and financial statements such as trading account, profit and loss account and balance sheet.

Question 5.
What is an Accounting Standard ?
Answer:

1. Accounting Standard is a principle that guides and standardises accounting practices.
2. Accounting Standards are necessary so that the financial statements are meaningful across wide variety of businesses, otherwise, the accounting rules of different companies would make comparison almost impossible.
3. At present there are 35 Indian Accounting Standards.

Question 6.
What is IFRS ?
Answer:

1. nternational Financial Reporting Standards (IFRS) are the standards issued by IFRS Foundation and the International Accounting Standards Board (IASB).
2. It provides a common / uniform global language for business affairs, so that the company accounts are understood and compared across international boundaries.
3. IFRS Standards have been steadily replacing the accounting standards of many countries. At present 160 countries are implementing of IFRS.

Question 7.
What is GAAP ?
Answer:

1. Generally accepted Accounting Principles (GAAP) defined as those rules of action / conduct which are derived from experience and practice.
2. Generally Accepted Accounting Principle (GAAP) should be Relevance, . Reliable and should ensure feasibility.

Question 8.
What is an accounting concept ?
Answer:

1. Accounting Concepts are the necessary assumptions, conditions or postulates upon which the accounting is based.
2. They are developed to facilitate communication of the accounting and financial information to all the users of the financial statements.
3. Some of the Accounting Concepts are: Business, entity concept, dual aspect concept, going concern concept, money measurement concept etc.

Question 9.
What is an accounting convention ?
Answer:
1. Accounting conventions are the customs or traditions guiding the preparation of accounts.
2. They are adopted to make financial statements clear and meaningful.
3. Following are the four accounting conventions :

1. Convention of Disclosure.
2. Convention of Materiality.
3. Convention of Consistency; and
4. Convention of Conservatism.

Question 10.
Explain convention of conservatism.
Answer:

1. According to this convention, the principle of anticipate no profit but provide for all possible losses should be applied.
2. The principle of conservatism requires that in the situation of uncertainity of doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and the losses and liabilities are not understated.

Question 11.
Explain convention of consistency.
Answer:

1. The convention of consistency facilitates comparison of performance of a business firm from one accounting period to another is possible when the accounting principles followed by the firm are consistently applied over the years.
2. Ex: An organisation should not change the method of depreciation or valuation of stocks every year.

Question 12.
What is Matching concept ?
Answer:

1. Matching the revenues earned during an accounting period with the cost associated with the period to ascertain the result of the business concern is called the Matching concept.
2. According to this concept, incomes are to be identified with their corresponding expenses or vice versa in a given period of time.

Question 13.
Explain business entity concept of accounting.
Answer:

1. Business is treated separate from the’proprietor. All the transactions are recorded in the books of business but not in the books of proprietor.
2. The proprietor is also treated as creditor of the business. When he contributes capital he is treated as a person who has invested his amount in the business. Therefore, capital appears on the liabilities side of the balance sheet of the business.

Question 14.
Explain money measurement concept
Answer:

1. Only those transactions are recorded in accounting which can be expressed interms of money. The transactions which cannot be expressed in money is beyond the scope of accounting.
2. Receipt of income, payment of expenses, purchase of assets etc., are monetary transactions that are recorded in the books of account. Where as in the event of breakdown of machinery is not recorded because it has no monetary value.

Additional Questions:

Question 1.
What is Double entry system and explain its features.
Answer:
Every business transaction involves a transfer and as such consists of two aspects.

1. The receiving aspect
2. The giving aspect. It is necessary to note that these aspects go together, because receiving necessarily implies giving and vice-versa. The record of any business transaction will be complete only when both these aspects are recorded. The recording of the two aspects of each transaction is known as “Double entry system of book-keeping”.

Features :

1. Every transaction has two aspects i.e., receiving the benefit and giving the benefit.
2. Every transaction affects two accounts.
3. Double entry system is based upon the principles and concepts of accounting.
4. It helps in the preparation of trial balance which is a test arithmetical accuracy in accounts.
5. If facilitates the preparation of final accounts with the help of trial balance.

Question 2.
Explain the advantages of Double entry system.
Answer:
The following are the advantages of Double entry system of book-keeping.

1. The system maintains a complete record of all the business transactions, as it records both the aspects of the transaction.
2. It provides a check on the arithmatical accuracy of accounts with the help of trial balance.
3. Errors and frauds can be detected under this system. So, it reduces the chance of committing errors and frauds.
4. It reveals the results of the operations i.e., Profit or loss, by preparing and loss a/c.
5. The financial position of the business can be ascertained through the preparation of the balance sheet.
6. It is a scientific system and permits the accounts to be kept in a detailed form and provides sufficient information for the purpose of control.
7. The results of one year can be compared with the results of the previous year and reasons for the changes are known.
8. It provides accounting information readily to the management for making decisions.

Question 3.
Explain Double entry system.
Answer:

1. The procedure of recording both the receiving and giving aspects of the transaction is called Double entry system of book-keeping.
2. The fundamental rule in double entry is that for every debit there must be a corresponding value of credit.