CBSE Class 11 Accountancy Introduction To Accounting Assignment Set 01

Very Short Answer Type Questions:

Question Q1. "Accounting records transactions and events that can be measured in money terms". Is this in your opinion, a limitation of accounting or an advantage? Support your views with reasons.
Answer: This is a limitation of accounting. Accounting only records financial transactions and quantitative data that can be expressed in monetary units (such as rupees or dollars). It completely ignores qualitative events and factors, no matter how important they are to the business. For example, events like the strike of workers, the reputation or brand value of the firm, the efficiency of the management team, or a health hazard in the workplace cannot be measured directly in money and are therefore left out of the books of accounts.
In simple words: Accounting cannot record non-monetary things like honesty, skill, or management quality, which is considered a drawback.

Exam Tip: Mention the key term "qualitative vs. quantitative" to score full marks in this conceptual question.

Question Q2. Resignation by a Marketing Manager is not recorded in the books of Accounts. Why?
Answer: The resignation of a Marketing Manager is not recorded in the books of accounts because it cannot be measured reliably in monetary terms. Although it is a very significant event that impacts the business operations and future profitability of the firm, accounting follows the Money Measurement Principle, which restricts recording only to transactions and events that can be expressed in terms of money.
In simple words: Even though losing a manager is bad for business, it has no direct price tag, so it cannot be written in the accounting books.

Exam Tip: Quote the "Money Measurement Principle" as the primary reason for excluding such managerial events.

Question Q3. Whichtype of accounting information reveals profit earned or loss incurred?
Answer: Information regarding the profit earned or loss incurred by a business enterprise is revealed by Financial Accounting, specifically through the preparation of the Income Statement, which comprises the Manufacturing Account, Trading Account, and Profit and Loss Account for a given accounting period.
In simple words: The Profit and Loss Account shows whether the business made a net profit or a net loss.

Exam Tip: Specify both "Financial Accounting" and the "Profit and Loss Account" for complete clarity.

Question Q4. Under the 'Double Entry System' every transaction has two aspects-debit and credit of equal amounts. It is because of this reason that the Trial Balance should always agree. Are you in agreement with this statement? Give your reasoning.
Answer: No, we are not in complete agreement with this statement. While it is true that under the Double Entry System every transaction has a dual aspect with equal debit and credit amounts, the agreement of a Trial Balance only proves the arithmetical accuracy of the ledger accounts. A Trial Balance may still agree even if certain types of errors exist in the books, such as errors of omission, errors of principle, compensating errors, and complete omission of recording a transaction.
In simple words: Agreement of a Trial Balance only means math is correct, but hidden mistakes can still be present.

Exam Tip: List at least two errors that do not affect the agreement of the Trial Balance (e.g., Error of Principle, Compensating Error).

Question Q5. Define Accounting.
Answer: According to the American Institute of Certified Public Accountants (AICPA), accounting is defined as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof." It is a systematic process of identifying financial information, measuring it, recording it, and communicating it to interested users.
In simple words: Accounting is the method of keeping track of business money, sorting it, and finding out if the business is successful.

Exam Tip: Mention the three core pillars of the AICPA definition: recording, classifying, and summarizing.

Question Q6. Define Book keeping.
Answer: Bookkeeping is a part of accounting that is primarily concerned with the systematic recording of financial transactions of a business enterprise in the books of accounts. It includes identifying financial transactions, measuring them in money terms, recording them in original books (like Journal), and posting them into Ledger accounts. It is routine and clerical in nature.
In simple words: Bookkeeping is the daily routine task of writing down financial transactions in proper registers or software.

Question Q7. State what is the end product of Financial Accounting.
Answer: The end products of financial accounting are the final accounts (or financial statements), which include the Income Statement (Trading and Profit and Loss Account) showing the financial performance (profit or loss) and the Balance Sheet showing the financial position (assets, liabilities, and capital) of the business at the end of the accounting period.
In simple words: The final accounts and balance sheet are the final outputs that tell business owners how well the company performed.

Exam Tip: Always include both components in the end product: the Income Statement and the Balance Sheet.

Question Q8. Define Single Entry System.
Answer: A Single Entry System is an incomplete and unscientific system of recording financial transactions. Under this system, maintenance of accounts is not uniform; instead of recording both aspects of every transaction, sometimes only personal accounts are maintained, sometimes both personal and cash accounts are maintained, and real and nominal accounts are generally ignored.
In simple words: Single entry is an informal way of bookkeeping where both debit and credit aspects are not consistently recorded for every transaction.

Exam Tip: Use the term "incomplete system" as the primary identifier for single entry.

Question Q9. Define Double Entry System.
Answer: The Double Entry System is a scientific, complete, and systematic system of recording financial transactions. According to this system, every business transaction has a dual effect, meaning it affects two accounts in opposite directions. For every debit, there is a corresponding and equal credit of the same amount.
In simple words: Double entry means every financial move is recorded twice - once as a debit and once as an equal credit.

Objective type questions:

Question 1. Select the best alternative:
(i) Which of the following is not recorded in the books of Accounts?
(a) Sales of goods
(b) Payment of salary
(c) Quality of staff
Answer: (c) Quality of staff
Quality of staff is a qualitative attribute that cannot be measured in monetary terms, hence it is omitted from the books of accounts.
In simple words: Staff quality has no price tag, so it cannot be written in account books.

Exam Tip: Look out for qualitative measures when asked about unrecorded items.

(ii) Transactions are posted into Ledger Account from
(a) Vouchers
(b) Journal book
(c) None of these.
Answer: (b) Journal book
Entries are first recorded in the journal book (or subsidiary books) and subsequently posted into the respective ledger accounts.
In simple words: Transactions move from the journal book into the ledger accounts.

Exam Tip: Remember the chronological flow: Source document -> Voucher -> Journal -> Ledger.

(iii) Which of the following is not a business transaction?
(a) Purchase of goods for resale amounted to Rs. 20,000.
(b) Paid salaries & wages amounted to Rs. 5,000.
(c) Purchased LCD for personal use.
Answer: (c) Purchased LCD for personal use.
Purchasing an LCD for personal use is a personal expense of the proprietor (treated as drawings), not a business transaction of the firm itself.
In simple words: Personal shopping done by the owner using personal intent is not a business deal.

Exam Tip: Distinguish carefully between business expenses and personal drawings.

(iv) Which system of accounting is more widely used:
(a) Single entry system
(b) Double entry system.
Answer: (b) Double entry system.
The Double Entry System is universally accepted and widely used because it is complete, scientific, and provides checks against errors and frauds.
In simple words: Double entry is the professional standard used worldwide.

Exam Tip: Always associate "scientific and complete" with the double entry system.

Short Answer Type Questions:

Question Q1. Why are the following parties interested in accounting information:
(a) Investor (b) Government (c) Management (d) Owners (e) Banks & financial institutions (f) Employees & Workers.
Answer: (a) Investors: To assess the risk and return of their investments, check profitability, and decide whether to buy, hold, or sell shares.
(b) Government: To ascertain tax liabilities (GST, corporate tax), ensure compliance with statutory regulations, and compile national economic statistics.
(c) Management: For day-to-day planning, operational control, budgeting, decision-making, and evaluating performance.
(d) Owners: To know the net profit earned, overall financial position, safety of capital, and return on investment.
(e) Banks & Financial Institutions: To evaluate the creditworthiness, liquidity, and repayment capacity of the business before granting loans.
(f) Employees & Workers: To assess the stability of the enterprise, negotiate fair wages, bonus distribution, and retirement benefits.
In simple words: Different groups use accounting records to check financial health, taxes, safety of funds, or job security.

Exam Tip: Structure your answer clearly by listing each stakeholder and giving one specific reason for their interest.

Question Q2. Explain the various functions of Accounting.
Answer: The primary functions of accounting include: 1. Maintaining systematic records: Recording financial transactions in books of original entry and posting them to ledgers. 2. Communicating results: Preparing final accounts and sharing them with internal and external users. 3. Meeting legal requirements: Maintaining books as per statutory laws like the Companies Act and Income Tax Act. 4. Assisting management: Providing financial data for planning, decision-making, and cost control. 5. Protecting business properties: Keeping records of assets to prevent misuse or theft.
In simple words: Accounting functions include keeping financial records, calculating profit, satisfying laws, and helping managers make decisions.

Question Q3. Give any five differences between Book Keeping & Accounting.
Answer:

In simple words: Bookkeeping is data entry work, while accounting is high-level analysis and reporting.
Exam Tip: Present differences in a tabular format with clear headings for maximum visual clarity.

Question Q4. Explain any five objectives of Accounting.
Answer: The main objectives of accounting are: 1. Maintenance of financial records: Keeping a complete and systematic record of all financial transactions. 2. Determination of profit or loss: Ascertaining the net result of business operations through the Profit and Loss Account. 3. Determination of financial position: Knowing the exact financial standing of the firm through the Balance Sheet. 4. Facilitating management: Providing timely and relevant financial data for planning, budgeting, and control. 5. Communicating information: Supplying vital financial data to various stakeholders (investors, banks, government) for decision-making.
In simple words: Accounting aims to record transactions, calculate profit or loss, show financial health, and help management.

Exam Tip: Always emphasize profit determination and financial position as core accounting objectives.

Question Q5. Explain any five advantages of Accounting.
Answer: The key advantages of accounting include: 1. Replacement of memory: There is no need to rely on human memory as all transactions are permanently recorded. 2. Ascertainment of financial results: Easily reveals net profit or loss of the business for an accounting period. 3. Knowledge of financial position: Shows assets owned and liabilities owed at a specific date. 4. Legal evidence: Properly maintained accounts are accepted in courts of law as reliable evidence. 5. Facilitates raising loans: Banks and financial institutions rely on audited accounts when sanctioning loans.
In simple words: Accounting helps avoid forgetting, proves facts in legal disputes, helps secure loans, and shows business profits.

Exam Tip: Highlight "legal evidence" as a vital practical advantage of systematic accounting records.

Question Q6. Explain any five limitations of Accounting.
Answer: The major limitations of accounting are: 1. Ignores qualitative elements: Non-monetary aspects like management quality or worker strikes are omitted. 2. Based on estimates: Many accounting figures (such as provision for depreciation or doubtful debts) rely on personal estimates. 3. Ignores price level changes: Financial statements are prepared on historical cost, ignoring inflation and changes in the purchasing power of money. 4. Possibility of earnings management (window dressing): Accounts can be manipulated to show a better financial picture than reality. 5. Incomplete information: True profit or loss and financial position are known only when the business is finally wound up.
In simple words: Accounting has flaws because it ignores inflation, relies on estimates, and leaves out qualitative factors.

Exam Tip: Use the term "historical cost concept" when explaining the limitation regarding price level changes.

Question Q7. Give any three advantages of Double Entry System.
Answer: 1. Scientific system: It is a complete and systematic method based on accounting principles, reducing errors. 2. Arithmetical accuracy: The Trial Balance can be prepared to check the mathematical accuracy of accounts. 3. Full information available: It provides complete details regarding incomes, expenses, assets, liabilities, debtors, and creditors.
In simple words: Double entry is scientific, checks for math errors, and gives complete financial information.

Exam Tip: Mention arithmetical accuracy and scientific nature as core advantages.

Question Q8. Give any three disadvantages of Double Entry System.
Answer: 1. Costly and complex: Maintaining books under double entry requires skilled accountants and involves high clerical costs. 2. Not suitable for small businesses: Small traders find it cumbersome and expensive to maintain full double-entry records. 3. Doesn't reveal all errors: Agreement of Trial Balance does not guarantee the total absence of errors (e.g., errors of principle or omission).
In simple words: Double entry can be expensive, complicated for small shops, and does not catch every type of mistake.

Question Q1. Name any four fixed assets.
Answer: Four examples of fixed assets are: 1. Land and Building 2. Plant and Machinery 3. Furniture and Fixtures 4. Computer Equipment
In simple words: Fixed assets are long-term assets like buildings, machinery, and furniture used in business operations.

Exam Tip: Ensure you mention long-term tangible assets commonly used in manufacturing or administration.

Question Q2. Give any two examples of Intangible Assets.
Answer: Two examples of intangible assets are: 1. Goodwill 2. Patents (or Trademarks)
In simple words: Intangible assets are valuable rights or reputation that you cannot physically touch, like brand name or patents.

Exam Tip: Goodwill and Patents are the most universally accepted examples of intangible assets.

Question Q3. Give any two examples of Current Assets.
Answer: Two examples of current assets are: 1. Cash in Hand (or Cash at Bank) 2. Stock-in-Trade (Inventory)
In simple words: Current assets are short-term assets easily convertible into cash within one year, like cash and inventory.

Exam Tip: Debtors and Prepaid Expenses are also excellent secondary examples of current assets.

Question Q4. A firm earns revenue of Rs. 75,000 and the expenses to earn this revenue are Rs. 54,000. Calculate its income.
Answer: Revenue = Rs. 75,000
Expenses = Rs. 54,000
Income = Revenue - Expenses
Income = 75,000 - 54,000 = Rs. 21,000
In simple words: Income is calculated by subtracting total expenses from total revenue, resulting in Rs. 21,000.

Exam Tip: Formula to remember: Net Income = Total Revenue - Total Expenses.

Question Q5. What is a cash transaction?
Answer: A cash transaction is a business transaction in which cash is received or paid immediately at the time of the occurrence of the transaction.
In simple words: A cash transaction is one where payment is made or received on the spot right away.

Exam Tip: Contrast cash transactions with credit transactions where settlement is postponed.

Question Q6. What is a credit transaction?
Answer: A credit transaction is a business transaction in which settlement for goods or services bought or sold is not made immediately; instead, payment is promised to be made at a future date.
In simple words: A credit transaction is when goods are bought or sold now, but payment is delayed for the future.

Exam Tip: Remember that credit transactions give rise to debtors and creditors.

Objective Type Questions:

Question 1. Select the best alternative:
(i) A person who owes money to a firm is called a:
(a) Creditor.
(b) Debtor.
Answer: (b) Debtor.
A debtor is a person or entity who owes money to the firm, typically for goods or services purchased on credit.
In simple words: Someone who owes money to your business is your debtor.

Exam Tip: Associate "Debtor" with money receivable and "Creditor" with money payable.

(ii) A person to whom money is owed by a firm is called a:
(a) Creditor.
(b) Debtor.
Answer: (a) Creditor.
A creditor is a person or entity to whom the firm owes money, usually for goods purchased on credit or loans taken.
In simple words: Someone to whom your business owes money is your creditor.

(iii) The amount invested by the proprietor in a business is called:
(a) Cash
(b) capital
(c) revenues.
Answer: (b) capital
Capital is the owner's stake in the business, representing funds or resources invested by the proprietor.
In simple words: Money or assets put into the business by the owner is called capital.

Exam Tip: Capital is also known as owner's equity or net worth.

(iv) Bank overdraft is:
(a) Short term liability
(b) Long term liability
(c) contingent liability.
Answer: (a) Short term liability
A bank overdraft is a facility where a current account holder is allowed to withdraw more than their balance, creating a short-term payable obligation.
In simple words: Overdrawing money from a bank account creates a short-term debt repayable quickly.

Exam Tip: Classify bank overdraft strictly under current liabilities.

Question 2. Determine, if the following are Assets, Liabilities, Revenues, Expenses or none:
(a) Machinery (b) Purchases (c) Stock (d) Creditors (e) Capital (f) Salary paid to a clerk (g) Sales (h) Furniture (i) Interest received and (j) Rent paid.
Answer: (a) Machinery: Asset
(b) Purchases: Expense (cost of goods sold)
(c) Stock: Asset (Current Asset)
(d) Creditors: Liability
(e) Capital: Capital (Owner's Equity)
(f) Salary paid to a clerk: Expense
(g) Sales: Revenue
(h) Furniture: Asset
(i) Interest received: Revenue (Income)
(j) Rent paid: Expense
In simple words: Items are categorized based on whether they are possessions (assets), obligations (liabilities), earnings (revenues), costs (expenses), or owner funds.

Exam Tip: Carefully distinguish between "Purchases" (Expense/Cost) and "Stock" (Asset).

Short Answer Type Questions:

Question Q1. Explain the meaning of following terms:
(a) Business transaction. (b) Capital (c) Drawings (d) Liabilities (e) Assets (f) Expenditure (g) Expenses (h) Income (i) Purchases (j) Sales (k) Stock (l) Debtor (m) Creditor (n) Goods.
Answer: (a) Business transaction: An economic activity of a business that changes its financial position and can be measured in money terms.
(b) Capital: Amount invested by the owner in the business.
(c) Drawings: Cash or goods withdrawn by the owner from the business for personal use.
(d) Liabilities: Obligations or debts owed by the business to outsiders.
(e) Assets: Economic resources owned by a business that have monetary value.
(f) Expenditure: Incurring of cost for acquiring assets, goods, or services.
(g) Expenses: Cost incurred in the process of earning revenue during an accounting period.
(h) Income: Profit earned during a period, calculated as Revenue minus Expenses.
(i) Purchases: Total amount of goods bought by a business for resale or production.
(j) Sales: Total amount of goods sold by a business to customers.
(k) Stock: Tangible goods lying unsold at the end of an accounting period.
(l) Debtor: A person or entity who owes money to the firm.
(m) Creditor: A person or entity to whom the firm owes money.
(n) Goods: Physical items bought for resale or used in manufacturing products.
In simple words: These terms form the vocabulary of accounting, defining what the business owns, owes, spends, and earns.

Exam Tip: Learn precise dictionary definitions for each term as they frequently appear in viva and theory exams.

Question Q2. Give the classification of various types of Assets.
Answer: Assets are broadly classified into two main categories: 1. Non-Current Assets: Assets held for long-term use in the business, further subdivided into: - Tangible Assets (e.g., Land, Building, Machinery, Furniture) - Intangible Assets (e.g., Goodwill, Patents, Trademarks) 2. Current Assets: Assets held for short-term conversion into cash within an accounting year (e.g., Cash, Bank, Debtors, Stock, Prepaid Expenses).
In simple words: Assets are split into long-term (non-current) and short-term (current) categories.

Exam Tip: Always sub-classify Non-Current Assets into Tangible and Intangible for full marks.

Question Q3. Give the classification of various types of Liabilities.
Answer: Liabilities are classified into two main types: 1. Non-Current Liabilities (Long-term Liabilities): Obligations payable after a period of more than one year (e.g., Long-term Bank Loans, Debentures, Bonds). 2. Current Liabilities (Short-term Liabilities): Obligations payable within a short period, normally within one year (e.g., Creditors, Bills Payable, Bank Overdraft, Outstanding Expenses).
In simple words: Liabilities are debts divided into long-term (payable after a year) and short-term (payable soon).

Exam Tip: Distinguish liabilities based on the 12-month operating cycle threshold.

Question Q4. Classify the various types of Expenditure.
Answer: Expenditures are classified into three main types: 1. Capital Expenditure: Amount spent on acquiring, improving, or extending the life of a fixed asset (e.g., purchasing a building or machinery). Its benefit extends beyond one accounting year. 2. Revenue Expenditure: Amount spent whose benefit is exhausted within the current accounting year (e.g., rent, salaries, electricity bills paid). 3. Deferred Revenue Expenditure: Heavy revenue expenditure incurred in one year, the benefit of which is spread over multiple future years (e.g., massive advertisement expenditure for launching a new product).
In simple words: Expenditure is categorized based on whether it creates an asset, pays daily running costs, or gives long-term promotional benefits.

Question Q1. Dr. K. Kumar, a homeopath doctor in a practice has been advised by his Accountant to maintain his accounts on Accrual basis instead of presently followed Cash basis of Accounting. Do you agree with the advice of the Accountant? Give reasons.
Answer: Yes, we agree with the advice of the accountant. Under the Accrual Basis of Accounting, revenues are recognized when they are earned and expenses are recorded when they are incurred, regardless of when cash is received or paid. This basis presents a true and fair view of the financial performance and financial position of the practice, complies with the matching principle, and is recognized under the Companies Act and Income Tax guidelines.
In simple words: Accrual basis is better because it records income and expenses when they happen, giving a true picture of earnings.

Exam Tip: Mention the "Matching Principle" as the primary reason for recommending the accrual basis.

Question Q2. M/s. Arora Bros., a dealer in Electric Appliances, has received an order for five LCDs along with an advance of Rs. 1,00,000. The firm maintains its accounts on accrual basis of Accounting. Should the amount received i.e. Rs. 1,00,000 be credited to the sales account or the advance received account? Give reasons for your answer.
Answer: The amount of Rs. 1,00,000 received in advance should be credited to the "Advance Received Account" (or Customer Advance Liability Account), and NOT to the Sales Account. Under the Accrual Basis and Revenue Recognition Principle, revenue is considered earned only when goods are delivered or ownership is transferred to the customer. Since the LCDs have not yet been delivered against the order, the sale has not taken place; hence, the advance is a liability.
In simple words: The money received before delivering goods is an advance liability, not a sale, because the goods haven't been handed over yet.

Exam Tip: Cite the Revenue Recognition Principle to justify why advance payments cannot be booked as sales immediately.

Question Q3. What do you understand by Cash Basis of Accounting?
Answer: Cash Basis of Accounting is a system under which transactions are recorded only when cash is actually received or paid. Revenues are recorded when cash is received from customers, and expenses are recorded only when cash is actually disbursed. Outstanding expenses and accrued incomes are ignored.
In simple words: Cash basis means recording money only when cash actually changes hands.

Exam Tip: Emphasize that actual cash movement is the sole trigger for recording under this system.

Question Q4. What do you understand by Accrual Basis of Accounting?
Answer: Accrual Basis of Accounting is a system of recording transactions where revenues are recognized when they are earned (irrespective of when cash is received) and expenses are recorded when they are incurred (irrespective of when cash is paid). It provides a complete and accurate picture of profit or loss.
In simple words: Accrual basis records revenues and expenses when they occur, regardless of when cash is paid or received.

Question Q1. Choose the correct option:
(i) Under the cash basis of accounting expenses are recorded
(a) On payment
(b) on being incurred
(c) none of these.
Answer: (a) On payment
Under cash basis, expenses are recorded strictly when cash payment is made.
In simple words: Expenses are written down only when cash is paid out.

Exam Tip: Link cash basis strictly to cash payment and receipt.

(ii) Under the accrual basis of accounting expenses are recorded
(a) On payment
(b) on being incurred
(c) none of these.
Answer: (b) on being incurred
Under accrual basis, expenses are recorded when they occur or are incurred, regardless of payment date.
In simple words: Expenses are recorded as soon as they happen.

Exam Tip: Link accrual basis strictly to the occurrence/incurrence of transactions.

Short Answer Type Questions:

Question Q1. Write down any five differences between Cash Basis and Accrual Basis of Accounting.
Answer:

In simple words: Cash basis looks only at actual cash flow, while accrual basis looks at when earnings and expenses actually occur.
Exam Tip: Use a clear table comparing recording triggers and legal acceptance.

Question Q2. Give three advantages of Accrual basis of Accounting.
Answer: 1. True and fair view: It reflects correct net profit or loss by matching expenses against revenues of the same period. 2. Complete information: It accounts for outstanding expenses, prepaid expenses, accrued income, and advance income. 3. Scientific and universally accepted: It is recognized by legal authorities (like Companies Act and Income Tax authorities).
In simple words: Accrual basis is accurate, complete, and legally accepted.

Question Q3. Give three disadvantages of Accrual basis of Accounting.
Answer: 1. Complex to maintain: It involves numerous adjustments for outstanding and prepaid items, making it complicated. 2. Based on estimates: It requires estimates for provisions like depreciation and doubtful debts, which can involve personal bias. 3. Less objective than cash basis: Since cash receipts are not the sole criterion, it is harder to ascertain actual liquidity directly from the income statement.
In simple words: Accrual accounting is more complicated and relies heavily on estimates.

Exam Tip: Mention complexity and reliance on subjective estimates as disadvantages.

Question Q4. Give three advantages of Cash basis of Accounting.
Answer: 1. Simplicity: It is very simple to understand and maintain without requiring advanced accounting knowledge. 2. No estimates required: Since transactions are recorded only on cash flow, there is no need for complex estimates or provisions. 3. Useful for professionals: Highly suitable for small businesses or professionals (like doctors and lawyers) with limited credit transactions.
In simple words: Cash basis is simple, easy to use, and needs no complex estimates.

Exam Tip: State that it is ideal for professionals and small-scale operations.

Question Q5. Give three disadvantages of Cash basis of Accounting.
Answer: 1. Does not follow matching principle: It fails to match current expenses against current revenues correctly. 2. Distorted profit view: Profits can be manipulated easily by simply delaying or hastening cash payments and receipts. 3. Unacceptable legally: It is not recognized by the Companies Act or standard accounting frameworks.
In simple words: Cash basis gives a distorted profit picture and is not legally approved for companies.

Exam Tip: Point out that the lack of legal recognition under company law is a major drawback.

Question Q6. During the financial year 2011-12, Salman had cash sales of Rs. 1,00,000 and credit sales of Rs. 80,000. His expenses for the year were Rs. 1,20,000 out of which Rs. 40,000 is still to be paid. Find out Salman's income for 2011-12 following the cash basis of accounting & accrual basis of accounting.
Answer: 1. Under Cash Basis of Accounting:
Cash Sales received = Rs. 1,00,000
Credit Sales (not received in cash) = Rs. 0
Total Cash Revenue = Rs. 1,00,000
Total Expenses paid = Total Expenses incurred - Outstanding Expenses
Total Expenses paid = 1,20,000 - 40,000 = Rs. 80,000
Cash Basis Income = Cash Revenue - Cash Expenses
Cash Basis Income = 1,00,000 - 80,000 = Rs. 20,000

2. Under Accrual Basis of Accounting:
Total Revenue = Cash Sales + Credit Sales
Total Revenue = 1,00,000 + 80,000 = Rs. 1,80,000
Total Expenses incurred = Rs. 1,20,000
Accrual Basis Income = Total Revenue - Total Expenses incurred
Accrual Basis Income = 1,80,000 - 1,20,000 = Rs. 60,000
In simple words: Under cash basis, income is Rs. 20,000 (counting only cash collected and paid). Under accrual basis, income is Rs. 60,000 (counting all sales and all expenses incurred).

Exam Tip: Show both calculations clearly with separate headings for cash basis and accrual basis.

Chapter - Accounting Equation

Very Short Answer Type Questions:

Question Q1. Do you think that a transaction can break the accounting equation?
Answer: No, a transaction can never break the accounting equation. Every business transaction has a dual aspect affecting both sides of the equation equally, thereby maintaining the fundamental equality that \(\text{Assets} = \text{Liabilities} + \text{Capital}\) at all times.
In simple words: No matter what happens, the accounting equation always remains balanced because every transaction affects both sides equally.

Exam Tip: State clearly that the duality principle ensures the equation never breaks.

Question Q2. Briefly explain the Accounting equation.
Answer: The Accounting Equation is a mathematical expression which shows that the total assets of a business are always equal to the total claims of creditors (liabilities) and the owner (capital). It is expressed as:
\(\text{Assets} = \text{Liabilities} + \text{Capital}\)
In simple words: The accounting equation proves that everything a business owns is financed either by borrowing (liabilities) or by the owner's investment (capital).

Question Q1. Show the effect of following transactions on the Accounting equation:
(i) Tanya started business with cash Rs. 10,00,000.
(ii) Purchased goods for cash Rs. 40,000 & Rs. 60,000 on credit.
(iii) Withdrew for Private use Rs. 10,000.
(iv) Purchased machinery for cash Rs. 20,000.
(v) Paid salaries Rs. 5,000.
(vi) Received Interest Rs. 10,000.
(vii) Paid to creditors Rs. 20,000.
(viii) Sold goods for cash Rs. 25,000 (costing Rs. 15,000).
(ix) Sold goods on credit Rs. 15,000 (costing Rs. 10,000).
(x) Purchased furniture from Janak Furnitures Rs. 10,000.
(xi) Purchased goods on credit from Hari & Sons Ltd. Rs. 15,000.
(xii) Additional Capital introduced Rs. 2,00,000.
(xiii) Deposited Rs. 40,000 into bank.
(xiv) Commission received in advance Rs. 5,000.
(xv) Sold goods (costing Rs. 10,000) for Rs. 15,000 out of which Rs. 5,000 received in cash.
(xvi) Depreciation on machinery @ 10%.
(xvii) Purchased a building from Sanya. Paid by raising loan from PNB Rs. 5,00,000.
(xviii) Paid interest on loan Rs. 10,000 & instalment of Rs. 1,00,000.
(xix) Took goods costing Rs. 10,000, selling price Rs. 12,000 for personal use.
(xx) Accrued Interest Rs. 10,000.
Answer:

In simple words: Every accounting transaction affects either assets, liabilities, or capital in such a way that the equation remains balanced.
Exam Tip: Double-check additions and subtractions for each column to ensure balance is maintained throughout.

Question Q2. Show the effect of following transactions on the Accounting equation:
(i) Abhay started business with cash Rs. 6,00,000; goods Rs. 2,00,000; machinery Rs. 1,00,000 & Furniture Rs. 1,00,000.
(ii) \(\frac{1}{4}\text{th}\) of the above goods sold at a profit of \(20\%\) on cost and half of the payment received in cash.
(iii) Depreciation of machinery provided @ \(10\%\).
(iv) Cash withdrawn for personal use Rs. 5,000.
(v) Interest on drawings charged @ \(10\%\).
(vi) Paid cartage Rs. 10,000.
(vii) Received rent from tenants Rs. 5,000.
(viii) Received security deposits from tenants Rs. 20,000.
(ix) Invested in securities (personal) Rs. 20,000.
(x) Interest on capital @ \(10\%\).
(xi) Goods destroyed by fire Rs. 10,000.
(xii) Paid rent Rs. 15,000 including Rs. 10,000 paid in advance.
(xiii) Goods sold to Sharma for Rs. 15,000 and received a Bill Receivable for the same amount for 3 months.
(xiv) Received Rs. 15,000 from Sharma against the Bills Receivable on its maturity.
(xv) Sold goods to M/S Jagdamba costing Rs. 10,000 for Rs. 8,000.
(xvi) Sold goods for cash costing Rs. 20,000 and on credit costing 40,000 both at a profit of \(25\%\).
(xvii) Paid rent in advance Rs. 5,000.
(xviii) Bought L.G refrigerator for personal use Rs. 20,000.
(xix) Purchased motorcycle for cash Rs. 50,000.
(xx) Rent outstanding Rs. 10,000.
Answer: Step-by-Step Analysis & Calculations:
- Initial Capital = 6,00,000 + 2,00,000 + 1,00,000 + 1,00,000 = Rs. 10,00,000.
- Goods sold (\(\frac{1}{4}\text{th}\) of 2,00,000 = 50,000) at \(20\%\) profit (= 10,000), total selling price = Rs. 60,000. Half in cash (30,000) and half as debtors (30,000).
- Depreciation on machinery = \(10\%\) of 1,00,000 = Rs. 10,000.
- Interest on capital (\(10\%\) of 10,00,000) = Rs. 1,00,000 (adds to capital and subtracts as interest expense, net effect zero on capital, but increases capital and expenses simultaneously).
- Goods sold to Jagdamba costing 10,000 for 8,000 = Loss of Rs. 2,00,000 (deducted from capital).
- Cash sale (cost 20,000 + 25% profit = 25,000) and Credit sale (cost 40,000 + 25% profit = 50,000), total selling price = 75,000 (25k cash + 50k debtors), total cost = 60,000, total profit = Rs. 15,000.
 

In simple words: Complex multi-part transactions are solved by carefully calculating cost, profit, and cash/credit impacts on assets, liabilities, and capital.
Exam Tip: Break down complex transactions into separate working notes before posting them into the accounting equation table.
 

Important Questions for NCERT Class 11 Accountancy Introduction to Accounting
 

Question. Which of the following transactions is of a financial character and will be recorded in the business?   
(A) Goods taken from the business by the proprietor for her personal use
(B) Interviewing the candidates for employment
(C) Sale of Household furniture Rs.5,000
(D) Received an order for sales of goods

Answer : A

Question. Book-keeping is mainly concerned with :   
(A) Recording of financial data
(B) Designing the systems of summarising the recorded data
(C) Interpreting the data for internal and external users
(D) Preparation of financial statements of the business enterprise

Answer : A

Question. Which of the following is not a sub-field of accounting?   
(A) Financial accounting
(B) Book Keeping
(C) Management accounting
(D) Cost Accounting

Answer : B

Question Which of the following is not an internal user of financial statements?   
(a) Board of Directors
(b) Managers
(c) Employees
(d) Lenders

Answer : D

Question Which of the following is not a characteristic of accounting?   
(a) Recording non-monetary transactions
(b) Classifying
(c) Analysis
(d) Summarising

Answer : A

Question. Which of the following is the most relevant accounting information for taxation authorities?  
(A) Cash Balance of the firm
(B) Book Value of the Fixed Assets
(C) Credit Sales of the year
(D) Profit generated during the year

Answer : D

Question. Which of the following limitations of accounting states that accounts may be manipulated to conceal vital facts :   
(A) Accounting is not fully exact
(B) Accounting may lead to window dressing
(C) Accounting ignores price level changes
(D) Accounting ignores qualitative elements

Answer : B

Question Book Keeping and Accounting  
(a) means same and are used interchangeably.
(b) does not mean same and are not used interchangeably.
(e) means both (a) and (b).
(d) None of the above.

Answer : B

Question Expenditure of revenue nature that gives benefit for more than one accounting period is categorised as
(a) Capital Expenditure.
(b) Revenue Expenditure.
(c) Deferred Revenue Expenditure.
(d) None of these.

Answer :  C

Question A person who owes money to a firm against goods sold is called a
(a) creditor.
(b) debtor.
(c) Both (a) and (b)
(d) None of these.

Answer :  B

Question A person to whom money is owed by a firm for purchase of goods is called a
(a) creditor.
(b) debtor.
(c) Both (a) and (b)
(d) None of these.

Answer :  A

Question Purchase refers to the purchase of
(a) goods for resale.
(b) stationery for office use.
(c) assets for the factory.
(d) None of the above.

Answer :  A

Question A liability arises because of
(a) cash transactions.
(b) credit transactions.
(c) cash as well as credit transactions.
(d) None of these.

Answer :  B

Question The amount invested by the proprietor in a business is called
(a) capital.
(b) cash.
(c) revenues.
(d) loan.

Answer :  A

Question Which of the following is an asset?
(a) Machinery
(b) Purchases
(c) Sales Return
(d) Interest Received

Answer :  A

CBSE Class 11 Accountancy Chapter 1 Introduction To Accounting And Basic Fill in The Blanks

Question. The goods unsold at the end of the accounting year is called------------.
Answer. Closing stock/inventory

Question. The amount which is paid for increasing profit earning capacity of business is called ------------- .
Answer. Capital Expenditure

Question. Ethical or environmental activities of the firm are related which responsibility of business -----------.
Answer. Social responsibility

Question. Monetary benefit received from sale of noncurrent assets is called---------.
Answer. Gain

Question. Amount spent on cost of goods sold during a year and no benefit received on the same leads to----------.
Answer. Loss

Question. The term purchase is used for purchase of goods only but not for purchase of----------.
Answer. Fixed assets

Question. Amount not recovered from trade receivables on account there insolvency is known as ----------- .
Answer. Bad debts

Question. Amount paid for the purchase of goods is an example of-------------.
Answer. Revenue expenditure

Question. Amount of cash invested in business is called capital whereas amount withdrawn from the business for personal use is known as-------------.
Answer. Drawings

Question. The assets which are used in the business for a longer period of time are called----------.
Answer. Fixed assets

Question. Bad debts arises due to sale of goods on credit as well as-------------.
Answer. Insolvency

CBSE Class 11 Accountancy Chapter 1 Introduction To Accounting And Basic True and False

1. Accounting provides in formations which is useful to management for making economic decisions. (True)
2. Trade Discount is allowed to persuade the buyer to buy more goods. (True)
3. A transaction is any event or condition, such as buying or selling that must be recorded in the financial records of a business. (True)
4. Accounting ascertains the progress of the business from year to year. (True)
5. Drawing increases the Capital of the Owner. (False)
6. Trade Payable includes Creditors & Bills Receivable. (False)
7. Trade Discount is deducted from list price of the product. (True)
8. Cash Discount is allowed to the customers for making prompt payment. (True)
9. Goodwill is Tangible Assets. (False)
10. Profit decreases the investment of the Owner. (False)
11. Bad Debts arise from Credit Sales. (True)
12. Account Receivables are considered as Income. (False)
13. Complete process of Accounting is called Accounting Circle. (False)

CBSE Class 11 Accountancy Chapter 1 Introduction To Accounting And Basic MCQs

Question. Amount received from sale of goods is:
(a) Revenue receipts
(b) Capitalize receipts
(c) a and b both
(d) None of these
Answer: Revenue receipts 

Question. A language of business is known as:
(a) Accountancy
(b) Accounting
(c) a and b both
(d) All of these
Answer: Accounting

Question. Purchases refer to the purchase of:
(a) Stationery for office use
(b) Goods for resale
(c) Assets for the factory
(d) none of these
Answer: Goods for resale

Question. Which of the following is not a fixed assets:
(a) Building
(b) Land
(c) Machinery
(d) B/R
Answer: B/R 

Question. Which of the following is not a current assets:
(a) Plant
(b) Debtors
(c) B/R
(d) Stock
Answer: Plant 

Question. The amount of cash or goods which is withdrawal by proprietor from business for its private uses is called:
(a) Capital
(b) Expenses
(c) Drawings
(d) Expenditure
Answer: Drawings

Question. Which branch is used for calculating cost of product is:
(a) Financial Accounting
(b) Management Accounting
(c) Cost Accounting
(d) All of these
Answer: Cost Accounting

Question. Who is the father of Accounting:
(a) Luca Pacioli
(b) Charles Babeje
(c) Henry Fayol
(d) F. W. Tailor
Answer: Luca Pacioli

Question. Business organization involves:
(a) Social event
(b) Economic event
(c) Welfare event
(d) None of these
Answer: Economic event

Question. Which one is a capital transaction?
(a) Purchase of goods
(b) Payment of wages
(c) Sales of goods
(d) Purchase of machinery
Answer: Purchase of machinery

Question. The financial information provided by an accounting system is needed by:
(a) Owners
(b) Creditors
(c) Management
(d) All of these
Answer: All of these 

Question. A document prepared to authorize and describe an expenditure is termed as:
(a) Cash memo
(b) Voucher
(c) Bill
(d) Debit
Answer: Voucher 

Question. A percentage reduction from the list price of merchandise allowed to retailers by whole seller is called:
(a) Commission
(b) Cash discount
(c) Trade discount
(d) Allowance
Answer: Trade discount

CBSE Class 11 Accountancy Chapter 1 Introduction To Accounting And Basic Match The Following

Question.

1. Financial accounting          A. Analysis and interpretation of information
2. Last step of accounting      B. Help in assist the managers
                                               C. Keep a record of all financial transactions
                                               D. Recording the transactions
Answer. 1.C ; 2.A

Question.
1. Comparability            A. Payable within a year
2. Long term liability      B. Common unit of measurement
                                      C. payable after a period of one year
                                      D. Common values is must
Answer. 1.B ; 2.C

Question.
1. Transactions      A. Excess of revenues over its related expenses
2. Profit                  B. Winning a court case
                              C. Involving values between two or more entities
Answer.1.C ; 2A

Question. 
1. Sales               A. Total revenue from selling of an asset
2. Liabilities        B. Properties of an enterprise
                          C. Obligations of an enterprise
                          D. Total revenue from goods and services
Answer.1. D ; 2.C

Question.
1. Cost accounting                   A. Help in assist the managers
2. Management Accounting     B. Timeliness
3. Relevance
Answer. 2.A ; 3.B

Question.
1. Deferred revenue expenditure       A. Manipulation of the accounts book
2. Window dressing                           B. Salary
                                                          C. Heavy advertisement expenditure
                                                          D. Faithful presentation
Answer.1.C ; 2.A

Question.
1. Reliability               A. Primary stage
2. Book keeping        B. Faithfulness
Answer. 1.B ; 2.A

Question.
1. Recording         A. Tangible asset
2. Goodwill           B. Journal
                            C. Intangible asset
                            D. Ledger
Answer. 1.B ; 2.C

Please click the below link to access CBSE Class 11 Accountancy Introduction To Accounting Assignment Set A