DK Goel Solutions Class 11 Accountancy Chapter 1 Meaning and Objective of Accounting

Question 1. Define Accounting.

Solution  1 : Accounting is a process of identifying financial transactions, measuring them in money terms, recording them in primary books, classifying, summarizing, analysing, interpreting them and communicating the result to the users.

Question 2. Distinguish between debtors and creditors.

Solution  2: The persons who borrow an amount to the business for the goods sold or the service provided to them on credit basis are called debtors, whereas, The person who is to be paid an amount by the business for purchasing from them goods or services on credit basis are called Creditors.

Question 3. What is a cash discount?

Solution  3: A reduction granted by a supplier from the invoice price in consideration of immediate payment or payment with in a stipulated period. It is always recorded in the books of account.

Question 4. Distinguish between debtors and creditors.

Solution  4:  The persons who borrow an amount to the business for the goods sold or the service provided to them on credit basis are called debtors, whereas, The person who is to be paid an amount by the business for purchasing from them goods or services on credit basis are called Creditors.

Question 5. How is profit or loss of a specific term determined?

Solution  5 : Profit or loss of a specific term determined by formulating by profit and loss account and trading account.

Question 6. How is the final position of a firm established?

Solution  6:  The final position of a firm established by the balance sheet.

Question 7. Name the branch of commerce, which keeps a record of monetary transactions in a set of books.

Solution  7:  The branch of commerce, which keeps a record of monetary transactions in a set of books, is Book-keeping.

Question 8. Give one point of distinction between book-keeping and accountancy.

Solution  8:  Book Keeping is concerned with identifying financial transaction; measuring them in money terms; recording them in the books of accounts and classifying them, whereas, Accounting is concerned with summarizing the recorded transactions, interpreting them and communicating the results.

Question 9. What is the end product of financial accounting?

Solution  9:  Financial statement is the end product of financial accounting. For Example profit and loss account and balance sheet.

Question 10. Name any two users of accounting information.

Solution  10:  The two users of accounting information are owners and Investors.

Question 11. Who are the internal users of accounting information?

Solution  11:  The internal users of accounting information are directors, partners, managers, and officers. People who are directly involved in managing team and operating the business are the internal users.

Question 12. Who are the external users of accounting information?

Solution  12: The external users of accounting information are investors, government, creditors, employee, lenders, customers etc.. People who are indirectly involved in business are the external users.

Question 13. State the nature of information required by investors.

Solution  13:  A investor who invest their money in business for higher return. So, the natures of information required by investors are regarding risks and return on investment in the business.

Question 14. What are the types of information required by long-term investors?

Solution  14:  The types of accounting information required by the long term lenders are Repaying capacity of the business, Profitability, Liquidity, Operational efficiency and Potential growth of business.

Question 15. What are the information needs of management?

Solution  15:  The management needed much information like sales record, costs, profitability etc. Management used these information for future planning of business, controlling and decision making. 

Question 16. Mention two advantages of accounting.

Solution  16:  The two advantages of accounting are:-

1) It provides information which is useful to management for making economic decisions.

2) It provides information regarding financial position of the business.

Question 17. Write one limitation of accounting.

Solution  17:  It is historical in nature; it does not reflect the current worth of a business. Accounting ignores the effect of price level changes and may lead to window dressing.

Question 18. Write the name of two qualitative characteristics of accounting information.

Solution  18:  Reliability and comparability are the two qualitative characteristics of accounting information.

Question 19. Which qualitative characteristic of accounting information requires the use of common unit and format of reporting?

Solution  19:  Comparability is the qualitative characteristic of accounting that requires the use of common unit and format of reporting.

Question 20. ‘Accounting information should be verifiable and free from personal Bias’. Name the qualitative characteristics of accounting information denoted by this statement.

Solution  20:  Reliability is the qualitative characteristic of accounting information denoted by this statement.

Question 21.  Name the two functions of accounting.

Solution  21:  The two functions of accounting are:-

(i) Identifying the financial Transactions.

(ii) Recording in Book of Original Entry.

Question 22. What is the traditional function of accounting?

Solution  22:  Recording of Financial transaction is the traditional function of accounting.

Question 23. Explain the characteristics of Accounting.

Solution  23:  The characteristics of Accounting are:-

1) Identifying: Identification of accounting transection is the first step in accounting. Identify the financial events which are to be recorded in the books of accounts. It involves observing all business activities and selecting those events or transactions which can be considered as financial transactions.

2) Recording: A transaction will be recorded in the books of accounts only it is considered as an economic event and can be measured in terms of money. Once the economic events are identified and measured in economic terms they will be recorded in the books of accounts in monetary terms and in chronological order.

3) Classifying: Once the recording is done in a journal or subsidiary book, the transactions are then classified. Here classification means segregating one type of transaction in one place and separate accounts. The book in which each type of transaction is recorded according to its nature is known as Ledger.

4) Summarising: It is concerned with presentation of data and it begins with balance of ledger accounts and the preparation of trial balance with the help of such balances.

5) Communication: The main purpose of accounting is to communicate the financial information the users who analyse them as per their individual requirements. Providing financial information to its users is a regular process.

Higher-Order Thinking Skills (HOTS) Questions:-

Question 1. What is the traditional function of accounting?

Solution  1:  Recording of Financial transaction is the traditional function of accounting.

Question 2.  Is the basic objective of book-keeping to maintain systematic records or to ascertain net results of operations of a financial transaction?

Solution  2:  Maintain systematic records of financial transactions is the basic objective of book-keeping to maintain systematic records or to ascertain net results of operations of a financial transaction.

Question 3. Recording of financial transactions and preparing financial statements are the only objectives of accounting. Do you agree?

Solution  3:  No, there are many objectives of accounting beside recording of financial transactions and preparing financial statements like ascertain the profit earned or loss incurred during a particular accounting period, ascertain the financial position of the business, provide useful accounting information, provide financial information to the management and prevent frauds by maintaining regular and systematic accounting records.

Question 4. What is the first step in the accounting process?

Solution 4:  Recording of transactions is the first step of the accounting process.

Question 5. What is the last step of the accounting process?

Solution 5 : Communicating to different users is the last step of the accounting process.

Question 6. On 1st Jan. 2015, Mr Vadera was appointed as marketing manager in a company with Rs. 50,000 per month salary. Explain whether this case will be registered in the book of accounts.

Solution 6: No, this transaction can’t be recorded in the book of accounts. The appointment will not be recorded in the book of accounts because it has not resulted in any change in the financial position of the firm.

Question 7. A company follows a practice of giving the figures for the previous year along with the figures of the current year. Now the accountant of the firm wants to discontinue this practice. Do you justify this decision?

Solution 7:  No, comparability of current year figures with that of the previous year is a qualitative characteristic of financial information. Discontinuation of this practice will result in discontinuation of a good practice being followed by the firm.

Question 8. Give two examples of transactions that are not recorded in accounting.

Solution  8: The two examples of transactions that are not recorded in accounting are :-

(i) Appointed an Employee.

(ii) Value of human resources.

Question 9. A firm has received a large order to supply the goods. Will it be recorded in the books?

Solution  9:  No, it is not recorded in the books only the as receiving of an order has not resulted in any change in the financial position of the firm.

Value Based Question(VBQ) Questions :-

Question 1. What is the value involved in giving the figures of the previous year along with the figures of the current year in financial statements?

Solution 1: We can compare the current year performance with previous year performance by Giving the figures of the previous year along with the figures of the current year in financial statements.

Question 2. Mr. Ganpati, the proprietor of a business, sold his residential house of Rs. 50 lac. Will it be recorded in the books of account?

Solution  2: No, this transection of the proprietor is a personal transection. This transaction has not affects the financial position of the business. As Business Entity has separate existence from its owner. So, this transection not reflects in the books of accounts.

Question 3. What is the value involved in giving explanatory notes with the financial statements?

Solution  3: The Explanatory notes classify the accounting information of financial statements. By the explanatory notes financial statements are more useful and understandable.

Question 4. The principal of a public school conducted an interview of candidates for selection of an accountancy teacher. Miss Arun was selected and was given an appointment letter wherein her salary was stated as Rs. 30,000 per month. Will it be recorded in the books of accounts?

Solution 4: No, this transaction can’t be recorded in the book of accounts. The appointment will not be recorded in the book of accounts because it has not resulted in any change in the financial position of the firm. It will be recorded when the salary is actually paid.

Question 5. What is the value involved in adopting the same method of depreciation year after year?

Solution  5: Comparability is involved in adopting the same method of depreciation year after year. Comparability is only possible when a firm adopts the same method of depreciation year after year.

Question 6. Miss Priti, an electronic goods dealer, gifted a washing machine valued Rs.25,000 to her friend Suruchi. Will it be recorded in the books of account?

Solution  6: Yes, it is financial transaction and recorded in the books of accounts. It will be treated as drawings of Miss. Priti.

Question 7. How is accounting influenced by personal judgment?

Solution  7: The various accounts can be control by false or manipulated figures to gives quality impression of final accounts. This method is known as window dressing. Accounting influenced by personal judgment for example it is hard to know the method of valuation of stock and making provision for doubtful debts. And it is too difficult to predict how the actual useful life of an asset which is needed for calculating depreciation.

Question 8. Mr. Vishwanath established a travel agency. Over the travel agency earned a high reputation. Mr. Vishwanath Considers the value of goodwill of his travel agency at Rs.50 lakhs. He wants to record the value of the goodwill in the books of accounts. Can he do so?

Solution  8: No, only the purchased goodwill can be recorded in the books of accounts. As per accounting standard 26 Intangible assets, self-generated goodwill is not recorded in the books of accounts because consideration in money or money’s worth has not been paid for it.

Question 9. Land and buildings are shown at 10 lakhs in the balance sheet of the business owned by Mr. Yuvraj. However, as per the certificate of a government-approved value, the realizable value of land and building is Rs. 200 lakhs. Mr. Yuvraj wants to show the land and building at this value in his books. Can he do so?

Solution 9: No, accounts are maintained on the concept of historical cost concept or original cost. According to this Principle, an asset is recorded in the books of accounts at its original cost comprising of the cost of acquisition and all the expenditure incurred for making the assets ready to use.

Question 10. What is meant by qualitative information?

Solution 10: Question qualitative information’s are that information which cannot be expressed or calculated in term of money. Such as changes in management, the reputation of the business, cordial management-labour relations, firm’s ability to develop new products, the efficiency of management, a satisfaction of firm’s customers, etc.

Question 11. What is meant by ‘window dressing’ in accounting?

Solution  11: The various accounts can be control by false or manipulated figures to improve the appearance of the financial statements. This method is known as window dressing.

Question 12. The huge loss occurred due to the strike of the employee. Will it be recorded?

Solution  12: No, only those transactions are recoded in books of accounts which are in monetary term and have financial characteristics. Loss due to strike of the employee is not related to financial transaction so; it is not recorded in the books of accounts.

Question 13. If the accounting information is not clearly presented, which of the qualitative characteristics of the accounting information is violated?

Solution  13: Understand ability characteristic of the accounting information is violated, if the accounting information is not clearly presented.

Question 14. Confidence trust that the reported information is a reasonable representation of the actual items and events, that have occurred, depicts which qualitative characteristic of accounting information.

Solution  14: It depicts the reliability characteristic of accounting information.

Question 15. Identify the value being violated in case of window dressing.

Solution  15:  The values being violated in case of window dressing are. 

(i) Reliability – By not showing the true and fair view of the result of operations and financial position of the enterprises, management is not honest towards the users of financial statements.

(ii) Transparency – Business has violated the value of transparency.

Question 16. Which value is most important for a good accountant?

Solution  16: An ideal accountant is the one who is truthful and intelligent. He must ensure that all transactions are recorded in the books of accountants and should be recorded under the principals of accounting and concept of accounting. No one can influence him to change or hide certain facts in accounts to evade tax or any other purpose. So, a accountants should behave in an honest and shrewd manner.

Question 17. The accountant of the firm found an error in the books of account but neither he neither rectified the error nor disclosed it to the management fearing that it will risk his job. Which value has been violated by the accountant?

Solution 17: The accountant has violated the value of honesty and trust.

Question 18. Accounting records business transactions and events which are of financial nature. Do you consider it a limitation of accounting?

Solution  18: Yes, it is a limitation of accounting because it contains only those information’s which can be expressed in terms of money. It ignores qualitative elements such as efficiency of management, quality of staff, customer’s satisfactions etc.