Class 11 Commerce B.keeping & Account Solutions for Class 11 Commerce Accountancy Chapter 1 - Introduction Of Book Keeping And Accountancy

Answer:

Book keeping is stated as the recording of day-to-day business transactions in the books of accounts. It involves identification of transactions of financial nature, recording them in the books of accounts and classifying them into the ledger accounts.

Answer:

Transactions are all those instances, where there exists either an outflow or inflow of cash. For example: purchase of furniture or goods, sales of goods, etc.

Answer:

Cash discount is provided to the customers for making instant payments or payments within a specified period of time. It is an expense for the business and always recorded in the books of accounts. It is allowed and ascertained after deducting trade discount.

Answer:

Capital is the amount invested by the proprietor in the business. According to the business entity concept, a business is considered as a separate entity from its owners. So, the amount invested becomes a liability for the business and is shown on the Liabilities side of the Balance Sheet. It is ascertained by deducting liabilities from the assets of the business i.e.
Capital = Assets - Liabilities

Answer:

According to the entity concept, a business is considered as a separate entity from its owners. It states that the transactions related to the proprietor of the business are to be treated separately from the business transactions. The personal property, income, expenses etc. of the proprietor should be kept separate from the business. The amount invested by the proprietor in the business i.e. capital is shown as a liability for the business.

Answer:

According to the money measurement concept, only those transactions that can be measured in terms of money are recorded in the books of accounts. If any business transaction cannot be measured in terms of money, then it will not be recorded in the books of accounts.

Answer:

The consistency concept states that the accounting principles or methods used in accounting should remain constant from year to year to enable a comparison of the current year profits with previous year profits.

Answer:

The conservatism concept states that “one shall not anticipate a profit but shall always provide for all prospective losses”. This makes sure that the assets and incomes are not overstated, while liabilities and losses are not understated.

Answer:

Those items which are either produced or purchased for the purpose of sale in the business are termed as goods. These are the commodities in which the business deals. For example, purchase of cloth by a cloth merchant will be termed as ‘purchases’.

Answer:

Amount invested in business by the proprietor- Capital
Explanation:
The amount invested in business by the proprietor is known as capital. As per the entity concept, a business is considered as a separate entity from its owners. The proprietor is treated as a creditor of the business for the amount invested in the business and hence, the amount invested by him is treated as a liability for the business and is shown on the Liabilities side of the Balance Sheet.

Answer:

Dealings between two persons- Transaction
Explanation:
A transaction is the instance, where there exists either an outflow or inflow of cash. For example: purchase of furniture or goods, sales of goods, etc. It is termed as a deal between two persons because here, two parties are involved in it, i.e. when goods are purchased. It involves two parties; one is the buyer and the other is seller.

Answer:

Property of any description owned by Proprietor- Assets

Explanation:
Any property or legal right owned by a firm which is required for its operations, the benefit of which accrues in future is known as an asset. For example: Buildings, Plant & Machinery etc.

Answer:

A person whose assets are sufficient enough to meet business obligations- Solvent

Explanation:
When a person is capable of paying debts, i.e. his/her assets are greater than or equal to the liabilities, then that person can be termed as solvent.

Answer:

A person to whom amount is payable- Creditor

Explanation:
All persons or organisations to which a firm is liable to pay money are called creditors. They represent those persons from whom goods have been purchased or services have been procured on credit. For example, if goods worth Rs 5,000 were purchased on credit from Mohan, then he will become the creditor of the business till the payment is made to him.

Answer:

Business transaction in which cash is not paid or received immediately- Credit transaction

Explanation:
All those transactions which do not involve cash inflow or outflow, i.e. where goods are purchased or services are procured on credit or where goods are sold or services are rendered on credit, are known as credit transactions. For example, credit sales worth Rs 500 were made to Ram and credit purchases worth Rs 2,000 were made from Mohan.

Answer:

An allowance given by receiver of the cash to the giver of cash at the time of payment- Cash discount
Explanation:
Any allowance given by receiver of the cash to giver of the cash at the time of payment is termed as a cash discount. It is provided to the customers for making instant payments or payments within a specified period of time. It is an expense towards the business and is always recorded in the books of accounts. It is allowed and ascertained after deducting trade discount.

Answer:

Excess of expenses over income- Loss

Explanation:
An excess of expenses over income is known as a loss to the business. Expenses are the costs that are incurred to run business smoothly and to carry out day-to-day business activities, whereas income means the profits earned during an accounting period from any source. For example, if the revenue of the business is Rs 2,00,000 and the expenses of the business are Rs 3,00,000, the loss  to the business is Rs 1,00,000 (2,00,000$-$3, 00,000).

Answer:

Liability which depends on happening or not happening of certain event- Contingent Liability

Explanation:
Those liabilities that are dependent on the outcome of future events are known as contingent liabilities. These liabilities are not recorded in the books of accounts. They are rather shown as a footnote to the Balance Sheet. For example, outstanding court case, legal liability and product warranty.

Answer:

Expenditure on fixed assets which increases the earning capacity of the business- Capital Expenditure

Explanation:
Any expenditure incurred on purchase of fixed assets and which is non-recurring (infrequent) in nature is known as capital expenditure. For example: expenditure for purchase or extension of a building. These expenditures increase the value of the fixed assets and its benefits can be derived in the near future.

Answer:

System in which entry is recorded for cash as well as credit transactions- Accrual System

Explanation:
An accrual system records both the transactions, i.e. cash and credit transactions. According to the accrual concept, a business transaction is recorded as and when it occurs and not when the cash is paid or received.

Answer:

Concept under which comparison of one accounting period with the other period is possible- Consistency Concept

Explanation:
The consistency concept facilitates the comparison of one accounting period with the other period. It states that all the accounting principles or methods used for business transaction should remain constant from year to year to enable the management to compare the profits or losses over different years.

Answer:

Money value or the reputation of business is known as Goodwill.

Explanation:
Goodwill is the value of a firm's reputation and its good brand name in the market. It is valued in terms of money. Goodwill is considered as an intangible asset of a firm.

Answer:

Surplus of income over expenses is Profit.

Explanation:
An excess of income over expenses is called profit, as the amount spent is less than the amount earned, whereas an excess of expenses over income is termed as loss.

Deficit refers to an excess of cash outflows over cash inflows. It refers to a shortfall of cash in the business.

Answer:

A commodity in which a trader deals is known as Goods.

Explanation:
The commodities in which a business deals are termed as goods. These goods are either produced or purchased for the purpose of sale in the business.

Property is an asset of a business, which is held for a long term and enables the trader to earn profit or derive benefit from it.

Expenditure is the amount or cost incurred for acquiring the property, assets, goods or services.

Answer:

Heavy advertising expenditure for launching a new product is called as Deferred Revenue Expenditure.

Explanation:
Deferred revenue expenditure is a heavy expenditure, the benefit of which can be derived in more than one year. For example: advertisement expenditure.

Therefore, heavy advertisement expenditure for launching a new product is termed as deferred revenue expenditure.

All expenses related to the day-to-day activities of the business and which are recurring in nature are termed as revenue expenditure.

The expenditures that are incurred on the purchase of fixed assets and  are non-recurring in nature are termed as capital expenditure.

Answer:

Expenditure incurred on purchase of Fixed Asset is Capital Expenditure.

Explanation:
The expenditure incurred in acquiring fixed assets or increasing the value of a fixed asset is termed as capital expenditure. For example, amount spent on purchase or extension of a building.

All expenses related to the day-to-day activities of a business and which are recurring in nature are termed as revenue expenditure.

Answer:

Accounts must be honestly prepared and they must disclose all material information is known as Disclosure Concept.

Explanation:
This concept requires that all significant information relating to the transactions of a business should be disclosed fully. It means that sufficient disclosure of all information should be made to the interested users of the financial statement of the business.

The entity concept defines that the business owner is different from the business.

The cost concept defines that the assets should be recorded in the books of accounts at the price at which they were acquired.

The dual aspect concept defines that every transaction in a business affects two accounts, i.e. if one side is debited, the other is credited. The system based on this concept is known as double-entry system.

Answer:

The immediate recognition of loss is supported by principle of Conservatism.

Explanation:
The conservatism principle states that anticipation should not be made for the incomes and gains but provisions should be made for all the losses and expenses. It is also known as 'Prudence Principle'.

The consistency principle states that accounting principles and methods followed for recording the transactions should remain constant in the future so as to enable the management in comparing the financial position of the business over a period of time.

The objective principle states that all the transactions being recorded in business should be supported by the relevant documents.

Answer:

Concept which provides a line between present & future is known as Going Concern.

Explanation:
Going concern is the basic underlying assumption of accounting, which states that the business will continue indefinitely. The business will continue operating and will not shut down but will realise assets as well as  discharge liabilities in the normal course of operations. Thus, it is a concept which provides a line between the present and the future.

Answer:

Amount which is not recoverable from customer is known as Bad debts.

Explanation:
Bad debts are the amounts owed from the debtors and are written off when they become irrecoverable.

Answer:

Totalling of Journal or ledger is called as Casting.

Explanation:
Casting refers to the adding up of the column of figures. When the Journal or Ledger is totaled, it is known as casting.

Answer:

False

Explanation:
Book-keeping and accounting are two different concepts. Book-keeping is mainly concerned with recording of financial transactions and maintaining the books of accounts, whereas accounting begins where book-keeping ends. It includes summarising, analysing and interpreting the summarised results and communicating the information to the interested parties.

Answer:

True

Explanation:
According to money measurement concept, only those transactions that can be measured in terms of money are recorded in the books of accounts.

Answer:

False

Explanation:
This statement is false because cash discount, being an expense for the business, is always recorded in the books of accounts. It refers to the discount that is given to the customers for making instant payments or payments within a specified period of time. It is an expense to the business and is debited under the Profit and Loss Account. It is ascertained after deducting the trade discount which is not recorded in the books of accounts.

Answer:

True

Explanation:
A person is termed as solvent when he is capable of paying debts, i.e. his/her assets are greater than or equal to the liabilities.

Answer:

False

Explanation:
Trading concern is established with the basic motive of earning and maximising profits. Those concerns that are formed with the basic motive of rendering services to society are known as Not-for-Profit Organisations (NPOs).

Answer:

True

Explanation:
The dual aspect concept states that every financial transaction has two-fold effect and affects at least two accounts, i.e. one account is debited and other is credited. Thus, the total of all debits is always equal to the total of all credits. The system of recording transactions, which is based on the dual aspect concept, is called ‘Double-Entry System’.

Answer:

True

Explanation:
Book-keeping is an art of recording business transactions. It is also a science, as it classifies the facts (data), analyses them and produces different results on the basis of various rules, accounting principles etc.

Answer:

False

Explanation:
Book-keeping and accountancy record the financial nature transactions, i.e. those transactions that can be measured in terms of money. They ignore non-monetary transactions, as the process of recording transactions starts with the identification of the financial and non-financial nature of transactions.

Answer:

True

Explanation:
Conservatism means recognising for all anticipated losses and not for the gains. It is the policy of playing safe. Provisions are made for all known liabilities even though the amount cannot be determined with full accuracy.

Answer:

False

Explanation:
Perpetual succession is explained by the concept of going concern, i.e. the business goes on for a long period of time. People may come and go but the business is carried on for an indefinite period.

Answer:

False

Explanation:
Accounting is the process of identifying, measuring, recording, classifying, summarising and communicating the results of the business to users of financial information, i.e. management, owners, investors, creditors, lenders, employees, government etc. Thus, it is useful for all the users of financial information and not only the owner.

Answer:

Importance of Book-keeping

1. Limitation of human memory: It is beyond human capacity to memorise a large number of business transactions. Thus, book-keeping helps in recording such a large number of transactions in a well-organised manner that minimises the probability of erroneous and faulty results.

2. Need for financial information: Financial information is required for making various important decisions in business. Book-keeping records all the financial information as required by the business.

3. Determination of tax liability: A systematic record of business activities helps in ascertaining the tax liabilities of business.

4. Preparation of financial statement: All the financial information recorded via book-keeping helps in preparation of financial statements, i.e. Profit and Loss Account and Balance Sheet.

5. Enables comparative study: By keeping a systematic record, it helps owners to compare a particular year’s costs, expenses, sales etc. with those of other years.

1. Owners: Book-keeping helps in assessing the financial status and health of a business.

2. Management: It helps management in enhancing the efficiency of a business and also to implement various cost-controlling measures to remove inefficiencies.

3. Consumers: Transparent financial records assist customers in finding out the correct cost of production and, accordingly, assess the degree of reasonability of the price charged by the business for its products.

4. Government: The accounting information assists the government in the formulation of various policies and measures and to address various economic problems such as unemployment, poverty, etc.

5. Investors: It helps in assessing the profitability and solvency position of a business.

Answer:

Answer:

Objectives of Book-keeping and Accountancy:
 

1. Recording Business Transactions Systematically- It aims at recording a huge number of business transactions in the books of accounts in a systematic and organised manner. This systematic record of transactions helps in eliminating the chances of errors and frauds in the business that can take place while carrying out business activities.

2. Determining Profit or Loss- Every business organisation is interested in knowing its net results in terms of profits or losses for a particular accounting period. It is ascertained by preparing the income statements for an accounting period. Income statements include Trading Account and Profit and Loss Account. These statements record the various items of revenue and expense of a business. The difference between revenue and expense is regarded as profit or loss during a year.

3. Assessment of Financial Position- Determining the profits or losses from business activities is not enough. It is also very important for a business to know its financial position, i.e. the strengths and weaknesses of the business. This can be easily assessed by preparing a Balance Sheet at the end of an accounting period. Balance Sheet is a statement showing various assets and liabilities of a business prepared for a particular accounting period.

4. Assistance to Management- One of the important objectives of accounting is to assist the management by providing them vital and relevant information. Management uses this information for effective decision-making, formulating plans and efficient control over business activities, etc.

5. Assessment of Progress of Business- Accounting helps in comparing the results of two or more periods. This, in turn, helps in assessing the trends of growth and progress of a business.

6. Detection and Prevention of Errors and Frauds - There is always a possibility of errors and frauds in a business while carrying out its activities. The chances of their occurrence is minimised to a great extent by maintaining a systematic record of various business transactions.

7. Communicating Accounting Information- An important step in the accounting process is communicating the financial and accounting information to various users including both internal and external users. This assists the users to understand and interpret the accounting data in a meaningful and appropriate manner without any ambiguity.

8. Determining Tax Liability- A systematic record of business activities helps in ascertaining the tax liabilities of a business.

Answer:

These days, accounting statements are needed by various parties that have their interests in a business, namely, proprietors, investors, creditors, government and other accounting users. It is, therefore, necessary that such statements should be prepared according to the standards and rules. These rules are usually called ‘Generally Accepted Accounting Principles’ (GAAP). These principles have been generally accepted by accountants all over the world as general guidelines for preparing the financial statements. These principles ensure that financial reporting is transparent and consistent from one organisation to another. Accounting principles can also be described by various terms such as assumptions, conventions, concept etc.

Basic or Fundamental Accounting Assumptions

1. Going Concern- It is the basic underlying assumption of accounting, which states that financial statements are prepared assuming that the business is a going concern, i.e. the company intends to continue the business indefinitely.

2. Consistency- The convention of consistency means accounting practices, once adopted, must be applied consistently in future.

3. Accrual- According to the accrual concept, business transactions are recorded as and when they occur and not when payment for the same is made.

Characteristics of Accounting Principles

1. Flexible in Nature: The accounting principles must be flexible in nature in order to keep up with the ever-changing needs of a business.

2. Man-made: These principles have been developed by accountants and academicians over a long period of time through continuous application, while adapting to the ever-changing needs of businesses.

3. Generally Accepted: These principles are universally accepted and are free from personal bias. In order to be universal in character, three basic criteria should be fulfilled, which are given below :

a. Usefulness

b. Objectivity

c. Feasibility