(HOTS) Questions - Introduction to Accounting - Commerce PDF Download

Q1. Define Accounting. 

According to the American Institute of Certified Public Accountants, Accounting is, 'It is an art of recording, classifying and summarising in a significant manner and terms of money, transactions and events, which are, in part at least, of a financial character, and interpreting the results thereof.

Q2. What is the traditional function of Accounting?

Recording of financial transactions

Q3. Is the basic objective of Book-keeping to maintain systematic records to ascertain the net results of operations of financial transactions?

The basic objective of book keeping is to maintain systematic records of financial transactions.

Q4. What are the 3 advantages of accounting? 

Advantages of accounting are 

• Helpful in business 
• Helpful in decision making 
• Helpful in controlling

Q5. Recording financial transactions and preparing financial statements are the only objectives of accounting. Do You agree?

No. Besides these two, accounting has the objective of providing useful information to the management and communicating financial information to the users.

Q6. What is the first step of the Accounting Process?

Recording of transactions in the books of accounts.

Q7. What is the last step of the Accounting Process?

Communicating the final results to the users who analyze them as per their individual requirements.

Q8. What is the end product of financial accounting? 

End product of financial accounting is 'Financial Statements'. 

Q9. On 1st Jan 2011, Mr. Robert was appointed as Marketing Manager of the firm with a salary of 50,000 per month. State whether this event will be recorded in the books of accounts.

No. The appointment will not be recorded because it has not resulted in any change in the financial position of the firm. (It will be recorded only when the salary is paid.)

Q10. A firm follows the practice of giving the figures of 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?

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

Q11. Give two examples of transactions that are not recorded in accounting.

(i)Resignation by General Manager.

(ii) Value of human resources.

Q12. A firm has received a large order to supply the goods. Will it be recorded in the books?

No. Only the receipt of the order has not resulted in any change in the financial position of the firm.

Q13. Accounting records transactions and events that can be measured in money terms. Is this, in your opinion, a limitation of accounting or an advantage? Give reasons.

Yes. Accounting records only financial transactions. But there are other important events that may have far-reaching effects on business. They are not recorded because they cannot be measured in monetary terms. For example, production loss due to machine breakdown. Thus, it is a limitation to that extent.

Q14. Resignation by a Marketing Manager is not recorded in the books of accounts. Why?

It is not recorded because it cannot be measured in monetary terms.

Q15. Book Keeping is not a part of accounting. Do you agree with the statement?

No. Book Keeping is a part of accounting. Two processes of accounting, i.e., collecting and recording financial transactions and events, are the processes of Book Keeping.

Q16. Is the basic objective of Book Keeping to maintain systematic records or to ascertain net results of operations of financial transactions?

The basic objective of Book Keeping is to maintain systematic records of financial transactions.

Q17. Recording the transactions and events correctly and preparing financial statements are the only objectives of accounting. Do you agree?

No. Besides recording them correctly and preparing financial statements, accounting has the objectives of facilitating management control and communicating financial information to the users.

Q18. Which type of accounting information shows profit earned or loss incurred?

Profit and Loss Account in the case of firms and Statement of Profit and Loss in the case of companies.

Q19. Which type of accounting information shows surplus or deficit in the ease of Not-For-Profit organizations?

Income and Expenditure Account

Q20. State whether the following statements are True or False with reason:

(i) Accounting may be influenced by personal judgment.

True: The accountant has to exercise his personal judgment in respect of various items.

(ii) Financial Statements are not comparable.

False: Financial Statements may be comparable if different firms in the same industry adopt the same accounting principles year to year.

(iii) Accounting Information must be presented in such a way that only accounting people understand it.

False: Accounting Information must be presented in such a simple and logical manner that they are understood easily by the users.

(iv) Accounting Information must be reliable.

True: Accounting Information must be reliable, i.e., the information must be factual and verifiable.