Questions and Answers: Introduction to Accounting, Accountancy - Class 11 PDF Download

 Page 1


 
CHAPTER 1- INTRODUCTION TO ACCOUNTING 
 
Q.1. Explain the factors. which necessitated systematic accounting. 
Ans. In the earliest days businessmen concentrated upon book-keeping records dealing with their 
transactions with debtors and creditors The Industrial Revolution of 19th century witnessed an enormous 
growth in commercial activities. It witnessed the introduction of the limited liability company. The 
Companies Act provided for the appointment of an auditor on behalf of shareholders. Business enterprises 
started to appoint professional accountants to maintain and audit their accounts. Another important factor in 
systematic accounting has been increasing direct interest of the government in business enterprises. The 
increase in direct taxation has forced the businessmen to keep proper accounts as a means to a fair 
assessment of taxation. The growing interest of various groups in the affairs of the business concerns has 
necessitated the systematic accounting. 
  
Q.2. Describe the brief history of accounting. 
Ans. Accounting is as old as money itself. In the early stages of civilisation. the number of transactions to 
be recorded were So small that each businessman was able to record and check for himself all his 
transactions. It is evident from Kautilya's Arthashastra that accounting was practiced in India. 23 centuries 
ago. However. the modern system of accounting based on the principles of Double Entry System owes its 
origin to Luco Pacioliwho first published the principles of Double Entry System in 1494 at Venice in Italy. 
It is only in the late thirties that the study of the subject "Accounting" has been taken up seriously. In 1941. 
the American Institute of Certified Public Accountants (AICPA) defined "accounting as the art of recording. 
classifying and summarising in a significant manner and in terms of money. transactions and events which 
are. in part. at least. of financial character and interpreting the results thereof." Today accounting is an 
information system meeting the informational needs of various groups interested in the operation ions of the 
enterprise. 
  
Q.3. Explain the development and role or accounting. 
Ans. Accounting came into practice as an aid to human memory by maintaining a record of business 
transactions. Afterwards. accounting developed as a means to meet the legal requirements i.e.. provisions of 
Companies Act. Income-tax Act. etc. It was subsequently realised that accounting is capable of providing 
the kind of information useful for decision making by management and other interested groups. This aspect 
of accounting has become so important that accounting is. regarded as an information system or language of 
business. 
Following are the different roles of accounting . 
(i) As a historical record-Accounting is treated as a chronological record of financial transactions of an 
enterprise. 
(ii) As current economic reality — Accounting is viewed as the means of determining correct income 
Page 2


 
CHAPTER 1- INTRODUCTION TO ACCOUNTING 
 
Q.1. Explain the factors. which necessitated systematic accounting. 
Ans. In the earliest days businessmen concentrated upon book-keeping records dealing with their 
transactions with debtors and creditors The Industrial Revolution of 19th century witnessed an enormous 
growth in commercial activities. It witnessed the introduction of the limited liability company. The 
Companies Act provided for the appointment of an auditor on behalf of shareholders. Business enterprises 
started to appoint professional accountants to maintain and audit their accounts. Another important factor in 
systematic accounting has been increasing direct interest of the government in business enterprises. The 
increase in direct taxation has forced the businessmen to keep proper accounts as a means to a fair 
assessment of taxation. The growing interest of various groups in the affairs of the business concerns has 
necessitated the systematic accounting. 
  
Q.2. Describe the brief history of accounting. 
Ans. Accounting is as old as money itself. In the early stages of civilisation. the number of transactions to 
be recorded were So small that each businessman was able to record and check for himself all his 
transactions. It is evident from Kautilya's Arthashastra that accounting was practiced in India. 23 centuries 
ago. However. the modern system of accounting based on the principles of Double Entry System owes its 
origin to Luco Pacioliwho first published the principles of Double Entry System in 1494 at Venice in Italy. 
It is only in the late thirties that the study of the subject "Accounting" has been taken up seriously. In 1941. 
the American Institute of Certified Public Accountants (AICPA) defined "accounting as the art of recording. 
classifying and summarising in a significant manner and in terms of money. transactions and events which 
are. in part. at least. of financial character and interpreting the results thereof." Today accounting is an 
information system meeting the informational needs of various groups interested in the operation ions of the 
enterprise. 
  
Q.3. Explain the development and role or accounting. 
Ans. Accounting came into practice as an aid to human memory by maintaining a record of business 
transactions. Afterwards. accounting developed as a means to meet the legal requirements i.e.. provisions of 
Companies Act. Income-tax Act. etc. It was subsequently realised that accounting is capable of providing 
the kind of information useful for decision making by management and other interested groups. This aspect 
of accounting has become so important that accounting is. regarded as an information system or language of 
business. 
Following are the different roles of accounting . 
(i) As a historical record-Accounting is treated as a chronological record of financial transactions of an 
enterprise. 
(ii) As current economic reality — Accounting is viewed as the means of determining correct income 
earned by the enterprise and of ascertaining correct financial position 
(iii)As language — Language is a means of communicating one's views and opinions. Accounting as a 
language communicates information relating to enterprise. 
(iv)As an information system — Accounting as an information system communicates economic 
information to wide variety of interested groups. 
(v)As a commodity — Accounting is considered as a tool of social welfare. According to this approach. 
accounting information should be beneficial to the society as a whole 
 
Q.4. Define accounting and state its objectives. 
 
Ans. Accounting may be defined as the process of recording. classifying and summarising business 
transactions of a financial character and interpreting and communicating the results to the users to enable 
them to make decisions. 
Following arc the objectives of accounting. 
(1)To maintain the records of business — The primary objective of accounting is to maintain a systematic 
record of business transactions 
(2)To calculate profit or loss — Another objective of accounting is to ascertain profit or loss earned by the 
business during the accounting period. 
(3)To show financial position —Accounting provides necessary information about the financial position 
i.e.. assets. liabilities and capital of the owner. 
(4)To communicate information —The last but not the least objective of the accounting is to communicate 
the various information and facts to various interested groups viz.. owners. creditors. employees. taxation 
authorities. etc. 
 
Q.5. Describe the informational needs of external users. 
 
Ans. Following are the informational needs of external users : 
(1)Social responsibility groups — There are various social organisations such as environmental groups who 
seek information relating to environment and its protection^ 
(2)Competitors-are interested in the information on the relative strengths and weaknesses of the 
competition. Competitors make inter-firm comparison. 
(3 )Employees — Employees need accounting information to claim increase in wages. bonus and other 
benefits. 
(4)Investors — Investors are the persons who want to invest their moneys in the business. They need 
accounting information to know the safety of their investments and future prospects of the business. 
(5)Creditors —Creditors arc the persons who have advanced some money or goods to the business. They 
need accounting information to know the capacity of the business to pay their claims in time. 
(6)Government —Government needs accounting information to collect the various taxes like sales tax. 
income tax. excise duty etc. 
(7)Research scholars —Research scholars need accounting information to study the financial operations of 
a particular firm or company. 
(8)Consumers — Consumers need accounting information to create public opinion against those business 
firms who exploit the consumers. 
 
Q.6. What do you mean by an asset and what arc the different types of assets ? 
 
Ans. Assets may be defined as the properties or resources of the business that help it to earn revenue. Assets 
increase the operational efficiency of an enterprise and result in economic benefits to the business. 
Assets are of two types : 
(i) Fixed Assets. 
Page 3


 
CHAPTER 1- INTRODUCTION TO ACCOUNTING 
 
Q.1. Explain the factors. which necessitated systematic accounting. 
Ans. In the earliest days businessmen concentrated upon book-keeping records dealing with their 
transactions with debtors and creditors The Industrial Revolution of 19th century witnessed an enormous 
growth in commercial activities. It witnessed the introduction of the limited liability company. The 
Companies Act provided for the appointment of an auditor on behalf of shareholders. Business enterprises 
started to appoint professional accountants to maintain and audit their accounts. Another important factor in 
systematic accounting has been increasing direct interest of the government in business enterprises. The 
increase in direct taxation has forced the businessmen to keep proper accounts as a means to a fair 
assessment of taxation. The growing interest of various groups in the affairs of the business concerns has 
necessitated the systematic accounting. 
  
Q.2. Describe the brief history of accounting. 
Ans. Accounting is as old as money itself. In the early stages of civilisation. the number of transactions to 
be recorded were So small that each businessman was able to record and check for himself all his 
transactions. It is evident from Kautilya's Arthashastra that accounting was practiced in India. 23 centuries 
ago. However. the modern system of accounting based on the principles of Double Entry System owes its 
origin to Luco Pacioliwho first published the principles of Double Entry System in 1494 at Venice in Italy. 
It is only in the late thirties that the study of the subject "Accounting" has been taken up seriously. In 1941. 
the American Institute of Certified Public Accountants (AICPA) defined "accounting as the art of recording. 
classifying and summarising in a significant manner and in terms of money. transactions and events which 
are. in part. at least. of financial character and interpreting the results thereof." Today accounting is an 
information system meeting the informational needs of various groups interested in the operation ions of the 
enterprise. 
  
Q.3. Explain the development and role or accounting. 
Ans. Accounting came into practice as an aid to human memory by maintaining a record of business 
transactions. Afterwards. accounting developed as a means to meet the legal requirements i.e.. provisions of 
Companies Act. Income-tax Act. etc. It was subsequently realised that accounting is capable of providing 
the kind of information useful for decision making by management and other interested groups. This aspect 
of accounting has become so important that accounting is. regarded as an information system or language of 
business. 
Following are the different roles of accounting . 
(i) As a historical record-Accounting is treated as a chronological record of financial transactions of an 
enterprise. 
(ii) As current economic reality — Accounting is viewed as the means of determining correct income 
earned by the enterprise and of ascertaining correct financial position 
(iii)As language — Language is a means of communicating one's views and opinions. Accounting as a 
language communicates information relating to enterprise. 
(iv)As an information system — Accounting as an information system communicates economic 
information to wide variety of interested groups. 
(v)As a commodity — Accounting is considered as a tool of social welfare. According to this approach. 
accounting information should be beneficial to the society as a whole 
 
Q.4. Define accounting and state its objectives. 
 
Ans. Accounting may be defined as the process of recording. classifying and summarising business 
transactions of a financial character and interpreting and communicating the results to the users to enable 
them to make decisions. 
Following arc the objectives of accounting. 
(1)To maintain the records of business — The primary objective of accounting is to maintain a systematic 
record of business transactions 
(2)To calculate profit or loss — Another objective of accounting is to ascertain profit or loss earned by the 
business during the accounting period. 
(3)To show financial position —Accounting provides necessary information about the financial position 
i.e.. assets. liabilities and capital of the owner. 
(4)To communicate information —The last but not the least objective of the accounting is to communicate 
the various information and facts to various interested groups viz.. owners. creditors. employees. taxation 
authorities. etc. 
 
Q.5. Describe the informational needs of external users. 
 
Ans. Following are the informational needs of external users : 
(1)Social responsibility groups — There are various social organisations such as environmental groups who 
seek information relating to environment and its protection^ 
(2)Competitors-are interested in the information on the relative strengths and weaknesses of the 
competition. Competitors make inter-firm comparison. 
(3 )Employees — Employees need accounting information to claim increase in wages. bonus and other 
benefits. 
(4)Investors — Investors are the persons who want to invest their moneys in the business. They need 
accounting information to know the safety of their investments and future prospects of the business. 
(5)Creditors —Creditors arc the persons who have advanced some money or goods to the business. They 
need accounting information to know the capacity of the business to pay their claims in time. 
(6)Government —Government needs accounting information to collect the various taxes like sales tax. 
income tax. excise duty etc. 
(7)Research scholars —Research scholars need accounting information to study the financial operations of 
a particular firm or company. 
(8)Consumers — Consumers need accounting information to create public opinion against those business 
firms who exploit the consumers. 
 
Q.6. What do you mean by an asset and what arc the different types of assets ? 
 
Ans. Assets may be defined as the properties or resources of the business that help it to earn revenue. Assets 
increase the operational efficiency of an enterprise and result in economic benefits to the business. 
Assets are of two types : 
(i) Fixed Assets. 
(ii) Current Assets. 
Fixed assets are the assets which are held in the business for a long period of time. Fixed 
assets are not meant for resale in the normal course of business. For example. land. building. 
machinery. furniture are fixed assets. 
Current assets are the assets which arc held in the business for a short period of time. 
Current assets can be realised to discharge liabilities. For example. cash. debtors and stock 
arc current assets. 
Q.7. Explain the meaning of gain and profit. Distinguish between these two terms. 
Ans. Gain means a profit ( benefit) which arises from the non-recurring transactions. Profit 
means a profit (benefit) which arises from the recurring transactions. Profit represents excess 
of revenues over expenses. 
The distinction between gain and profit is that gain is the result of non-business operations 
such as sale of fixed asset or appreciation in die value of an asset while profit is the result of 
business operations such as sale of goods. 
Q.8. Explain the qualitative characteristics of accounting information. 
Ans. Following are the qualitative characteristics of accounting information ; 
(0 Understandability —An accounting information should be readily understandable by the 
different users. Accounting information should be presented in simple terms and form. 
(ii)Relevance —An accounting information should be relevant for decision making. To he 
relevant. information must be made available in time and must help in prediction and 
feedback. 
(iii)Reliability -An accounting information should be reliable in the sense that it should be 
free from error and bias and should represent what it should represent An accounting 
information should be objective /.e.. solidly supported by the facts. 
(iv)Comparability — An accounting information will be useful and beneficial to the 
different users only when it is comparable over time and with other enterprises For this. 
there should be consistency Lt\. use of common unit of measurement. common format of 
reporting and common accounting policies. 
Q.9. Describe the role of accounting in the modern world. 
Ans. The role of accounting in the modern world may be discussed as under: 
(i)As a historical record —The traditional role of accounting is to keep systematic records 
of financial transactions. There is a limit to human memory. 
(ii)As an current economic reality — Accounting helps in ascertaining the net profit 
earned by the business and financial position. Every businessman desires to know the 
operating results and financial position. 
Page 4


 
CHAPTER 1- INTRODUCTION TO ACCOUNTING 
 
Q.1. Explain the factors. which necessitated systematic accounting. 
Ans. In the earliest days businessmen concentrated upon book-keeping records dealing with their 
transactions with debtors and creditors The Industrial Revolution of 19th century witnessed an enormous 
growth in commercial activities. It witnessed the introduction of the limited liability company. The 
Companies Act provided for the appointment of an auditor on behalf of shareholders. Business enterprises 
started to appoint professional accountants to maintain and audit their accounts. Another important factor in 
systematic accounting has been increasing direct interest of the government in business enterprises. The 
increase in direct taxation has forced the businessmen to keep proper accounts as a means to a fair 
assessment of taxation. The growing interest of various groups in the affairs of the business concerns has 
necessitated the systematic accounting. 
  
Q.2. Describe the brief history of accounting. 
Ans. Accounting is as old as money itself. In the early stages of civilisation. the number of transactions to 
be recorded were So small that each businessman was able to record and check for himself all his 
transactions. It is evident from Kautilya's Arthashastra that accounting was practiced in India. 23 centuries 
ago. However. the modern system of accounting based on the principles of Double Entry System owes its 
origin to Luco Pacioliwho first published the principles of Double Entry System in 1494 at Venice in Italy. 
It is only in the late thirties that the study of the subject "Accounting" has been taken up seriously. In 1941. 
the American Institute of Certified Public Accountants (AICPA) defined "accounting as the art of recording. 
classifying and summarising in a significant manner and in terms of money. transactions and events which 
are. in part. at least. of financial character and interpreting the results thereof." Today accounting is an 
information system meeting the informational needs of various groups interested in the operation ions of the 
enterprise. 
  
Q.3. Explain the development and role or accounting. 
Ans. Accounting came into practice as an aid to human memory by maintaining a record of business 
transactions. Afterwards. accounting developed as a means to meet the legal requirements i.e.. provisions of 
Companies Act. Income-tax Act. etc. It was subsequently realised that accounting is capable of providing 
the kind of information useful for decision making by management and other interested groups. This aspect 
of accounting has become so important that accounting is. regarded as an information system or language of 
business. 
Following are the different roles of accounting . 
(i) As a historical record-Accounting is treated as a chronological record of financial transactions of an 
enterprise. 
(ii) As current economic reality — Accounting is viewed as the means of determining correct income 
earned by the enterprise and of ascertaining correct financial position 
(iii)As language — Language is a means of communicating one's views and opinions. Accounting as a 
language communicates information relating to enterprise. 
(iv)As an information system — Accounting as an information system communicates economic 
information to wide variety of interested groups. 
(v)As a commodity — Accounting is considered as a tool of social welfare. According to this approach. 
accounting information should be beneficial to the society as a whole 
 
Q.4. Define accounting and state its objectives. 
 
Ans. Accounting may be defined as the process of recording. classifying and summarising business 
transactions of a financial character and interpreting and communicating the results to the users to enable 
them to make decisions. 
Following arc the objectives of accounting. 
(1)To maintain the records of business — The primary objective of accounting is to maintain a systematic 
record of business transactions 
(2)To calculate profit or loss — Another objective of accounting is to ascertain profit or loss earned by the 
business during the accounting period. 
(3)To show financial position —Accounting provides necessary information about the financial position 
i.e.. assets. liabilities and capital of the owner. 
(4)To communicate information —The last but not the least objective of the accounting is to communicate 
the various information and facts to various interested groups viz.. owners. creditors. employees. taxation 
authorities. etc. 
 
Q.5. Describe the informational needs of external users. 
 
Ans. Following are the informational needs of external users : 
(1)Social responsibility groups — There are various social organisations such as environmental groups who 
seek information relating to environment and its protection^ 
(2)Competitors-are interested in the information on the relative strengths and weaknesses of the 
competition. Competitors make inter-firm comparison. 
(3 )Employees — Employees need accounting information to claim increase in wages. bonus and other 
benefits. 
(4)Investors — Investors are the persons who want to invest their moneys in the business. They need 
accounting information to know the safety of their investments and future prospects of the business. 
(5)Creditors —Creditors arc the persons who have advanced some money or goods to the business. They 
need accounting information to know the capacity of the business to pay their claims in time. 
(6)Government —Government needs accounting information to collect the various taxes like sales tax. 
income tax. excise duty etc. 
(7)Research scholars —Research scholars need accounting information to study the financial operations of 
a particular firm or company. 
(8)Consumers — Consumers need accounting information to create public opinion against those business 
firms who exploit the consumers. 
 
Q.6. What do you mean by an asset and what arc the different types of assets ? 
 
Ans. Assets may be defined as the properties or resources of the business that help it to earn revenue. Assets 
increase the operational efficiency of an enterprise and result in economic benefits to the business. 
Assets are of two types : 
(i) Fixed Assets. 
(ii) Current Assets. 
Fixed assets are the assets which are held in the business for a long period of time. Fixed 
assets are not meant for resale in the normal course of business. For example. land. building. 
machinery. furniture are fixed assets. 
Current assets are the assets which arc held in the business for a short period of time. 
Current assets can be realised to discharge liabilities. For example. cash. debtors and stock 
arc current assets. 
Q.7. Explain the meaning of gain and profit. Distinguish between these two terms. 
Ans. Gain means a profit ( benefit) which arises from the non-recurring transactions. Profit 
means a profit (benefit) which arises from the recurring transactions. Profit represents excess 
of revenues over expenses. 
The distinction between gain and profit is that gain is the result of non-business operations 
such as sale of fixed asset or appreciation in die value of an asset while profit is the result of 
business operations such as sale of goods. 
Q.8. Explain the qualitative characteristics of accounting information. 
Ans. Following are the qualitative characteristics of accounting information ; 
(0 Understandability —An accounting information should be readily understandable by the 
different users. Accounting information should be presented in simple terms and form. 
(ii)Relevance —An accounting information should be relevant for decision making. To he 
relevant. information must be made available in time and must help in prediction and 
feedback. 
(iii)Reliability -An accounting information should be reliable in the sense that it should be 
free from error and bias and should represent what it should represent An accounting 
information should be objective /.e.. solidly supported by the facts. 
(iv)Comparability — An accounting information will be useful and beneficial to the 
different users only when it is comparable over time and with other enterprises For this. 
there should be consistency Lt\. use of common unit of measurement. common format of 
reporting and common accounting policies. 
Q.9. Describe the role of accounting in the modern world. 
Ans. The role of accounting in the modern world may be discussed as under: 
(i)As a historical record —The traditional role of accounting is to keep systematic records 
of financial transactions. There is a limit to human memory. 
(ii)As an current economic reality — Accounting helps in ascertaining the net profit 
earned by the business and financial position. Every businessman desires to know the 
operating results and financial position. 
(iii)As Language of the business — The basic function of any language is to serve as u 
means of communication. Accounting communicates information relating to enterprise. 
(iv)As an information system--Accounting as an information system communicates 
economic information to various interested groups such as management. investors. creditors. 
employees. government. consumers etc. 
(v)As a commodity — Accounting reports the activities of the enterprise affecting society 
which are important for social environment.