VERY SHORT ANSWER QUESTIONS
Q1. What is meant by ‘Accounting?
Ans: Accounting is the art of recording, classifying, summarizing and communicating financial information to users for correct decision making.
Q2. Give any two objectives of accounting.
Ans: 1. To keep systematic record of business transactions.
2. To ascertain profit earned or loss suffered during a particular period.
Q3. How is profit or loss a particular period is ascertained?
Ans: Profit or loss of a particular period is ascertained by preparing a Trading and Profit and Loss Account.
Q4. How do we ascertain the financial position of the business?
Ans: By preparing a Balance Sheet.
Q5. Name the branch of commerce, which keeps a record of monetary transactions in a set of books?
Q6. Give one point of distribution between Book-keeping and Accountancy.
Ans: The main objective of book-keeping is to maintain systematic record of business transactions whereas the main objective of accounting is to ascertain profit or loss and the financial position of the business.
Q7. What is end product of financial accounting?
Ans: End product of accounting are the financial statements (i.e., Profit & Loss Account and Balance Sheet) and reports which provide information that are useful to variety of users who want to know the profitability and financial position of enterprise.
Q8. Who are the internal users of accounting information?
Ans: Internal users are the persons who are directly involved in managing and operating the business enterprise such as directors or the partners, managers and officers.
Q9. Who are the external users of accounting information?
Ans: External users are potential investors, creditors, lenders, employee unions, customers, Government etc.
Q10. State the nature of information required by Investors.
Ans: They want information regarding risks and returns on their investment in the business enterprise.
Q11. What type of information is required by long-tem lenders?
Ans: They want information about the creditworthiness and the ability of the enterprise to pay interest and the repayment of their loans.
Q12. What are the informational needs of management?
Ans: Management needs timely information regarding sales, costs, profitability etc. for planning, controlling and decision making.
Q13. Mention two advantages of accounting.
Ans: (i) It provides complete and systematic record.
(ii) It provides information regarding Profit or Loss
Q14. Write one limitation of accounting.
Ans: Based on Historical Costs: Accounts are prepared on the basis of historical costs (i.e., the original costs) and as such
the figures given in the financial statements do not show the effect of changes in price level
Q15. Write names of two qualitative characteristics of accounting information.
Ans: (i) Reliability; (ii) Comparability.
Q16. Which qualitative characteristic of accounting information requires the use of common unit and common format of reporting?
Q17. ‘Accounting information should be verifiable and free from personal Bias’. Name the qualitative characteristic of accounting information denoted by this statement.
Q18. Define Book Keeping.
Ans: Book Keeping is an art of recording in the books of accounts the monetary aspect of commercial and financial transactions.
Q19. What is the function of Book Keeping?
Ans: The function of Book Keeping is to identify financial transactions and events, measuring them in money terms, recording them in the books of accounts and classifying the recorded transactions.
Q20. Name the branch of commerce, which keeps a record of monetary transactions in a set of books.
Ans: Book Keeping.