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Commerce Exam  >  Commerce Notes  >  Very Short & Short Answer Questions - Process And basis of Accounting

Very Short & Short Answer Questions - Process And basis of Accounting

Very Short Answer Questions

Q1. What are accounting standards?

Ans: These are written statements specifying uniform rules and practices for preparing the financial statements.

Q2. Give two points regarding nature of accounting standards.

Ans: (i) They lay down the norms of accounting policies to direct as to how the transactions should be recorded.

(ii) They remove the effect of diverse accounting policies.

Q3. Give two advantages of accounting standards.

Ans: 
(i) Accounting standards improve the reliability and credibility of financial statements.

(ii) Accounting standards ensure the consistency and comparability of Financial statements.

Q4. What are the two basic objectives of having Accounting standards?

Ans: 
(i) To ensure uniformity in accounting practices.

(ii) To ensure transparency, consistency and comparability.

Q5. Briefly explain your understanding of IFRS.

Ans:  IFRS are the accounting standards issued by the IASB, recommended to be used by the enterprises globally to produce financial statements following a single set of accounting standards. IFRS are principle based accounting standards in comparison to rule based Indian Accounting Standards. Also they are based on fair value concept.

Q6. Which financial statements are prepared under IFRS?

Ans: Financial Statements prepared under IFRS include:

(i) Statement of Financial Position;

(ii) Statement of Comprehensive Income;

(iii) Statement of Changes in Equity;

(iv) Statement of Cash Flow; and

(v) Notes and Significant Accounting Policies.

Short answers Questions

Q1. Explain the nature of Accounting standards?

Q2. " Accounting Standards ensure the consistency and comparability of Financial Statements." Explain.

Q3. State four advantages of Accounting standards.

Q4. Name any six accounting Standards.

Q5. What are Accounting Standards? Name any two accounting standards.

Q6. Define Accounting Standards. What are their main objectives?

Q7. What are "International Financial Reporting standards? How many Indian Accounting standards (Ind-AS) have been issued so far?

Q8. What is the difficulty in implementing the International Financial Reporting Standards?

Q9. From which date the government will implement IFRS in India?

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FAQs on Very Short & Short Answer Questions - Process And basis of Accounting

1. What is the process of accounting in commerce?
Ans. The process of accounting in commerce involves recording, classifying, summarizing, and interpreting financial transactions of a business. It includes activities such as journalizing, posting to ledger accounts, preparing trial balance, financial statements, analyzing financial data, and communicating the results to stakeholders.
2. What is the basis of accounting in commerce?
Ans. The basis of accounting in commerce refers to the principles and guidelines followed to prepare financial statements. The most commonly used basis is the accrual basis, where revenue and expenses are recognized when earned or incurred, regardless of the actual cash flow. Another basis is the cash basis, which recognizes revenue and expenses only when cash is received or paid.
3. How does the process of accounting help in commerce?
Ans. The process of accounting helps in commerce by providing accurate and reliable financial information about a business. This information is crucial for making informed decisions, evaluating the financial performance, and assessing the financial position of the business. It also facilitates compliance with legal and regulatory requirements and enables effective communication with stakeholders.
4. What are the main steps involved in the accounting process?
Ans. The main steps involved in the accounting process are: 1. Recording: This step involves systematically recording financial transactions in the books of accounts. 2. Classifying: The recorded transactions are then classified into different categories or accounts based on their nature. 3. Summarizing: The classified transactions are summarized and posted to the respective ledger accounts. 4. Balancing: The ledger accounts are balanced by calculating the total debits and credits for each account. 5. Preparing financial statements: The summarized data is used to prepare financial statements like the income statement, balance sheet, and cash flow statement. 6. Analyzing and interpreting: The financial statements are analyzed and interpreted to evaluate the financial performance and position of the business.
5. What are the benefits of using the accrual basis of accounting in commerce?
Ans. The benefits of using the accrual basis of accounting in commerce are: 1. Accurate financial reporting: The accrual basis matches revenues and expenses to the period in which they are earned or incurred, providing a more accurate representation of the financial performance of a business. 2. Better decision-making: Accrual accounting provides a more comprehensive view of a business's financial position, enabling better decision-making based on reliable and timely information. 3. Improved transparency: By recognizing revenues and expenses when earned or incurred, the accrual basis enhances transparency in financial reporting, allowing stakeholders to assess the true financial health of a business. 4. Compliance with accounting standards: The accrual basis is generally required by accounting standards and regulatory bodies, ensuring compliance and consistency in financial reporting. 5. Facilitates business planning: Accrual accounting provides a clearer picture of future cash flows and financial obligations, assisting in effective business planning and budgeting.
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