Introduction to Accounting: Case Based Type Questions | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year PDF Download

Read the following hypothetical Case Study and answer the given questions:
Accounting is the most important part of any business entity. It gives the framework to record all the business transactions and events that happens during the working of the business entity. Accounting is the language of business with books of accounts being its script and debit-credit its style i.e. the way of expressing it. According to the American Accounting Association, “Accounting is the process of identifying, measuring and communicating information to permit judgement and decisions by the users of accounts.” According to American Institute of Certified Public Accountants – ‘‘Accounting is 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 a financial character and interpreting the result thereof.” Accounting is an Art as well as Science. It records Financial Transactions only which can be expressed in terms of money. First the transactions are recorded and then they are classified and summarised to interpret the financial position of the business.
One needs to keep in mind that Accounting and Accountancy are two different concepts. Accounting is the recording, classifying and summarising business transactions to ascertain the financial position of the business firm. On the other hand, Accountancy is the body of knowledge based on principles for recording, classifying and summarising business transactions to help in the decision making function of management. Accounting is an art of recording, classifying and summarising all the business transactions. It is a science as well as it follows certain guiding accounting principles and standards.
Question 1:
Accounting gives the _________ to record all the business transaction.
(a) Framework
(b) Process
(c) Money
(d) Classification

Correct Answer is Option (a)
Business transactions are ordinarily summarized in books called journals and ledgers. You can buy them at your local stationery or office supply store. A journal is a book where you record each business transaction shown on your supporting documents.

Question 2: 
Accounting is 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 a financial character and interpreting the result thereof. This definition of Accounting is given by:
(a) Indian Institute of Chartered Accountants
(b) American Accounting Association
(c) American Institutes of Certified Public Accountants
(d) International Financial Regulation System

Correct Answer is Option (c)
In 1941, The american institute of Certified Public Accounts (AICPA) had defined accounting as the art of recording, classifying and summerising 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. With greater economic development resulting in changing role of accounting its scope become broader.

Question 3: 
Accounting is called science because it follows certain guiding ___________.

Answer: Accounting principles and standards

Question 4: 
Accounting records only __________ transactions.

Answer: Financial

Read the following hypothetical Case Study and answer the given questions:
Business Transactions are only recorded in the Accounting Books of a firm and no other transaction that happens in the day to day functioning of the business. Now the question arises what exactly is the Business transactions? To answer this basic question we need to see that the transaction fulfils the basic criteria. First one being the transaction should be an economic activity, that is it should create an income for the firm or an expense for it. Like we can say that the payment of salary to the staff is a business transaction but persuading a customer to buy a product or hiring a staff for that matter is not a business transaction. Secondly, the transaction should change the financial position of the firm, that is it should either raise the income of the firm or create debt for the firm. For example, even if the goods are bought on credit, increasing creditors of the firm, it is a business transaction as it is creating a debt for the firm. But obviously, praising a staff for his work to sell the product at a better profit, is not termed as business transaction although it motivates the employee but does not result in changing the financial position of the firm. Lastly, the transaction should be able to be expressed in terms of money.
Every business transaction lead to an event, that is a consequence of the transaction. Say for example, when the goods bought for ₹30,000 is sold for ₹32,000, the profit ₹2,000 is the event. In other words, we can say that event is what a transaction does for the business entity. Every transaction is supported by a document that provides the authorisation and allows the transaction to be recorded in the books of accounts. It varies from entity to entity and every transaction needs to have a separate uniquely numbered voucher. When we talk of business transactions, everything inclusive of acquiring of assets, whether current or non-current, and incurring of liability, whether internal, external, current or non-current, is present. The change in stock due to sale or purchase whether cash or credit, the expenses incurred, and other revenue generated are all business transactions, that are called events and have separate unique vouchers.
Question 5:
Business Transaction of _____________ nature.
(a) Economic
(b) Monetary
(c) Financial 
(d) All of the above

Correct Answer is Option (d)
The purchase and sale of goods for cash or on credit, the receipts and payments of cash etc., are termed as business transactions since these activities involve exchange of values between parties. A business transaction therefore results in some property, goods or services changing hands.

Question 6:
Business Transactions leads to an _________, that is nothing but its consequence.

Answer: Event

Question 7: 
Which of the following is not a business transaction?
(a) Buying of Furniture
(b) Paying salaries of the accountant
(c) Giving a motivation speech to the employee
(d) Buying a good for personal use from the office money

Correct Answer is Option (c)
In the context of accounting, a nonfinancial transaction is a transaction in which assets, liabilities, expenses, income, and equity do not change. An example of this would be hiring an employee. No journal entry is necessary for a non-financial transaction.

Question 8:
Every business transaction is accompanied by _______________ voucher.

Answer: Separate uniquely numbered

Question 9:
Pick the odd one out:
(a) Bank Loan
(b) Cash at Bank
(c) Creditors
(d) Bills Payable

Correct Answer is Option (b)
Cash at Bank: The total amount of money held at the bank by a person or company, either in current or deposit accounts. It is included in the balance sheet under current assets.

Question 10:
Pick the odd one out:
(a) Cash in Hand
(b) Cash at Bank
(c) Debtors
(d) Creditors

Correct Answer is Option (d)
A creditor is an entity (person or institution) that extends credit by giving another entity permission to borrow money intended to be repaid in the future. Creditors can be classified as either personal or real. People who loan money to friends or family are personal creditors.