Important Questions for CBSE Class 11 Accountancy Chapter 1 - Introduction to Accounting

A. Very Short Answer Questions – 1 Mark

1. What do you understand by “Accounting”? 

Ans: Accounting is the progression of recording financial transactions affecting a business. The summary of financial transactions for a particular accounting period, summarizing a company's data, financial position and cash flows by preparing financial statements is also known as Accounting.

2. What is the change in the role of an accountant? 

Ans: Now accountants not only record transactions but also provide required information to members. This will create new opportunities for the accountants to get indulged in other scope of business management.

3. What do you mean by Asset and liabilities? 

Ans: Assets are the items owned by an individual or a company that can provide future economic benefit. Liabilities are what you owe to the other parties.

4. Define capital of the company. 

Ans: Capital of the company is the mix of assets or resources a company can draw on in financing its business.

5. Define debtors and creditors of the company. 

Ans: Creditors are those people or firms to whom money is payable or extend credit to another party during the course of business. Debtors are those  people or firms to whom money is receivable. Debtors are bound to pay the money due to them during the course of business.

B. Short Answer Questions – 2 Mark 

1. To whom and for what process the accountant provides information? 

Ans: Accountant of the company provides information to members of the company and shareholders, creditors, vendors, financial analysts, and government agencies for the decision making process, which helps management for fast and correct decision implementation. 

2. Describe four nature of accounting 

Ans: Accounting nature can be classified in following ways; 

1. Accounting is an information system.

2. Accounting relates with financial information and transactions.

3. Accounting is mean and not an end.

4. Accounting is an art

5. Accounting is a process

3. Differentiate between Capital and working capital?

Ans: The difference between capital and working capital are:

4. Distinguish between Expenses and expenditure of the company? 

Ans: The difference between expenses and expenditure are:

5. Differentiate between profit and gain?

Ans: The difference between Profit and gain are:

C. Short Answer Questions – 3 Marks 

1. Explain reasons why users need accounting information. 

Ans: Following are the reasons why users need accounting information: 

1. Owners or shareholders of the company who have invested in the company need to know if they are getting satisfactory return for their investment. 

2. Directors and managers of the company need accounting information for the evaluation of the performance internally and externally. 

3. Stockholders have the right to know how a company is handling its investments. 

4. Banks or financial lending companies can utilize the accounting data to help in making selections such as whether to lend or how much to lend a company.

2. Define in what way accounting is the source of information. 

Ans: The various ways accounting is the sources of the information are explained as follows: 

1. Helps to evaluate the flow of cash in the organization and effects due to it. 

2. It is used as a means of announcement between a business organization and its shareholders.

3. Provide information that relies on the accounting information of the organization. 

4. The accounting process is a basis of info, it uses business data and processes it to generate applicable information.

3. What are the objectives of accounting? 

Ans: The objectives of accounting are as follows:

1. The main objective of accounting is to keep an organized record of financial transactions which helps the users to appreciate the day to day transactions in an organized way so as to gain knowledge about total business.

2. To determine profit or loss of the business.

3. To represent  the financial situation of the business.

4. To offer  accounting data to the interested parties.

4. What are the different roles of accounting? 

Ans: The different kind of roles of accounting are as follows; 

1. Regulator of financial policy and construction of planning.

2. To preserve full and organized  records of business transactions.

3. It can be used for Evaluation of employees' performance.

4. Nowadays accounting is used to determine the income of the company. 

5. Explain the types of information external users of accounting information are interested. 

Ans: Following is the type of information external users need: 

1. Investment created by external users including risk and reward.

2. Creditors are interested in accounting data, because it enables them to fix the credit worthiness of the business.

3. The creditworthiness and ability of the company to pay. 

4. All the information of allocations of assets of the company and compliance are regularly carried out. 

5. Amount on credit taken by the company is paid off in which aspects and time period it takes. 

D. Long Answer Questions - 5 Marks 

1. Role of accountant in today’s environment and how they help management? 

Ans: Role of accountant in today’s environment can be defined as follows: 

1. Accountants have various fields to work like forensic accounting, e-commerce accounting, financial planning, etc. 

2. Assisting in the direction and management of activities, such as assessing and comparing actual performance to budget plans and directing focus to successful or problematic areas.

3. It Helps management in the decision making process for the growth of the company. 

4. It collects the information and communicates it to the organization which provides this information to a wide variety of stakeholders. 

5. Accountants' abilities may also help the environment save money. Environmental accountants may frequently reduce both environmental and financial expenses by calculating the usage of alternative chemicals, methods, or product designs.

2. Define all the four nature of accounting. Explain? 

Ans: The nature of the accounting are explained below:

1. Economic Events: Economic events refer to an event which will happen for the growth of the organization and consist of various transactions which are in monetary terms. For example, buying an asset for the company, transportation cost, labour cost to install the asset and other expenses in installing such asset. 

2. Identification, Measurement, Recording and Communication: First step of accounting is to identify the nature of the transaction whether it is related to accounting or not. Measurement means whether it can be measured in monetary terms or not. If not then it will not be included in accounts and will be treated differently. Recording comes after identifying and measuring the transaction, it is then recorded in books of accounts. Communication is made after the transaction is recorded to the relevant parties internally and externally. 

3. To depict the financial position of the business: A businessman is also interested in establishing his financial position at the end of a given period. For this resolution, a position statement called Balance Sheet is prepared in which assets and liabilities are revealed. 

4. Interested users of information: There are two types of users internally and externally. Internal users of the information are directors, managers and employees. External users are creditors, shareholders, debenture holders, government, etc. 

3. Define the branches of accounting. Explain? 

Ans: The development of the economy and its complexity with technological advancements has increased the importance of accounting and its uses. As due to these reasons it has given rise to the new branches or ways of accounting which are as follows: 

1. Financial accounting: Financial accounting is the branch of accounting that deals with the summarization, analysis, and reporting of a company's financial activities. This entails the production of financial statements for public consumption. Financial accounting's primary goal is to correctly create an organization's financial accounts for a certain time, often known as financial statements. The Profit and loss statement, balance sheet, and statement of CFOs are the three major financial statements.

2. Cost accounting: "A structured set of methods for collecting and reporting computation of the cost of producing things and giving services in the collection and in detail," according to the meaning of cost accounting. Calculating fixed and variable costs is a part of cost accounting. Fixed costs are monthly expenses that do not change depending on the amount of output. Rent, depreciation, interest on loans, and leasing expenditures are all examples.

3. Management accounting: The activity of finding, measuring, evaluating, interpreting, and presenting financial information to managers in order to achieve an organization's objectives is known as management accounting. Management accounting enhances an organization's worth by certifying the efficiency and effective use of limited resources, including financial resources. As a result, it gives crucial information for employees to improve their talents.

4. Give details about the asset side of the balance sheet of the company. 

Ans: Asset side of the balance sheet of the company contains: 

• Non- Current Asset: 

1. Fixed Asset: 

i. Tangible Asset 

ii. Intangible Asset 

iii. Capital Work-In-Progress 

iv. Intangible Assets under Development 

2. Non-Current Investments 

3. Deferred Tax Assets 

4. Long Term Loan & Advances 

5. Other Non-Current Assets 

• Current asset: 

1. Current investment 

2. Inventories 

3. Trade receivables 

4. Cash and cash equivalents 

5. Short term loan and advances 

6. Other current asset 

5. Give details about the liabilities side of the balance sheet of the company. 

Ans: Liabilities side of the balance sheet of the company contains the following details: 

• Non-Current Liabilities 

1. Long Terms Borrowings 

2. Deferred Tax Liabilities 

3. Other Long Term Liabilities 

4. Long Terms Provisions 

• Current Liabilities 

1. Short Terms Borrowings 

2. Trade Payables 

3. Other Current Liabilities 

4. Short Terms Provisions