Chapter 1:Introduction to Accounting

1. Define Accounting:

   • Answer: Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions to provide useful information for decision-making.

2. Objectives of Accounting:

   • Answer: The main objectives of accounting are to provide a systematic record of financial transactions, ascertain profitability, and assist in decision-making for management and stakeholders.

3. Accounting Principles:

   • Answer: Fundamental principles include the Cost Principle (assets are recorded at cost), Revenue Recognition Principle (revenue is recognized when earned), and Matching Principle (expenses are matched with revenues). They ensure consistency and accuracy in financial reporting.

4. Types of Accounts:

   • Answer: Personal Accounts (e.g., Debtors, Creditors), Real Accounts (e.g., Cash, Machinery), and Nominal Accounts (e.g., Expenses, Income).

5. Double Entry System:

   • Answer: The double entry system records each transaction twice: once as a debit and once as a credit. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.

6. Accounting Equation:

   • Answer: The accounting equation is Assets = Liabilities + Equity. It reflects that the total assets of a business are financed by liabilities and owner’s equity.

7. Books of Accounts:

   • Answer: Key books include the Journal (records all transactions), the Ledger (contains individual accounts), and the Cash Book (tracks cash transactions). They help in organizing and summarizing financial information.

8. Journal Entries:

   • Answer: Journal entries record transactions in the journal with debits and credits. Example: For a cash sale of ₹500, Debit Cash ₹500, Credit Sales ₹500.

9. Ledger Accounts:

   • Answer: Posting involves transferring journal entries to the ledger accounts. It helps in grouping and summarizing transactions for each account.

10. Trial Balance:

    • Answer: A trial balance is a statement that lists all ledger accounts and their balances to ensure that total debits equal total credits. It helps in detecting errors in the accounting records.

11. Mention 2 qualitative characteristics of accounting information.

    Answer:

    • Reliability
    • Comparability
     

12. Who among these are not External users of accounting information

    1) Lenders

    2) Government

    3) Employees

    4) Public

    Answer:  3) Employees

13. Which of the following is not a sub-field of accounting?

    • Financial Accounting
    • Cost Accounting
    • Management Accounting
    • Book-keeping

    Answer: Book-keeping

14. What is the traditional function of accounting?

    Answer: Recording of financial transactions.

15. Book-keeping begins where accounting ends. True or False?

    Answer: False

16. Accounting is the language of business. True or False? Answer: True