CBSE Class 11 Accountancy Basic Accounting Terms Worksheet

 

1) Business Transaction:

• The term ‘Business transaction’ means a financial transaction or event entered into by two parties and is recorded in the books of accounts.

• Examples : Sales of goods, purchase of goods, Receipts from Debtors etc

2) Capital:

• It is the amount invested by the proprietor or partner in the business.

• It may be in the form of money or assets having monetary value.

• Capital is also known as Owner’s equity or Net worth

3) Drawings:

• It is the amount withdrawn or goods taken by the proprietor or partner for personal use.

• Drawings reduce the investment of the owners.

4) Liabilities:

• Liabilities means amount owed or payable by the business.

• Liability towards the owners of the business is termed as internal liability. On the other hand liability towards outsiders (creditors, bank overdraft, long term borrowings etc) is termed as external liability.

• Liabilities are further classified into

a) Non Current liabilities: It is that liability which is payable after a period of more than one year from the end of the accounting year. Examples are long term loans, debentures etc.

b) Current liabilities: It is that liability which is payable within 12 months from the end of the accounting period. Examples are Creditors, Bills payable etc.

5) Assets :

• Assets are the properties (tangible and intangible assets) owned by a business.

• In other words, anything which will enable the firm to get cash or an economic benefit in the future is an asset.

• Assets are classified into:

a) Non Current assets: Non-current assets are those assets which are held by a business not with a purpose to resell but are held either as investment or to facilitate business operations. Non-current assets include:

Fixed assets: Fixed assets are those assets which are not meant for resale but for generating revenue in the business. They are further classified into

i) Tangible fixed assets: Tangible assets are those assets which have a physical existence i.e. they can be seen and touched. Examples are Land, Building, and Furniture etc.

ii) Intangible fixed assets: Intangible assets are those assets which do not have physical existence i.e. they cannot be seen and touched. Examples are Goodwill, Patents, and Copyright etc.

b) Current assets: Current assets are those which are held by the business with the purpose of converting them into cash with a period of one tear. Examples are Debtors , bills receivable etc.

c) Fictitious assets: Fictitious assets are those assets which are neither tangible assets nor intangible assets. They are losses not written off in the year in which they are incurred but in more than one accounting year. Examples are Discount or Loss on issue of Debentures etc

6) Expenditure: It is the amount spent or liability incurred for acquiring assets, goods or services. They are categorized into

a) Capital Expenditure: It is an expenditure incurred to acquire assets or improving the existing assets which will increase the earning capacity of the business.
Examples are Purchase of machinery, furniture etc. It is shown on the assets side of the Balance sheet.

b) Revenue Expenditure: It is the expenditure incurred, the benefit of which is consumed or exhausted within the accounting period. It has a direct relationship with revenue. Examples are Salaries, rent etc. It is shown on the debit side of Trading account or Profit and Loss account.

c) Deferred Revenue Expenditure: It is revenue expenditure in nature but is written off or charged in more than one accounting period. Examples are Advertising expenditure.

7) Expense: It is the cost incurred for generating revenue. Examples are salaries, wages, rent etc. Prepaid expense: It is an expense that has been paid in advance and the benefit of which will be available in the following year or years.

Outstanding expense: It is an expense that has been incurred but has not been paid.

8) Income: It is the profit earned during a period. It is the difference between revenue and expense.

9) Profit: It means income earned by the business from its operating activities. It is further divided into :

a) Gross profit: It is the difference between revenue from sales over its direct cost.

b) Net Profit: It is the profit earned after allowing for all expenses.

10) Gain: It is a profit irregular or non-current in nature. It is a profit that arises from transactions which are the operating activities of the business but are incidental to it such as gain on sale of fixed assets or investments.

11) Loss: It is the excess of expenses over its revenue. It decreases the owner’s equity. For example goods lost by fire, theft etc.

12) Purchase: It is used for purchases of goods for resale or for producing the finished products which are also to be sold. It includes both cash purchases and credit purchases.

13) Sales: It is associated with or used for sale of goods that is dealt with by the firm. It includes both Cash sales and Credit sales.

14) Goods: goods are the physical items of trade. It applies to all the items making up the sales or purchases of business.

15) Stock: It is tangible asset held by an enterprise for the purpose of sale in the ordinary course of business or for the purpose of using it in the production of goods meant for sale. It may be Opening stock (stock in hand in the beginning of the year) and Closing stock (stock in hand at the end of the accounting year).

16) Debtor: He is a person who owes amount to the enterprise against credit sale of goods or services.

17) Creditor: He is a person to whom an enterprise owes amount against credit purchase of goods or services.

18) Voucher: It is an evidence of a business transaction. Examples are Cash memo, Invoice or Bill, Receipt, Debit note, Credit note etc.

19) Discount: When customers are allowed rebate in the prices of goods or from the amount paid by customers it is known as discount. It includes:

a) Trade Discount: It is a rebate allowed by the seller on the basis of sales, either quantity or value.

b) Cash Discount: It is a rebate allowed for timely payment of the due amount.

CBSE Class 11 Accountancy Chapter 2 Theory Base of Accounting MCQs

Question. The concept that anticipates the Loss and not the Profit Refers to :
a) Consistency
b) Full Disclosure
c) Conservatism
d) Matching
Answer. C

Question. State the principle which enables the comparison of the financial result inter- firm as well as intra firm.
a) Consistency
b) Prudence
c) Full disclosure
d) Matching
Answer. A

Question. The main function of Accounting standards Board is
i) To identify areas in which uniformity in standards is requested
ii) Develop draft standards after wide discussion with representative, the public sector undertakings etc.
a) Option (i) is the correct Statement
b) Option (ii) is the correct Statement
c) Both Option (i) and (ii) are the correct Statement
d) None of the Option is the correct Statement
Answer. C

Question. The statement that provide the applicability of laws, customs, usages and the business environment of any country is known as:
a) Financial statement
b) Accounting Information
c) Accounting standards
d) Accounting Convention
Answer. C

Question. According to which accounting concept, the capital introduced while commencement of the business is considered as the liability of the firm?
a) Money Measurement
b) Matching
c) Business Entity
d) Full Disclosure
Answer. C

Question. i) The money measurement concept states that only the money related transactions can be recorded in the books of accounts.
iii) The creativity of the employee that contributes to the profit in the Research Department can be recorded under the money measurement Concept.
a) Option (i) is the correct Statement
b) Option (ii) is the correct Statement
c) Both Option (i) and (ii) are the correct Statement
d) None of the Option is the correct Statement
Answer. A

Question. Identify the two pair of accounting concept under which the life of business is assumed to continue to carry, so the firm invested Rs. 50,000 to purchase a machinery and assumed to earn Rs. 10,000 as a revenue from it.
a) Going Concern and Cost Concept
b) Matching and Dual aspect
c) Cost Concept and Consistency concept
d) Revenue Recognition and Matching Concept.
Answer. A

Question. The credit sales are treated as revenue on the day sales are made and not when money is received from the buyer refers to the :
a) Realisation concept
b) Matching concept
c) Cost Concept
d) Dual aspect
Answer. A

Question. Accrual accounting is based on the basis of accounting principle that states the concept of:
a) Cost
b) Full Disclosure
c) Matching
d) Materiality
Answer. C

Question. Which principle does implies when the closing stock is valued at the cost or market value whichever less is, discount on debtors, creating provisions for doubtful debts or writing of the intangible assets etc. In the books of account.
a) Cost
b) conservatism
c) Materiality
d) consistency
Answer. B

Question. Which principle does implies when the firm shows all the expenses related to its revenues of a specified accounting period even if the expenses were not paid in that financial year.
a) Cost
b) matching
c) conservatism
d) Dual aspect
Answer. B

Question. i) Double entry system can minimise the possibilities of frauds and mis-appropriations.
ii) Every debit must have its corresponding credit
iii) single entry system is the complete system of maintaining records of the financial transaction
iv) The arithmetic accuracies can be checked by preparing the trial balance in the single entry system
a) Option (i) and option (ii) are the correct statement.
b) Option (ii) and option (iii) are the correct statement
c) Option (i) and option (iii) are the correct statement
d) Option (iv) and option (ii) are the correct statement
Answer. A

Question. As per this concept under accounting concepts/assumptions, business is assumed to continue for a long period of time in future and there is no intention of closing it. Which concept is highlighted here?
(a) Consistency concept
(b) Going concern concept
(c) Accrual concept
(d) None of the above
Answer. B

Question. According to consistency concept,which of the following statements is correct?
(i) Accounting principles should be changed year to year to benefit the organisation.
(ii) Accounting principles or methods should remain same from year to year.
(iii) Business firm can change accounting methods according to the changed circumstances of business.
(a) Only (ii)
(b) Only (iii)
(c) Only (i) and (iii)
(d) Only (ii) and (iii)
Answer. D

Question. In accrual concept, revenue is recorded when ……… .
(a) cash is received
(b) sales are made
(c) goods are delivered
(d) None of the above
Answer. B

Question. Going concern concept is indespensable for the proper working of the business. Which of the following events are based on the concept of going concern?
(a) Outside parties purchase the debentures and shares of the enterprise
(b) Prepaid expenses, which have no realisable value are shown as assets in balance sheet
(c) Classification of current and fixed assets is made in accounting books
(d) All of the above
Answer. D

Question. Which of the following methods need not remain consistent from year to year?
(a) Method of depreciation : Straight line or Written down value
(b) Method of stock valuation : LIFO, FIFO or HIFO
(c) Both (a) and (b)
(d) None of the above
Answer. D

Question. Even after the existence of consistency concept, if the accountant feels that change in a particular method will lead to the better disclosure of profits and the financial position of the business, the changed method may be adopted.
(a) True
(b) False
(c) Partially true
(d) Partially false
Answer. A

Question. According to business entity principle, business is treated as a unit separate and distinct from its ……… .
(a) owners
(b) promoters
(c) shareholders
(d) All of these
Answer. D

Question. Principle of separate entity is applicable to only sole proprietorship business.
(a) True
(b) False
(c) Partially false
(d) Can’t say
Answer. B

Question. Goods used from stock of the business for business purposes are treated as the ……… of business but similar goods used by proprietor for his personal use are treated as ……… .
(a) inventory, expenditure
(b) drawings, expenditure
(c) drawings, inventory
(d) expenditure, drawings
Answer. D

Question. Accrual concept is based on ……… .
(a) matching principle
(b) dual aspect principle
(c) cost principle
(d) going concern concept
Answer. A

Question. Accounting concepts are basic assumptions which are taken for any business and business are considered to be following them. From the given options, identify which of the following cannot be considered a fundamental accounting assumption?
(a) Going concern
(b) Consistency
(c) Accrual
(d) Materiality
Answer. D

Question. According to ……… principle, an event, even though it may be very important for the business, will not be recorded in the books of business unless its effect can be measured in terms of money with a fair degree of accuracy.
(a) materiality
(b) money measurement
(c) full disclosure
(d) dual aspect
Answer. B

Question. Which of the following will be recorded in the books of account?
(i) Competitor placing better product in market.
(ii) Strike by labour union.
(iii) Labours being pair.
(a) (i) and (ii)
(b) (ii) and (iii)
(c) Only (iii)
(d) All of these
Answer. C

Question. As per the law, which of the following is the correct accounting period?
(a) 1st April to 31st December
(b) 1st April to 31st March
(c) 1st January to 31st December
(d) Both (b) and (c)
Answer. B

Question. According to ………, the entire life of business should be divided into timeintervals for the measurement of the profits of business.
(a) going concern concept
(b) accounting period principle
(c) consistency concept
(d) principle of prudence
Answer. B

CBSE Class 11 Accountancy Chapter 2 Theory Base of Accounting Fill in The Blanks  

Question. Ghanshyam and co. purchased machinery worth Rs 12,00,000. It further incurred transportation cost of Rs 2,00,000 and installation cost of Rs 5,00,000. The market price of the machinery at the end of the accounting year was Rs 25,00,000. Ghanshyam and co. should record the machinery price as Rs ____________ in the books.
Answer. 19,00,000

Question. Rajawat Furnishing House purchased 10 tables @ Rs 2,000, 20 chairs @Rs 800 and 2 Sofa Set. He was not able to record the transaction of Sofa Set as it does not fulfil the condition of ____ concept.
Answer. Money Measurement

Question. Rent is to be paid Rs 6,000 recorded as Outstanding Rent due to _________ concept.
Answer. Accrual

Question. Aman and Raman are creating 5% provision for doubtful debts keeping in mind ___________ principle of accounting.
Answer. Conservatism

Question. Karan started business with cash of Rs 3,50,000 which is borrowed from Dev. On one hand he has an asset of Rs 3,50,000 cash while on other hand, he has a liability towards Dev. Thus we can say accounting is done by _______ entry system.
Answer. Double

Question. Devdhar keeps record of his assets according to market value, probably he does not know about _________ concept.
Answer. historical cost

Question. Ajit is running a small shop and keeping record of cash inflow and outflow only. He is maintaining his books on _____ basis of accounting.
Answer. cash

Question. Somya and Komal are manager in a company. Somya is more organised and systematic, but employer cannot record her Quality of work as her efficiency cannot be measured in terms of ___________.
Answer. Money

Question. Accounting standards are not applicable on ________ organisations.
Answer. not for profit

Question. M/s Amarnath recorded the transactions on day basis and could not prepare Trial Balance directly as he missed _______________ step of accounting process.
Answer. Classifying

Question. Depreciation is charged under __________ basis of accounting.
Answer. accrual

Question. Bhushan is unaware about ___________ concept and preparing his books on quarterly basis.
Answer. Accounting Period

CBSE Class 11 Accountancy Chapter 2 Theory Base of Accounting True and False  

1. M/s Future Ltd. has invested Rs 10,000 in the shares of Relicam Industries limited. Current market value of the shares is Rs 10,500. Accountant of Future Ltd. wants to show Rs 10,500 as value of investment in the books of accounts. Can he do so? False
2. Due to Materiality Concept the cost of small calculator is accounted as an expense and not shown as on Assets in a financial statement. True
3. According to Accrual Concept, raw material consumed is matched against cost of goods sold. True
4. Can a Business firm record 10 chairs, 10 tables, a building have 10 rooms? False
5. Cash basis of accounting is incompatible with matching principle. True
6. A firm recorded the market value of asset in the financial statement has violated one of the principle of Accounting. True
7. Due to Dual Aspect Principle, the contingent Liabilities are shown as a foot note in the Balance Sheet. False
8. The market value of stock is increased but the firm not recorded its market value as the stock is not yet sold due to the adherence of Conservatism Concept. True
9. The market value may vary from person to person and from place to place, thus objectivity cannot be maintained if such value is adopted for accounting purpose. True
10. Single entry system is a complete, accurate and most reliable system of maintaining records of financial transactions. False
11. Accounting standards enhances comparability of financial statements for both intra and inter firm analysis. True
12. Accounting standards is rigidly followed and fails to extend flexibility. True
13. To uniform Accounting policies and procedures almost all countries have agreed to apply IFRS. But the name of IFRS has been converged as Ind AS. True

CBSE Class 11 Accountancy Chapter 2 Theory Base of Accounting Match The Following

Question.
Which principle is Followed here
1. Accounting should be free from personal bias.            a) Dual Aspect concept
2. Firm borrows amount from bank leads to increase      b) Verifiable evidence objective.
in assets and liabilities both.
                                                                                         c) Materiality Concept
                                                                                         d) Cost Concept
Answer. 1-b; 2-a

Question.
Which principle is violated in the below give match the column:
1. Contingent liabilities are not recorded as a foot note.            a) Conservatism concept
2. Closing stock is valued at a cost or market price                   b) Matching principle
whichever is higher.

                                                                                                   c) Verifiability Objective
                                                                                                   d) Full disclosure principle
Answer. 1-d; 2- a

Question.
1. Balance sheet items should be presented under the prescribed head.     a) Indian accounting standard
2. Companies which are listed on the stock exchange in India                     b) Indian company Act 2013
                                                                                                                       c) IFRS
Answer. 1-b; 2- a

Question.
1. Salary due to Mohan                     a) Revenue
2. Interest received in advance         b) Liabilities
                                                          c) Assets
Answer. 1-b; 2- b

Question.
1. Revenue realized at the time of sale.                         a) Business Entity Concept
2. Business will not be liquidated in the near future.       b) Revenue recognition principle
                                                                                        c) Going concern Concept
Answer. 1-b; 2- c

Question.
1. Interest on bank loan            a) Assets
2. Cash balance.                      b) liability
                                                 c) Expense
                                                 d) revenue
Answer. 1-b; 2- a

Question.
1. Conservatism                  a) All prospective profits and all prospective losses
2. Ind-AS are based on       b) All prospective losses but not the prospective profits
                                           c) Principles
                                           d) Rules
Answer. 1-b; 2- c

Question.
1. Ind-As apply to     a) Companies having net worth of Rs.250 crores or more
2. GAAP                   b) Companies having net worth of Rs.150 crores or more
                                 c) Rules
                                 d) Priciples
Answer. 1-a; 2- c

CBSE Class 11 Accountancy Chapter 2 Theory Base of Accounting Assertion-Reasoning MCQs

Direction - There are two statements marked as Assertion (A) and Reason (R). Read the statements and choose the appropriate option from the options given below.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is false, but Reason (R) is true
(d) Assertion (A) is true, but Reason (R) is false

Question. Assertion (A) NOP Ltd. purchased a machinery of ` 20,000 which is supposed to last for 20 years. The accountant decides to spread the cost of machinery for next 20 years for calculation of profit and loss.
Reason (R) According to consistency concept, accounting principles and methods should remain consistent from one year to another.
Answer. B

Question. Assertion (A) A claim of a very big sum pending in a court of law against the enterprise should be brought to the notice of the users of financial statements, otherwise the statements would be misleading.
Reason (R) According to principle of full disclosure, all significant information relating to the economic affairs of the enterprise should be completely disclosed.
Answer. A

Question. Assertion (A) Capital = Liabilities− Assets.
Reason (R) According to the dual aspect principle, every business transaction is recored as having a dual aspect, one aspect is debit and the other aspect is credit.
Answer. C

Question. Assertion (A) Cash basis of accounting is that accounting which records only cash transactions, i.e. only those incomes and expenses are recorded which have been received and paid in cash respectively. Thus, cash basis of accounting violates GAAP.
Reason (R) Cash basis of accounting makes a distinction between capital and revenue items.
Answer. D

Question. Assertion (A) The goods supplied from Chennai to Lucknow would fetch Integrated GST.
Reason (R) Integrated GST is levied in the course of inter-state supply of goods and services.
Answer. A

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