CBSE Class 11 Accountancy Introduction to Accounting Worksheet Set A

1. Meaning of Book-keeping It is an art of recording in the books of accounts, the monetary aspect of commercial and financial transactions. Book-keeping is concerned with record keeping or maintenance of books of accounts.

2. Meaning of Accounting It is the process of identifying, recording, classifying, summarising, interpreting and communicating financial information relating to an organisation to the interested users for judgement and decision-making. Accounting is a wider concept than book-keeping. It starts where book-keeping ends.

3. Meaning of Accountancy Accountancy refers to the entire body of the theory and practice of accounting. It is the systematic knowledge of accounting. It tells us why and how to prepare the books of accounts and how to summarise the accounting information and communicate it to the interested parties.

4. Objectives of Accounting
(i) Systematic recording of business transactions
(ii) Calculation of profit and loss
(iii) Ascertainment of financial position
(iv) Providing accounting information to its users for decision-making

5. Functions of Accounting
(i) Maintaining systematic records
(ii) Communicating the financial results for decision-making
(iii) Meeting government regulation
(iv) Protecting business assets
(v) Assistance to management
(vi) Stewardship or trusteeship
(vii) Control

6. Accounting Process and Cycle Accounting process starts with identifying financial transactions, involves recording, classifying and summarising and ends with interpreting accounting information and communicating the result to various concerned parties by preparing final accounts.
The complete sequence, beginning with the recording of the transactions and ending with the preparation of the final accounts, is called accounting cycle.

7. Is Accounting a Science or an Art?
Accounting is both an art as well as a science.Accounting is an art of recording, classifying and summarising financial transactions. It helps us in ascertaining the net profit and financial position of the business enterprise.
Accounting is also a science as it is an organised body of knowledge based on certain principles.

8. Advantages of Accounting
(i) Financial information about the business
(ii) Assistance to management
(iii) Replaces memory
(iv) Facilitates comparative study
(v) Facilitates settlement of tax liabilities
(vi) Facilitates raising loans
(vii) Acts as an evidence in court
(viii) Helps at the time of insolvency
(ix) Helps in ascertaining the value of business
(x) Helps in ascertaining the net result of operations
(xi) Helps in ascertaining financial position

9. Limitations of Accounting
(i) Accounting does not indicate the realisable value
(ii) Ignores the qualitative elements
(iii) Ignores price level changes
(iv) Window dressing
(v) Not free from bias

10. Branches of Accounting
(i) Financial Accounting The process of identifying, measuring, recording, classifying, summarising, analysing, interpreting and communicating the financial transactions and events is known as financial accounting. The purpose of this branch of accounting is to keep a record of all financial transactions.
(ii) Cost Accounting It is the process of ascertaining and controlling the cost of a product, operation or function. The purpose of cost accounting is to analyse the expenditure, so as to ascertain the cost of various products manufactured by the firm and fix the prices. It also helps in controlling the costs and providing necessary costing information to management for decision-making.
(iii) Management Accounting It is the use of accounting techniques for providing information to help all levels of management in planning and controlling the activities of business to enable decision-making.
The purpose of management accounting is to assist the management in taking rational policy decisions and to evaluate the impact of its decisions and actions. Management accounting not only includes cost accounting but also covers other areas such as capital expenditure decisions, capital structure decisions, dividend decisions etc.
(iv) Social Responsibility Accounting It is the process of identifying, measuring and communicating the social effects of business decisions to various users to enable judgements and decision-making by them. It is accounting for social costs and social benefits.
(v) Human Resource Accounting It is the process of identifying, measuring and communicating the value of investments made in human resources of an enterprise.

11. Different Roles of Accounting in Business
(i) As a language
(ii) As a historical record
(iii) As current economic reality
(iv) As an information system

12. Accounting Information Accounting is a service activity as it provides necessary financial information about the business. Accounting information is basically a qualitative information, which is financial in nature, about economic entities that is intended to be useful in making economic decision.

13. Qualitative Characteristics of Accounting Information
(i) Reliability (ii) Relevance
(iii) Understandability (iv) Comparability

14. Types of Accounting Information
(i) Information relating to profit or surplus
(ii) Information relating to financial position
(iii) Information about cash flow

15. Users of Accounting Information Users of accounting information may be categorised into internal users and external users.
(i) Internal Users
(a) Owners (b) Management
(c) Employees and workers
(ii) External Users
(a) Investors and potential investors
(b) Unions and employee groups
(c) Lenders and financial institutions
(d) Suppliers and creditors
(e) Customers
(f) Government and other regulators
(g) Social responsibility groups
(h) Competitors

16. Need of Accounting Information by Users
The purpose of financial statements is to cater for the needs of the users that could lead them to make better financial decisions. These needs are as follows
(i) Owners Owners use the accounting information for analysing the viability and profitability of their investments, to pay dividends and to determine any future course of action.
(ii) Management Management needs the accounting information to evaluate the performance of the organisation and position also for planning, controlling and decision-making process.
(iii) Employees Employees use the accounting information to find out the financial health, amount of sales and profitability of business to determine their job security, the possibility of future remuneration, retirement benefits and employment opportunities.
(iv) Investors They need information to assess whether to buy, hold or sell their investments. Also they are interested to know the ability of the business to survive, prosper and to pay dividend.
(v) Lenders They are interested to know whether their loan principal and interest will be paid when due.
(vi) Suppliers and Creditors They are also interested to know the ability of the enterprise to pay their dues, that helps them to decide the credit policy for the relevant concern, rates to be charged and so on.

17. Basic Accounting Terms
(i) Business Transaction It means a transaction or event entered into by various parties and recorded in the books of accounts. It can be a cash transaction or a credit transaction.
(ii) Account It is a summarised record of transactions relating to a particular head at one place. In an account, not only the amount of transactions are recorded but their effects and directions are also recorded.
(iii) Capital Capital is the amount invested by the owner in the business. It may be in the form of cash or kind. In accounting ‘business’ and ‘owner’ are separate and distinct entities. Hence, capital is a liability of the business towards the owners. In accounting, such liability is also called internal liability or internal equity or owner’s equity.
(iv) Drawings It is the amount withdrawn by the owner in cash or assets from the business for personal use. Drawings reduce the capital of the owner in the business.
(v) Liabilities It means the amount owed (payable) by the business to outsiders and to owners. Liabilities to outsiders are called external or outside liabilities or simply liabilities. e.g. creditors, bank overdraft, etc. These are the obligations or debts that an enterprise has to pay at sometime in future.

Liabilities can be classified as
Current Liabilities These are the liabilities which are payable within a year. e.g. creditors, bills payable, short-term loans, etc. Non-current Liabilities Anything not classified as current liability is non-current liability. These are payable after a period of more than one year. e.g. debentures, long-term loans, etc.
(vi) Assets Assets are property (movable or immovable) or legal rights owned by an individual or business. These are the economic resources of an enterprise that can be usefully expressed in monetary terms. 

Assets can be classified into Current Assets These are the assets which are purchased to convert them into cash within a short period of time, i.e. one year. e.g. debtors, stock, etc.
Non-current Assets Anything not classified as current asset is non-current asset. These are the assets held by the business not with the purpose to resell but are held either as investment or to facilitate business operations, e.g. fixed assets such as land, building, machinery, long-term investments, etc.
(vii) Fixed Assets There are following two types of fixed assets
Tangible Assets These are the assets which have a physical existence, i.e. they can be seen or touched, e.g. land, buildings, furniture, vehicle, etc.
Intangible Assets These are the assets which do not have physical existence, i.e. they cannot be seen or touched, e.g. trademarks, copyrights, patents, goodwill, etc.
(viii) Receipts The amount received or receivable by selling assets, goods or services is known as receipts. The receipts are categorised into two parts Capital Receipts The amount received or receivable by selling assets is known as capital receipts. e.g. sale of building, furniture, etc. These receipts are non-recurring.
Revenue Receipts The amount which is received or receivable against the sale of goods or services is known as revenue receipts. These receipts are recurring.
(ix) Expenditure It is the amount spent or liability incurred for acquiring assets, goods and services.

Types of expenditures are

Capital Expenditure It is the expenditure incurred to acquire assets or improving the quality of existing assets which will increase the earning capacity of the business. These expenditures give benefit to the business for more than one accounting year, e.g. purchase of machinery. It is non-recurring.
Revenue Expenditure It is the amount spent to purchase goods and services that are consumed during the accounting period. Revenue expenditure does not increase the earning capacity rather maintains the existing earning capacity. It is recurring.
Deferred Revenue Expenditure It is revenue expenditure in nature but provides benefits for more than one accounting period, e.g. heavy advertising expenditure to promote a new product will give benefit for more than one accounting period and hence, is a deferred revenue expenditure.
(x) Expenses Cost incurred by a business in the process of earning revenue are known as expenses. It is a value which has expired during the accounting period. It may be
(a) Prepaid expense
(b) Outstanding expense
(xi) Income It is increase in economic benefits during an accounting period in the form of inflow of assets or decrease of liabilities, that result in increase in internal equity other than those relating to contribution from equity participants.
(xii) Profit Excess of revenue of a business over its cost is termed as profit. Profits are generally of two types
Gross Profit It means excess of operating revenues over direct/ operating expenses. Net Profit It means the excess of revenue over expenses and losses. It increases owner’s equity.
(xiii) Gain It is a profit of irregular or non-recurring nature. It is a profit that arises from events or transactions which are incidental to business such as sale of fixed assets, winning a court case, appreciation in the value of an asset, etc.
(xiv) Loss The excess of expenses of a period over its related revenues is termed as loss. It decreases owner’s equity. It also refers to money or money’s worth lost (or cost incurred) without receiving any benefit in return. e.g. cash or goods lost by theft or a fire accident, etc. It also includes loss on sale of fixed assets. 
(xv) Goods Goods are the articles or things in which a business deals. It is a term that applies to all the items held for sale. They are thus stock-in-trade of an enterprise which is purchased or manufactured with a purpose of selling. For a furniture dealer, furniture is good, for a vehicle dealer, vehicle is goods.
(xvi) Purchases The term ‘purchases’ is used for purchases of goods and not fixed assets. Goods are articles purchased for resale or for producing the finished product which are also to be sold.

The term ‘purchases’ includes both cash and credit purchases of goods. Goods purchased for cash are termed as cash purchases and goods purchased on credit are termed as credit purchases.
(xvii) Purchase Return Goods purchased may be returned when they are not as per specification, are defective or due to any other reasons. Goods returned are known as purchases return or return outwards.
(xviii) Sales It means sale of goods. Sales are total revenues from goods or services sold or provided to customers. Sales includes both cash and credit sales. When goods are sold for cash, they are termed cash sales and when sold on credit, they are termed as credit sales.
(xix) Sales Return Goods sold when returned by the purchaser are termed as sales return or return inwards.
(xx) Stock It is the goods which are 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.

Stock are of following kinds

Stock of Raw Material It includes stock of raw material used for manufacturing of goods, e.g. stock of cloth to be used for making shirts.
Work-in-progress It is a stock that is in the process of being finished, i.e. they are partly finished goods.
(xxi) Trade Receivables The term ‘receivables’ includes the outstanding amount due from others. It includes debtors and bills receivables. These are Debtors Debtors are persons and/or other entities who owe to the enterprise an amount for buying goods and services on credit. The total amount standing against such persons and/or entities on the closing date, is shown in the balance sheet as sundry debtors on the asset side.Bills Receivable It means a bill of exchange accepted by a debtor, the amount of which will be received on future specified date.
(xxii) Trade Payables The term ‘payables’ includes the amounts due to others.Accounts payable includes trade creditors as well as bills payable and promissory notes.

These are
Creditors Creditors are persons and/or other entities who have to be paid by the enterprise an amount for providing the enterprise goods and services on credit. The total amount standing to the favour of such persons and/or entities on the closing date, is shown in the balance sheet as sundry creditors on the liabilities side.
Bills Payable It means a bill of exchange the amount of which will be payable on the specified date.
(xxiii) Cost The amount of expenditure incurred or attributable to a specified article, product or activity is known as cost.
(xxiv) Discount It is any type of reduction in the price of the goods sold.

Discount is generally of two types
Trade Discount It is offered at an agreed percentage of list price, at the time of selling goods. The objective of allowing trade discount is to persuade the buyer to buy more goods.
Cash Discount The objective of allowing cash discount is to encourage the debtor to pay the dues promptly.
(xxv) Voucher It is a documentary evidence in support of a transaction, e.g. cash memo, invoice or bill, receipts, debit/credit notes, etc.

CBSE Class 11 Accountancy Chapter 1 Introduction to Accounting Multiple Choice Questions

Question. Accounting information is used to compare the result of current year with the previous year to analyse the changes.
(a) True
(b) False
(c) Partially true
(d) Can’t say
Answer. A

Question. Although accounting provides lot of advantages to the business, it suffers from certain limitations.Which of these is not a limitation of accounting?
(a) It ignores quantitative elements
(b) It is historical in nature
(c) It is not free from personal bias
(d) It is affected by window dressing
Answer. A

Question. One of the limitations of accounting is that the figure given in financial statements ignore the effects of changes in price level.
(a) True
(b) False
(c) Partially false
(d) Can’t say
Answer. A

Question. Which of the following statements is not true?
(i) Accounting depends on book keeping.
(ii) Accountancy depends on book keeping and accounting.
(iii) Accounting includes summarising the classified transactions.
(iv) Accountancy is narrow in scope.
(a) (i), (ii), (iv)
(b) (ii), (iv)
(c) Only (iv)
(d) None of these
Answer. C

Question. …… function is routine and clerical in nature and is increasingly done by computers now-a-days.
(a) Accounting
(b) Accountancy
(c) Book keeping
(d) Both (a) and (c)
Answer. C

Question. Accounting function is……… in nature.
(a) clerical
(b) routine
(c) analytical
(d) Both (b) and (c)
Answer. C

Question. Recording, classifying and summarising are also termed as ……… .
(a) Accounting cycle
(b) Process of accounting
(c) Both (a) and (b)
(d) Book keeping
Answer. C

Question. ……… is the process of grouping the transactions of one nature at one place, in a separate account.
(a) Recording
(b) Classifying
(c) Summarising
(d) Interpretation
Answer. B

Question. What kind of business are required to perform the ‘recording’ of transaction in terms of ‘money’?
(a) Small sized
(b) Medium sized
(c) Large sized
(d) All of these
Answer. D

Question. Summarising is the art of presenting the…… in an understandable manner.
(a) business information
(b) transactions
(c) classified data
(d) All of these
Answer. C

Question. Accounting indirectly helps the government agencies.
(a) True
(b) False
(c) Partially true
(d) Partially false
Answer. A

Question. Which of the following is not considered as a main branch of accounting?
(a) Cost accounting
(b) Management accounting
(c) Financial accounting
(d) Corporate accounting
Answer. D

Question. The main purpose of which branch of accounting is to record the business transactions in a systematic manner and to ascertain the profit or loss of the accounting period?
(a) Cost accounting
(b) Corporate accounting
(c) Financial accounting
(d) Profit and loss accounting
Answer. C

Question. Each and every branch has its separate set of objectives.Which of these branches of accounting directly or indirectly helps in management decisions?
(i) Cost accounting
(ii) Management accounting
(iii) Financial accounting
(a) Only (ii)
(b) (i) and (ii)
(c) (i) and (iii)
(d) All of these
Answer. D

Question. The main purpose of cost accounting is to ascertain …. of …… rendered by business.
(a) total cost, goods
(b) per unit cost, goods
(c) per unit cost, services
(d) total cost and per unit cost, goods and services
Answer. D

Question. Cash flow statement is a technique of management accounting.
(a) True
(b) False
(c) Partially true
(d) Partially false
Answer. A

Question. Which of this is not an internal user of acounting?
(a) Owners
(b) Employees
(c) Management
(d) Potential investors
Answer. D

 

CBSE Class 11 Accountancy Chapter 1 Introduction to Accounting Case Based MCQs

Direction Read the following case study and answer questions on the basis of the same.

Sen and Shetty are two friends who both have just attended their first class of accountancy.
The friends were intrigued by the different branches of accounting and their widespread application.
Sen personally liked the branch of accounting in which fund flow statement and budgetary control is used and that branch helps in planning and controlling of operations.

As the concept of accounting was further explored, they began discussing the different users of accounting. Sen said that he finds it interesting that even the employees demand information relating to business.
Shetty said he finds more interesting the fact that even competitors want information on the relative strengths and weaknesses of the enterprise and for making comparisons. Shetty further said that even accounting helps owners to compare one year’s costs, expenses, and sales with those of other years. However, they were quite shocked by the fact that the management-worker relations was not taken into consideration in the accounting.
Meanwhile, Sen and Shetty had an argument at the end of the discussion. Sen was saying that accounting is an art whereas Shetty was saying that accounting is a science. Their teacher came in and said something to them which made them stop the argument.

Question. Which branch of accounting is liked by Sen?
(a) Financial accounting
(b) Cost accounting
(c) Management accounting
(d) Tax accounting
Answer. C

Question. Shetty talked about which type of users of accounting?
(a) Internal users
(b) External users
(c) Both (a) and (b)
(d) None of these
Answer. C

Question. Which advantage of accounting is being talked by Shetty in last part of first para?
(a) Provides information regarding profit and loss
(b) Provides completes and systematic record
(c) Enables comparative study
(d) Evidence in legal matters
Answer. C

Question. Which limitation of accounting is being talked by them?
(a) Influenced by personal judgement
(b) Omission of qualitative information
(c) Incomplete information
(d) Based on historical costs
Answer. B

Question. What might have their teacher said to solve their argument?
(a) Sen, please understand, Shetty is correct in this situation
(b) Shetty, please understand, Sen is correct in this situation
(c) Both are correct
(d) None is correct
Answer. C

 Question

→ One Marks Question

1 Define Accounting.

2 Define Accounting according to the American Institute of Certified Public Accountants.

3 What is meant by Book-Keeping?

4 What is meant by Accounting Cycle?

5 Explain the following terms:

1.Entity                                    7.Expenditure

2.Voucher                                8.Expenses

3.Business Transaction              9.Incomes

4.Capital                                10. Revenue

5.Stoc k                                 11.Income

6.Creditors                             12.Drawings

6 List the steps of accounting process based on the main attributes of accounting.

7 What is meant by Double Entry System of Book-Keeping?

8 Define Single Entry system of Book-Keeping.

→ Short and Long Answers (3marks, 4marks, 5marks,6marks)

9 Distinguish between Book-Keeping and Accounting.

10 State and explain the branches of accounting.

11 Explain the internal and external users of Accounting Information?

12 Explain the Objectives of Accounting.

13 What are the advantages of Accounting?

14 Explain all the limitations of Accounting.

15 List and explain the qualitative characteristics of Accounting information.

16 Give short notes on:-

(a)Cost Accounting (b)Management Accounting (c) Forensic Accounting (d) Financial Accounting

17 What are Assets and how are they classified?

18 Explain the attributes of Accounting.

19 Discuss the functions of accounting.

20 What are the advantages of the Double Entry System?

 

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