H.S 1st year Accountancy Notes
Unit-1: Introduction to Accounting & Bookkeeping
Q1. What is Book-Keeping?
Ans: Bookkeeping is the process of recording and organizing financial transactions, such as purchases, sales, receipts, and payments, in a systematic manner to maintain a clear record of a company's financial activities. The purpose of bookkeeping is to provide accurate and up-to-date information that can be used to make informed business decisions.
Q2. What are the features of Book-keeping?
A) Record Keeping: Bookkeeping involves recording all financial transactions, such as sales, purchases, receipts, and payments, in a systematic manner to maintain an accurate record of the company's financial activities.
B) Data Organization: The recorded data is then organized into financial statements, such as balance sheets and income statements, that provide a clear picture of the company's financial position.
C) Decision Making: Bookkeeping provides reliable and up-to-date financial information that can be used by business owners and managers to make informed decisions, such as when to invest, when to borrow, and how to allocate resources.
D) Compliance: Bookkeeping helps ensure compliance with financial reporting regulations and tax laws by providing accurate records that can be used for tax preparation and filing.
E) Budgeting: Bookkeeping information can be used to create a budget and track expenses, helping a business to manage its finances effectively.
Q3. What are the objectives of book-keeping?
Ans: Following are the objectives of book-keeping:
1. To have a permanent record of each transactions of the business.
2. To show the financial effect of each transactions recorded on the entity.
3. To ascertain the combined effect of each transactions on the financial position of the business on a particular date.
4. To disclose factors responsible for earning profit or suffering loss in a given period.
5. To know the amount recoverable by the business from others and payable to others.
Q4. What are the importances of book-keeping?
Ans:
Q5. Define Accounting.
Ans: According to American Institute of Certified Public Accountants or AICPA, “Accounting is the art of recording, classifying and summersing 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.”
Q6. What are the objectives of accounting?
Ans: Following are the objectives of accounting:
Q7. What are the advantages of accounting?
Ans: Following are the advantages of accounting:
a. Replacement of memory: Human memory is a limited capacity to store every business transaction in mind. Therefore, the need arise to record every transaction in different books of account.
b. Prevents frauds: The maintenance of proper account books prevents irregularities, misappropriations, frauds, errors etc.
c. Helpful in planning: An efficient management always plans for the future targets, what will be the plan for production, purchase of goods, sales, marketing of goods, advertisement, acquisition of fixed assets, funds, etc, in the next accounting period.
d. Ascertainment of profit or loss of the business: The profit earned or loss suffered by the business can be calculated if systematic books of business are maintained.
e. Ascertainment of financial position of business: Financial position of the business is ascertained by preparing the balance sheet or positional statement.
Q8. What are the limitations of accounting?
Ans: Following are the limitations of accounting:
a. Permits alternative treatments: Accounting is based on concepts and it follows generally accepted accounting principles but there exist more than one principle for the treatment of any one item.
b. Ignores important non-monetary information: Accounting does not consider the transactions of non-monetary in nature.
c. Does not provide timely information: Accounting designed to supply information in the form of statement for a period normally one year. The business requires timely information at frequent intervals to enable the management to plan and take corrective action.
d. Does not provide detailed analysis: The information supplied by the accounting in reality aggregates of the financial transactions during the course of the year.
e. Does not disclose the present value of the business: Accounting records are based on historical facts and it does not disclose the present value of business.
Q9. What are the difference between Book-Keeping and Accounting?
Ans: Following are the difference between Book-keeping and accounting:
Q10. What are the qualitative characteristics of accounting information?
Ans: Following are the qualitative characteristics of accounting information:
a. Reliability: Reliability is said to comprise representational faithfulness, verifiability and neutrality with an overlay of completeness, freedom from bias, precision and uncertainty.
b. Relevance: Relevance is a quality emphasized in every accounting framework. The relevance of information is affected by its nature and materiality.
c. Understandability: In addition to relevance the users of financial statements will be able to make informed and better decision if they can be able to interpret the contents of financial statements. Understandability is about communicating an intended meaning.
d. Comparability: Another important character of accounting information is comparability. Users should be able to compare financial statements of an enterprise though time in order to assess the trend in performance and financial position.