H.S 1st year Accountancy Notes
Unit-1: Theory Base of Accounting
Q.What is Generally Accepted Accounting Principles (GAAP)? Mention its features. AHSEC 2010,2016
Ans: Generally accepted accounting principles, or GAAP, are standards that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.
The key features of Generally Accepted Accounting Principles (GAAP) can be rearranged as follows:
a. Consistency: GAAP provides a common set of guidelines and standards for financial reporting, ensuring consistency across different financial statements and reports.
b. Objectivity: GAAP requires that financial information be presented objectively, without bias or personal interpretation.
c. Relevance: GAAP requires that financial information be relevant and useful to users of financial statements.
d. Reliability: GAAP requires that financial information be reliable and accurately reflect the financial position and performance of a company.
e. Comparability: GAAP requires that financial information be comparable across companies, making it easier for investors and analysts to compare and evaluate financial performance.
f. Timeliness: GAAP requires that financial information be made available in a timely manner, providing users with up-to-date information about a company's financial position and performance.
g. Full disclosure: GAAP requires that companies provide full disclosure of all relevant financial information, ensuring that users have access to all the information they need to make informed decisions.
Q.What is Accounting Standard? Mention its objectives. AHSEC 2007, 2009, 2015, 2017, 2018, 2019
Ans: Accounting Standards are a set of guidelines and rules for financial reporting to ensure comparability, consistency, and transparency in financial statements. The objectives of accounting standards are to ensure that financial information is consistent, reliable, and comparable across different companies and industries.
Objectives :
a.To provide a common framework for financial reporting: Accounting standards provide a common set of guidelines and principles for financial reporting, ensuring consistency and comparability across different financial statements and reports.
b. To improve the quality and reliability of financial information: Accounting standards aim to improve the quality and reliability of financial information, ensuring that financial reports accurately reflect the financial position and performance of a company.
c. To provide relevant and useful information to users: Accounting standards require that financial information be relevant and useful to users of financial statements, such as investors, lenders, and regulators.
d. To support decision making: Accounting standards aim to support informed decision making by providing users with accurate and timely financial information.
e. To promote transparency and accountability: Accounting standards promote transparency and accountability in financial reporting, helping to build trust and confidence in the financial markets.
f. To enhance investor protection: Accounting standards aim to enhance investor protection by requiring companies to provide full disclosure of all relevant financial information, reducing the risk of financial fraud and abuse.
Q.What are the benefits and limitations of Accounting Standard?
Ans: The benefits of accounting standards include increased comparability, consistency, and transparency in financial reporting. The limitations include the cost of implementation and difficulty in updating standards to reflect changing business and economic conditions.
Q.What is the list of accounting standards followed in our country?
Ans: In India, the accounting standards followed are the Indian Accounting Standards (Ind AS) which are based on International Financial Reporting Standards (IFRS).
Q.What is accounting concepts and conventions? Mention the various types of concepts and conventions adopted by business concern.
Ans: Accounting concepts and conventions are the fundamental ideas and rules that underlie financial accounting. The main concepts include the going concern concept, the consistency concept, the cost concept, and the duality concept. The main conventions include conservatism, materiality, and full disclosure.
Q.Explain double entry system and single entry system of accounting.
Ans: The double entry system of accounting is a method of recording transactions in which each transaction affects at least two accounts. The single entry system is a method of recording transactions in which only one entry is made for each transaction.
Q.What are the various steps involved in double entry system?
Ans: The steps involved in the double entry system include identifying transactions, recording transactions in a journal, posting journal entries to a ledger, and preparing financial statements.
Q.What are the various advantages and disadvantages of double entry system?
Ans: The advantages of the double entry system include accuracy and completeness in financial reporting, improved internal controls, and the ability to detect errors. The disadvantages include the time and effort required for recording and reconciling transactions.
Q.What are the three bases of accounting? Explain them briefly.
Ans: The three bases of accounting are cash basis accounting, accrual basis accounting, and modified accrual basis accounting. The cash basis records transactions when cash is received or paid out, while the accrual basis records transactions when they are incurred regardless of cash flow. The modified accrual basis is a combination of the two.
Q.What are general considerations in selection of accounting policies?
Ans: General considerations in the selection of accounting policies include materiality, consistency, and cost-benefit analysis. The policies selected should align with the company's objectives, legal and regulatory requirements, and the industry practices.
Q.What are the three assumptions of accounting?
Ans: The three assumptions of accounting are the going concern assumption, the monetary unit assumption, and the time period assumption. The going concern assumption assumes that the company will continue to operate into the future, the monetary unit assumption assumes that the value of money remains constant, and the time period assumption divides the accounting process into specific time periods for reporting purposes.