Account 1 Marks Question

End product of accounting are the financial statements (i.e., Profit & Loss Account and Balance Sheet) and reports which provide information that are useful to a variety of users who want to know the profitability and financial position of an enterprise.

Book-keeping.

1. It provides complete and systematic record.
2. It provides information regarding Profit or Loss.

Excess of revenue over expenses is called income.
Income = Revenue – Expenses

Two functions of accounting are:

1. Identifying financial transactions.
2. Recording them in the books of account.

The term purchases is used for buying of goods for resale or for use in manufacturing process. The term purchases includes both Cash and Credit purchase of goods.

Accounting is the art of recording, classifying, summarising and communicating financial information to users for correct decision making.

Current Assets include Cash and other assets which are expected to be converted into Cash within a short period (normally within one year).

Any two of these: potential investors, creditors, lenders, employee unions, customers, Government etc.

Two advantages of Accounting are:

1. Financial performance and position is known.
2. Assist management in making business plans, take decisions and exercise control.

The two accounting systems are:

1. Double Entry System.
2. Accounts from Incomplete Records or Single Entry System.

1. Creditors.
2. Bankers or Financial Institutions.
3. Government and its Authorities.

If the accounting information is not clearly presented, then it will violate the 'Reliability and Understandability' qualitative characteristics of accounting because if accounting information is not clearly presented then it will not be reliable and also cannot be understood easily.

The limitations of Accounting are:

1. Non-financial informations are not recorded.
2. It ignores price level changes.

Accounting is the art of recording, classifying, summarising and communicating financial information to users for correct decision making.

"Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information."

1. It results in a change in the financial position of the firm, i.e. a change in the values of some of the assets, liabilities or capital.
2. The change must be capable of being expressed in terms of money.

Based on Hisorical Coast: Accounts are prepared on the basis of historical costs (i.e., the original costs) and as such the figures given in the financial statements do not show the effect of changes in price level.

Accounting information should be comparable because of the following reasons.

1. Comparable accounting information helps in inter-firm comparisons. This helps in assessing viability and advantages of various policies adopted by different firms.
2. It also helps in intra-firm comparisons that help in determining the changes and also to ascertain the results of various policies and plans adopted in different time periods. This also helps to figure out the errors, ascertain growth and assist in management planning.

Management needs timely information regarding sales, costs, profitability etc. for planning, controlling and decision making.

A voucher is a document on the basis of which transactions are first recorded in the books.

Book Keeping.

The two objectives of Accounting are:

1. Ascertaining profit or loss.
2. Ascertaining financial position.

Accounting information refers to the financial statements generated through the process of Book Keeping, use of which helps the users to arrive at decisions. The financial statements so generated are the Income Statement, i.e., Profit and Loss Account and the Position Statement, i.e., Balance Sheet. The information made available by these statements can be categorized into the following:

1. Information Relating to Profit or Surplus.
2. Information Relating to Financial Position.
3. Information about Cash Flow.

1. Goods are purchased for resale whereas assets are held for continued use in the business.
2. Goods are always 'tangible' i.e., they can be seen and touched whereas assets may be both tangible and intangible.

Internal users are the persons who are directly involved in managing and operating the business enterprise such as directors or the partners, managers and officers.

Book Keeping is an art of recording in the books of account the monetary aspect of commercial and financial transactions.

The main objective of book-keeping is to maintain systematic record of business transactions whereas the main objective of accounting is to ascertain profit or loss and the financial position of the business.

They want information about the creditworthiness and the ability of the enterprise to pay interest and the repayment of their loans.

When discount is allowed to the customers for making prompt payment it is called cash discount. It is always recorded in the books of accounts.

It refers to the amount which the firm owes to outsiders (expecting the amount owed to proprietors).

If the benefit of an expenditure is exhausted within a year it is called expense whereas excess of expenses of a period over its related revenues is termed as loss.

When discount is allowed by a seller to its customers at a fixed percentage on the list or catalogue price of the goods it is called trade discount. It is not recorded in the books of accounts.

Assets are valuable resources owned by a business enterprise which can be measured in terms of money.

1. Investors: Use them to see if they are getting satisfactory returns on their investment and also to assess the financial health of their enterprise.
2. The government agencies: Use them for the payment of various taxes such as Goods and Service Tax (GST), Income Tax etc.