4 Marks Question

Question 14 Marks

Name the steps followed in accounting process.

Answer

Accounting process begins with the origin and identification of business transaction and is followed by recording, classification and summarization of business transactions culminating in preparation of trial balance and financial statements, i.e., Profit & Loss Account and Balance Sheet. Following steps are followed in accounting process:

Identification of Transactions

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Preparation of Vouchers

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Recording in books of original entry

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Posting to Ledger

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Preparation of Trial Balance and Financial Statements

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Question 24 Marks

“Cash Basis of Accounting is not a better basis for depicting the correct financial position of an enterprise.” Do you agree? Give reasons in support of your answer.

Answer

Yes, we agree. Cash Basis of Accounting is not a better basis for depicting the correct financial position of an enterprise.
Reasons:

It does not give a true and fair view of profit or loss and financial position of the enterprise because it ignores outstanding expenses, prepaid expenses, accrued incomes and incomes received in advance.
It does not follow matching principle of accounting. For example, acquisition of goods will have to be treated as expenses of the period in which payment is made instead of the periods in which benefits are derived from them.
There is a great possibility of manipulation of profits in cash basis of accounting because payments may either be delayed or made early and similarly incomes may be postponed or collected early.
Companies Act, 2013 does not recognize it.

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Account 4 Marks Question

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