class 11 commerce accountancy study material
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class 11 commerce accountancy study material
class 11 commerce accountancy study material:-Financial Accounting
class 11 commerce accountancy study material:-Chapter 1 – Introduction to Accounting
- Define accounting.:- Accounting is a process of identifying the events of financial nature, recording them in Journal, classifying in their respective ledgers, summarizing them in Profit and Loss Account and Balance Sheet and communicating the results to the users of such information, viz. owner/s, government, creditors, investors etc.According to the American Institute of Certified Accountants, 1941, “Accounting is an art of recording, classifying and summarising in a significant manner and in terms of money transactions and events that are, in part at least, of a financial character and interpreting the results thereof.”
- State what is end product of financial accounting?
- Income statements (Trading and/or Profit and Loss Account)- An income statement that includes Trading and Profit and Loss Account, ascertains the financial results of a business in terms of gross (or net) profit or loss.
- Balance Sheet- It depicts the true financial positions of a business that provides required information like assets and liabilities of a business firm, to the users of accounting information like owners, creditors, investors, government, e
class 11 commerce accountancy study material:-Chapter 2 – Theory Base of Accounting
- Q. Why is it necessary for accountants to assume that business entity will remain a going concern?
- Answer:- Going Concern Concept assumes that the business entity will continue its operation for an indefinite period of time. It is necessary to assume so, as it helps to bifurcate revenue expenditure (i.e. expenditure related to current year), and capital expenditure (i.e. expenditure whose benefits accrue over a period of time). For example, a machinery that costs Rs 1,00,000, having an expected life of 10 years, will be treated as a capital expenditure, as its benefit can be availed for more than one year; whereas, the per year depreciation of the machinery, say Rs 10,000, will be regarded as a revenue expenditure.
- Q2 : When should revenue be recognised? Are there exceptions to the general rule?
- Answer :Revenue should be recognised when sales take place either in cash or credit and/or right to receive income from any source is established. Revenue is not recognised, in case, if the income or payment is received in advance or the payment is actually received from the debtors. In a nutshell, revenue will be recognised when the right to receive income is established. For example, Mr. A sold goods in January and received payment in February; then revenue is considered to be recognised in the month of January and not in February. However, if Mr A received cash in advance, i.e. in December and goods are sold in January, then the revenue is recognised in January and not in December.The exceptions to this rule are given below.
- Hire purchase- When goods are sold on hire-purchase system , the amount received in installments is treated as revenue.
- Long term construction contract- The long term projects like construction of dams, highways, etc. have long gestation period. Income is recognized on proportionate basis of work certified and not on the completion of contract.
class 11 commerce accountancy study material:-Chapter 3 – Recording of Transactions – I
- Q1 : State the three fundamental steps in the accounting process.Answer :The fundamental steps in the accounting process are diagrammatically presented below.
- Q2 : Why is the evidence provided by source documents important to accounting?Answer :The evidence provided by the source document is important in the following manners:
- It provides evidence that a transaction has actually occurred.
- It provides important and relevant information about date, amount, parties involved and other details of a particular transaction.
- It acts as a proof in the court of law.
- It helps in verifying transactions during the auditing process.
class 11 commerce accountancy study material:-Chapter 4 – Recording of Transactions – II
- Q1 : Briefly state how the cash book is both journal and a ledger?Answer :Transactions are recorded directly from source documents in the Cash Book, so there is no need to record transactions in the Journal book. Further, on the basis of the cash transactions recorded in the Cash Book, cash and bank balances can be determined, and so there is no need to prepare cash account (which is a part of ledger) separately. Thus, the Cash Book serves the purpose of both Journal as well as ledger.
- Q2 : What is the purpose of contra entry?Answer :Contra entry represents deposits or withdrawals of cash from bank or vice versa. The purpose of contra entry is to indicate the transactions that effect both cash and bank balances. This entry does not affect the financial positions of a business. A contra entry is recorded in both sides of a two column Cash Book and is denoted by ‘C’ in the ledger folio column.
class 11 commerce accountancy study material:-Chapter 5 – Bank Reconciliation Statement
- Q1 : State the need for the preparation of bank reconciliation statement?Answer :The need to prepare Bank Reconciliation Statement are given below.
- It helps in finding out the errors and omissions committed in the Cash Book and the Pass Book.
- It shows uncleared cheques, which have already been debited in the Cash Book but have not been yet recorded in the Pass Book.
- It helps in checking embezzlement of money from the bank account.
- It helps in measuring the accuracy of the transactions recorded in the Cash Book.
- It facilitates in preparing revised Cash Book that reflects true bank balance.
- Q2 : What is a bank overdraft?Answer :Bank overdraft is a liability to an account holder. When the account holder withdraws excess amount over his/her available bank balance, he/she runs a negative bank balance. The negative bank balance is an obligation to the account holder and is called bank overdraft. In other words, bank overdraft is the excess of withdrawal over deposits.
class 11 commerce accountancy study material:-Chapter 6 – Trial Balance and Rectification of Errors
- Q1 : State the meaning of a Trial Balance?Answer :Trial Balance is a statement prepared with debit and credit balances of all accounts in ledger, to verify the arithmetical accuracy of the accounts. It is prepared after balancing all the accounts of ledger. There are two columns in a Trial Balance: debit and credit. While debit side includes all the debit balances, credit side includes all the credit balances of the accounts. It also helps in preparing financial statements, as it is a summarise version of the ledger. It is generally prepared on monthly or yearly basis.
- Q2 : Give two examples of errors of principle?Answer :‘Errors of principle’ refer to those errors that are committed when recording of transactions is done against the accounting principle. Below given are the examples of error of principle
1. Wages paid for construction of building debited to Wages Account
In this transaction, wages paid for the construction of building is a capital expenditure and accordingly building account should have been debited. However, in this case, it is treated as revenue expenditure and is debited to Wages Account. This error violates the accounting principle.
2. Amount spent on repair of machinery debited to Machinery Account
In this transaction, amount of repair is a revenue expenditure and not a capital expenditure. It should have been debited as ‘Repairs’, but was wrongly debited to the Machinery Account.
class 11 commerce accountancy study material:-Chapter 7 – Depreciation, Provisions and Reserves
- Q1 : What is Depreciation?Answer :Every business acquires fixed assets for its use in the business over a period of time. As the benefits of these assets can be availed over a long period of time, thus, due to their regular use, there occurs continuous wear and tear and consequently fall in their value. This fall in the value of fixed assets, due to their regular use or expiry of time is termed as depreciation.
A machinery costing Rs 1,00,000 and its useful life is 10 years; so, depreciation is calculated as:
- Q2 : State briefly the need for providing depreciation.Answer :The needs for providing depreciation are given below.
- To ascertain true net profit or net loss- Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to Profit and Loss Account. Assets are used for earning revenues and its cost is charged in form of depreciation from Profit and Loss Account.
- To show true and fair view of financial statements- If depreciation is not charged, assets are shown at higher value than their actual value in the Balance Sheet; consequently, the Balance Sheet does not reflect true and fair view of financial statements.
- For ascertaining the accurate cost of production- Depreciation on plant and machinery and other assets, which are engaged in production, is included in the cost of production. If depreciation is not included, cost of production is underestimated, which will lead to low sale price and thus leads to low profit.
- Distribution of dividend out of profit- If depreciation is not charged, which leads to overestimating of profit and consequently more profit is distributed as dividend, out of capital instead of the profit. This leads to the flight of scarce capital out of the business.
- To provide funds for replacement of assets- Unlike other expenses, depreciation is not a cash expense. So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.
- Consideration of tax- If depreciation is charged, then Profit and Loss Account will disclose lesser profit as to when the depreciation is notcharged. This depicts reduced profit and thus the business will be liable for lesser tax amount.
class 11 commerce accountancy study material:-Chapter 8 – Bills of Exchange
- Q1 : Name any two types of commonly used negotiable instruments.Answer :The two types of commonly used negotiable instruments are:
2. Bills of exchange
- Q2 : Write two points of distinction between bills of exchange and promissory note.Answer :
Basis of Difference Bills of Exchange Promissory Note Drawer It is drawn by a creditor. It is drawn by a debtor. Parties There are three parties involved, namely drawer, drawee and payee. There are two parties involved, namely maker and payee.
class 11 commerce accountancy study material
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