Ch-1 Accounting and its Terminology
INDEX
Text Book Questions and Answers
Q.1 Write the correct option from those given below each question:
1.Under barter system, which of the following statement is not correct?
(a) Exchange of money for product
(b) Exchange of product for product
(c) Exchange of product for service
(d) Exchange of product/service for product/ service
2.What is the limitation of accounting?
(a) Shows profitability
(b) Shows economic status
(c) Tax planning
(d) Stable value of money
3.Accounting is known as ………………. .
(a) Historical accounting
(b) Future accounting
(c) Present accounting
(d) Unnecessary accounting
Q.2 Answer the following questions in one sentence:
1. Who contributes capital to a business?
Answer:
The owner of the business contributes capital.
2. What does “bad debt” mean in a business context?
Answer:
Bad debt refers to money that cannot be recovered from customers. It is treated as a loss rather than an expense.
3. What is meant by the stable value of money?
Answer:
Stable value of money means if an asset bought in the past can be purchased for the same amount in the future, the value of money is considered stable. However, this is rarely the case in real life.
4. What is the Double Entry System in accounting?
Answer:
The Double Entry System records each transaction in two accounts: one account is debited and the other is credited. This system ensures that the accounting equation remains balanced and reflects the dual impact of every transaction.
5. Is discount received considered an income or an expense?
Answer:
Discount received is treated as an income for the business.
Q.3 Answer the following questions in two or three sentences :
1. Explain Economic Transaction
Answer:
An economic transaction refers to any activity or event that can be measured in monetary terms. These transactions are central to business activities. They may involve immediate payment in cash or a promise to pay in the future (credit). Even in credit transactions, the value is determined at the time the transaction occurs. Economic transactions, whether in cash or on credit, form the foundation of all business dealings.
2. Describe Types of Liabilities
Answer:
Liabilities represent the obligations or debts of a business. They can be classified in two ways:
Based on Relationship:
Internal Liabilities: These are obligations owed to the business owners, such as capital.
External Liabilities: These are dues owed to outsiders like suppliers, lenders, or creditors.
Based on Time:
Current Liabilities: Obligations that are due within one year, like accounts payable or short-term loans.
Non-Current Liabilities: Debts that are payable after one year, such as long-term loans or bonds.
3. Discuss Types of Assets
Answer:
Assets are resources owned by a business. They can be categorized as:
Non-Current Assets: These are long-term assets used over a period longer than one year. They include:
Tangible Assets: Physical items like land, buildings, or machinery.
Intangible Assets: Non-physical items like patents or trademarks.
Current Assets: These are short-term assets that can be converted into cash within one year. Examples include cash, bank balance, accounts receivable, and inventory.
Fictitious Assets: These are not real assets and do not have physical existence. They arise from accounting adjustments like preliminary expenses and have no resale value.
Real Assets: These are assets with actual value that can be converted into cash through sale. They include both tangible and intangible assets with real market value.
4. Explain Accounting as an Art and a Science
Answer:
Accounting is both an art and a science:
As an Art: It involves skill and judgment in maintaining financial records, preparing statements, and interpreting results effectively. Creating meaningful and accurate financial records requires experience and creativity.
As a Science: Accounting follows set rules and principles, much like any scientific discipline. These principles guide the consistent and reliable recording of financial information.