REVISION 1

Introduction to accounting and Basic Accounting Terms

Quick Recap
 Financial Transactions ---------- Recording ---------- Classifying
--------- Summarising ------------- Interpretation -------------
Communicating.
 Book keeping -------- identifying, recording and classifying.
 Accounting --------- Book-keeping + Summarising,
Interpretation and Communicating.
 Accountancy --------- body of knowledge prescribing certain
rules and principles to be observed.
 Branches of ACCOUNTING ------ Financial Accounting, Cost
Accounting, Management Accounting, Tax Accounting and
Social Responsibility Accounting.
 Internal Users ------- Owners and Management
 External Users ------- Potential Investors, Short term creditors,
Long term creditors, Employees, Tax Authorities, Government,
Public, Competitors, Social Responsibility Groups.
 Qualitative characteristics of Accounting Information ------
Reliability, Relevance, Understandability, Comparability,
Faithful Presentation.

Q. Choose the correct alternative:

1. Book-keeping means:
(a) Recording financial transactions in the books of accounts.
(b) Taking all steps from recording of transactions in the books of
original entries to preparation of final accounts.
(c) Preparing final accounts
(d) Taking all steps after preparing final accounts.

2. The function of accounting is not to:

(a) Record the transactions of business.
(b) Record the personal transactions of the proprietor.
(c) Ascertain the profit or loss of the business.
(d) Ascertain the financial position of the business.

3. Creditors of the business want to know

(a) Profitability of the business.
 (b) Capability of the business to pay higher salaries.
(c) Creditworthiness of the business.
(d) Employment opportunities.

4. Which of the following is the most relevant accounting information for

taxation authorities?
(a) Cash balance of the firm.
(b) Book value of the fixed assets
(c) Credit sales of the year
(d) Profit generated during the year

5. Branch of accounting used to calculate cost of product is ____________.

(a) Financial Accounting
(b) Cost Accounting

(c) Management Accounting

(d) Book Keeping

Q. Fill in the blanks:

i. If the accounting information is based on facts and it is verifiable by
documents, it has the quality of ____________.
ii. The branch of accounting which is concerned with GST and income tax is
called __________.
iii. If the accounting information is not clearly presented, ______________
characteristic of accounting information is violated.
iv. _________________ characteristic of accounting information requires
the use of common unit and common format of reporting.
v. ________________ is the process of grouping the transactions of one
nature at one place in a separate account.

BASIC ACCOUNTING TERMS

Q. State True or False:

i. The excess of revenues of a period over its related expenses during an
accounting year is called Profit.
ii. The discount allowed at the time of sale is called Cash Discount.
iii. Goodwill is an Intangible Asset.
iv. Amount received from Sale of goods is Capital Receipts.
v. A transaction is any event or condition, such as buying or selling that
must be recorded in the financial records of a business.

Q. Choose the correct answer:

1. Current assets do not include:
(a) Motor car
(b) Inventory
(c) Bills Receivable
(d) Debtors

2. Purchases refer to the purchase of:

(a) Stationery for office use
(b) Assets for the factory
(c) Goods for resale
(d) None of these

3. The amount of cash or goods which is withdrawal by proprietor from

business for its private uses is called:
(a) Capital
(b) Expenses
(c) Drawings
(d) Expenditure

4. Winning a court case an example of:

(a) Profit
(b) Income
(c) Gain
(d) Revenue

5. Which one is a capital transaction?

(a) Purchase of goods
(b) Payment of wages
(c) Sales of goods
(d) Purchase of machinery