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Solvent is a person whose assets are equal or more than that of his liability.

Voucher: is the document which helps in reseeding business transactions.

Features of Accounting.

1. Recording
Accounting is the art of recording of transactions. Only business relative transactions are recorded in which money is mentioned. All transactions are recorded in detail. Both journal and subsidiary books are used for this.

2. Classifying

Accounting’s main feature is also classifying all business transactions. Accounting makes the group of all similar accounting entries in one place. For example, all receipts and payments will be shown in the cash book. So, all transactions are collected under one common head. This system is also called classification of transaction. This process is completed by opening accounts in books. These books are called a ledger.

3. Summarizing

Summarizing is the art of showing business results in summarized form. After this, it can use for all the interested parties. This feature tells about financial statements. One is Trading and profit and loss account and the other is the Balance Sheet.

4. Interpreting

By interpreting, we can know whether the position of profitability is good or bad. By knowing this, we can estimate the business’s performance.

Feature of accounting is; Transactions are recorded in-terms of money.

One of the objective of accounting is 

(a) Providing accounting information to its users. 

THE PRIMARY OBJECTIVE OF ACCOUNTING STANDARDS ARE:

• To provide a standard for the diverse accounting policies and principles.
• To put an end to the non-comparability of financial statements.
• To increase the reliability of the financial statements.
• To provide standards that are transparent for users.
• To define the standards which are comparable overall periods presented.
• To provide a suitable starting point for accounting.
• It contains high-quality information to generate financial reports. This can be done at a cost that does not exceed the benefits.
• For the eradication the huge amount of variation in the treatment of accounting standards. 
• To facilitate ease of both inter-firm and intra-firm comparison.

Helps to maintain books in international market requirements.

Carried down: It is the process of taking a balance of an account to the next period at the time of its closing. The short term is c/d.

Brought down: It is the process of bringing down the closing balance of the previous period to current year in the same account. It indicates opening balance.The short term is b/d.

Carried down: used to refer to an amount at the end of an accounting period that is entered at the beginning of the next period.

Brought down: It is the process of bringing down the closing balance of the previous period to the current year in the same account. It indicates an opening balance. The short term is b/d.

“Book keeping is the art of recording business transaction in a systematic manner”-Rosen.

Insolvent is a person whose assets are not sufficient to make payment of his liabilities infull.

• It provides a complete or full records of all transaction . 

• It is a systematic and scientific manner of recording business transactions.

Branches of accounting are :

1. Financial accounting. 

2. Cost accounting. 

3. Management accounting.

Book-keeping is the art and science of recording in the books of account. The monetary aspect of commerical and financial transactions.

The business transactions can be classified as: 

1. Cash transactions 

2. Credit transactions 

3. Barter transactions 

4. Non-cash transactions

Folio: It means the page number of books of accounts, it helps for referring the entry.

Any articles, commodities or products bought for resale called purchses.

Features of book-keeping are : 

1. It is the recording of only business transactions. 

2. It is the recording of business transactions in terms of money.

3. It is very systamatic and principled manner.

(a) Revenue.

“The art of recording classifying and summarising in a significant manner and in terms of ‘ money transactions event which are, in part atleast, of a financial character and interpreting the results there of “American certificed public accountants”.

• Under this method number of books of accounts have to be maintained. 

•It consumes more time and money. 

According to Eric Kohler “Accountancy is the theory and practices of Accounting.

Entry: It means recording of business transactions in the books of Journal or subsidiary books.

An officer who is entrasted with the accounting function of the organisation called accountant.

Objects of book of book-keeping are : 

1. To have a permanent record of all business transactions. 

2. To ascertain the net result of the business 

3. To know the exact reasons for net profit or loss. 

4. To know the progress of business from year to year 

5. To minimise errors and frauds.

Revenue of income.

Accounting is an art: art means application of knowledge to produce the desired result, accounting ivolves the designing of information system, record filing system, standardisation of forms and statements etc. The working of an accounting needs creative and active skills . and involvement of all staff.

Accounting is also science: A ‘Science’ means a systematic body of knowledge relating to universal phenomenon. It consists of concept theories, rules, and techniques developed by the process of rational thinking and spirit of enquiry, accounting is a social science.. So accounting is a applied science as well as art of recording a business transactions.

Features of accounting are : 

1. It is a process of recording business transactions. 

2. Accounting is grouping the transactions according to their nature of heads.

1. This system is an incomplete system of book-keeping. 

2. This system is not supporting to prepare trial balance.

Accounting information is always comparable reasons are : 

(a) It helps in planning for future. 

(b) It helps to compare different business organisation.

The features / Natures of accounting are : 

• Recording of business transaction as and when they occur in single book is the first feature of accounting. 

• Classify or grouping of entries according to their nature in to appropriate heads of account. 

• Accounting also involves summarising the transactions, classified in the ledger and financial position presentation. 

• Accounting also analyse and interpret the recorded transactions.

The two system of book-keeping are: 

1. Single entry system of book-keeping. 

2. Double-entry system of book-keeping.

Drawings: The amount of cash or any asset withdrawn by the owner of the business for his personal use or domestic use we called as drawings.

• Assets: are the properties or resources which are owned by the business entity. 

Ex: Machinery, stock, goodwell, etc. Liabilities are debts owed by the business entity to outsiders. 

Example: Creditors, Bills payable, bank over draft, etc.

• Debtor: is a person who owes any amount to business. In other words, who purchase goods from business on credit basis is called debtors.

• Creditor: is a person to whom any sum of money is owed by business. Other words the person who give benefits to business and amount payable, such person called creditors. 

• Goods: The term goods includes all commodities, articles or products which are purchased for the purpose of re-sale. 

• Purchases: Any articles, commodities or products bought for resale called purchases. 

• Sales: Any goods purchase by customer called sales mean sale of goods and not the assets. 

Stock: The goods purchased for sale, remain unsold called goods. It is a asset for the business. 

• Profit: The accounts of a year are kept in a single set of books which contains 12 months, called accounting year. Generally it starts from 1st April and ends in 31st march of every year. 

• Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service. 

• Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered. 

• Discount: Reducing the value of sales called discounting. Discounts are 2 types, Trade Discount and Cash Discount. 

• Voucher: is the document which, helps in reseeding business transactions. 

• Income: It refer to an amount received for sale of goods and service or for use of any rights belonging to business. 

• Gain: Increase in the value of assets or resources of business called gains. Capital represents the owner’s claim or share in the assets of the business. Amount invested by owner of business called capital. 

• Entity: means an area of economic interest of a particular industry or group of industries. Separate books of accounts are kept for each entity

Yes this Statement is agreeable. 

The reasons are as follows:- 

a. It helps in planning for the future. 

b. It also useful in the areas of decision making in an organization. 

The origin and growth of accounting can be summarised as follows: 

• Accounting is said to be very old, as old as money. 

• The present accounting is the result of constant innovations to the requirements of business activities. 

• Accounting has developed to meet the emerging needs and requirements of fast developing society. 

• “Arthashastra” the book written by Kautilya is the base or foundation for accounting. 

• The present system of accounting based on the double entry system founded by pacilio in 1494 at Italy. 

• Futher various publications were made and an important publications was that of edward jones in 1975 who invovated the concept of ‘Two Column journal’.

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1. Goodwill account is a   

(a) Personal Account.
(b) Real Account.
(c) Nominal Account.
(d) None of these.

2. Current Liabilities include: 

(A) Bills Payable
(B) Creditors
(C) Outstanding Expenses
(D) All of the above

3. Basic function of financial accounting is to   

(a) record all business transactions.
(b) interpret financial data.
(c) assist the management.
(d) None of these.

4. Which of the following is not a long-term liability?  A

(a) Creditors
(b) Term-loan
(c) Debentures
(d) Capital

5.  Which of the following accounts has a credit balance?   

(a) Carriage Inward
(b) Discount Received
(c) Carriage Outward
(d) Discount Allowed

6. Cash, goods or assets invested by the proprietor in the business for earning profit is called-

(a) Profit
(b) Capital
(c) Fixed assets
(d) None of these.

7. Which of the following will not be recorded in the books of account? 

(a) Sales of goods
(b) Payment of salary
(c) Quality of staff
(d) Purchase of Goods

8. Which of the following transaction is not of financial character? 

(a) Purchase of asset on credit
(b) Purchase of asset for cash
(c) Withdrawing of money by proprietor from business
(d) Strike by employees.

9. Accounting provides data or information on

A) Income and cost for the managers

B) Financial conditions of the institutions

C) Company’s tax liability for a particular year

D) All the above

10. Long term assets without any physical existence but, possessing a value are called

A) Intangible assets

B) Fixed assets

C) Current assets

D) Investments

11. The assets that can be easily converted into cash within a short period, i.e., 1 year or less are known as

A) Current assets

B) Fixed assets

C) Intangible assets

D) Investments

12. Copyrights, Patents and Trademarks are examples of

A) Current assets

B) Fixed assets

C) Intangible assets

D) Investments

13. The debts which are to be repaid within a short period (a year or less) are referred to as,

A) Current Liabilities

B) Fixed liabilities

C) Contingent liabilities

D) All the above

14. Bookkeeping is ______.

(a) An art

(b) A science

(c) Both an art as well as science

(d) None of these

15. ___________ is the last step of accounting as a process of information.

(a) Recording of data in the books of accounts

(b) Preparations of summaries in the form of financial statement

(c) Communication of information

(d) Analysis and interpretation of information

Answer: (c) Communication of information

16. The person, firm, or institution who does not pay the price in cash for the goods purchased or the services received is called ______.

(a) Creditor

(b) Proprietor

(c) Debtor

(d) None of these

17. Use of a common unit of measurement and common format of reporting promotes _____.

(a) Comparability

(b) Understandability

(c) Relevance

(d) Reliability

18. Cash, goods, or assets invested by the proprietor in the business for earning profit is called ______.

(a) Profit

(b) Capital

(c) Fixed assets

(d) None of these

19. Which is the last step of accounting as a process of information?

(i) Recording of data in the books of accounts
(ii) Preparation of summaries in the form of financial statements
(iii) Communication of information
(iv) Analysis and interpretation of information

20. Goodwill account is a

(i) Personal Account.
(ii) Real Account.
(iii) Nominal Account.
(iv) None of these.

21. Internal users of accounting information are :

(i) Creditors
(ii) Potential investors
(iii) Managers
(iv) Researchers

22. Cash, goods or assets invested by the proprietor in the business for earning profit is called-

(i) Profit
(ii) Capital
(iii) Fixed assets
(iv) None of these.

23. Use of common unit of measurement and common format of reporting promotes

(i) Comparability
(ii) Understandability
(iii) Relevance
(iv) Reliability

24. Basic function of financial accounting is to

(i) record all business transactions.
(ii) interpret financial data.
(iii) assist the management.
(iv) None of these.

25. The Pioneer of Accounting is:

(i) Arthur Field House
(ii) Gitman
(iii) William Pickles
(iv) Lucas Pacioli

Answer:

1. Answer (b) Real Account.

2. Answer (D) All of the above

3. Answer (a) record all business transactions.

4. Answer (a) Creditors

5. Answer (b) Discount Received

6. Answer (b) Capital

7. Answer (c) Quality of staff

8. Answer (d) Strike by employees.

9. Answer (D) All the above

10. Answer (A) Intangible assets

11. Answer (A) Current assets

12. Answer  (C) Intangible assets

13. Answer (A) Current Liabilities

14. Answer (c) Both an art as well as science

15. Answer (c) Communication of information

16. Answer (c) Debtor

17. Answer (a) Comparability

18. Answer (b) Capital

19. Answer (iii) Communication of information

20. Answer (ii) Real Account.

21. Answer (iii) Managers

22. Answer (ii) Capital

23. Answer (i) Comparability

24. Answer (i) record all business transactions.

25. Answer (iv) Lucas Pacioli

Development of accounting: 

In ancient times, around 4000 B.C., accounting was used for recording wages and salaries, deposits and withdrawals of valuable goods (such as gold and silver) from the treasures of the king. Afterwards, it was used to record the receipts and payments and balancing of government financial transactions. 

During 1500 A. D., accounting was used by business firms for recording transactions related to business. In 1800 A.D., accounting was used to record transactions and also to provide information to various users of financial data. 

Role of accounting:

While in the earlier times accounting was merely concerned with recording the financial events (i.e. record-keeping activity); however, now-a-days, accounting is done with the rationale of not only maintaining records, but also providing an information system that provides important and relevant information to various accounting users. 

a. Substitute of memory : As, it is beyond human capabilities to remember each and every business transaction, so accounting plays an important role in recording these transactions in the book of accounts. 

b. Assistance to management: Management uses accounting information for short term and long term planning of business activities and to control various costs and budgets. 

c. Comparative study : In order to ascertain the performance of the business, accounting enables comparison of current year’s profit with that of previous years (intra-firm comparison) and also with other firms in the same business (inter-firm comparison). 

d. Evidence in court: It acts as evidence that can be used or presented in the court, if any discrepancy arises in the future.

a. The history of accounting can be traced long back in civilization. Around 4000 B.C., in Babylonia and Egypt, payment of wages and taxes were recorded on clay tablets. As history claims that Egyptians kept the record of gold and valuables deposits and withdrawal from the treasuries. These records were reported on daily basis by the incharge of treasuries to the wazir, who used to forward the monthly reports to the king. Babylonia and Egypt used this method to rectify and remove errors, frauds and inefficiency from the records. Around 2000 B.C., China used sophisticated form of accounting.

In Greece, accounting was used to maintain total receipts and total payments and to balance government accounts. In Rome, around 700 B.C., receipts and payments were recorded in daybook and were posted in the ledger at the end of the month.

b. In India, around twenty three centuries ago, Kautilya wrote the book Arthshastra, which describes how accounting records have to be maintained.

c. In 1494, Luca Pacioli wrote the book ‘Summa’ de Arithmetica Geometria Proportioniet Proportionality. In this, he explained the term debit and credit, which are used in accounting till date.

The role of accounting is over changing. While in earlier times, accounting was merely concerned with recording the financial events i.e. record keeping activity. However, now a days, accounting is done with the rationale of not only maintaining records, but also providing information to various accounting users area. 

Income: It refer to an amount received for sale of goods and service or for use of any rights belonging to business. 

Gain: Increase in the value of assets or resources of business called gains.

It is an excess amount of revenues over the related cost or expenses, [profit = Revenue – expenditure].

Expenses: These are the amount spent for purchasing assets or material which is necessary for business. 

Loss: Reduction in the value of assets or resources without any benefit called losses.

The assets which we cannot see and touch called intangible assets, 

Example: Goodwell, Trade mark, patents, copy rights.

The role of accounting has been changing over the period of time. In the modem world, the role of accounting is not only limited to record financial transactions but also to provide a basic framework for various decision making, providing relevant information to various users and assists in both short run and long run planning.

The role of accounting in the modem world is given below:

Assisting management: Management uses accounting information for short term and long term planning of business activities, to predict the future conditions, prepare budgets and various control measures.

Comparative study: In the modem world, accounting information helps us to know the performance of the business by comparing current year’s profit with that of the previous years and also with other firms in the same industry.

Substitute of memory: In the modem world, every business incurs large number of transactions and it is beyond human capability to memorise each and every transaction. Hence, it is very necessary to record transactions in the books of accounts.

Information to end user: Accounting plays an important-role in recording, summarizing and providing relevant and reliable information to its users, in form of financial data that helps in decision making.

Profits: Excess of revenue over expense is known as profit. It is normally categorized into ’ gross profit or net profit. It increases the owner’s capital as it is added to the capital at the end of each accounting period. For example: Goods costing Rs. 1,000 is sold at Rs. 1,200 then the sale proceeds of Rs.1,200 is the revenue and 1,000 is the expense to generate this revenue. Hence, accounting profit of Rs. 200 (i.e. Rs.1,200 – Rs. 1,000) is the difference between the revenue and expense that is earned by the business.

Gain: It arises from irregular activities or non-recurring transactions. In other words, a gain is a result of transactions that are incidental to the business, other than operating transactions. 

For example: an old machinery of book value Rs. 2,000 is sold at Rs. 2,500. Hence, the gain is Rs. 5,00 (i.e. Rs. 25,00 – Rs. 2,000). Here, the sale of the old machinery is an irregular activity; so, the difference is termed as gain. Thus, in other words the only difference between profit and gain is that profit is the excess of revenue over expense and gain arises from other than operating transactions.

According to American Accounting Association “Revenue is the monetary Expression of the aggregate of products (or) services transferred by the Enterprises to its customers during a period of time.” According to Robert. N. Anthony “Expenses are the costs incurred in connection with the earnings of revenue”.

Costs incurred by a business in the process of earning revenue are called as Expenses. 

Example:- Depreciation, Rent, Wages, Salaries etc. 

Rent, wages, salaries are examples for expenses.

Example for current assets are : Cash, stock, debtors, short term investment etc.

The following are the qualitative characteristics of accounting information: 

a. Reliability: It means that the user can rely on the accounting information. All accounting information is verifiable and can be verified from the source document (voucher), viz. cash memos, bills, etc. Hence, the available information should be free from any errors and unbiased. 

b. Relevance: It means that essential and appropriate information should be easily and timely available and any irrelevant information should be avoided. The users of accounting information need relevant information for decision making, planning and’ predicting the future conditions. 

c. Understandability: Accounting information should be presented in such a way that every user is able to interpret the information without any difficulty in a meaningful and appropriate manner. , 

d. Comparability: It is the most important quality of accounting information. Comparability means accounting information of a current year can be comparable with that of the previous years. Comparability enables intra-firm and inter-firm comparison. This assists in assessing the outcomes of various policies and programmes adopted indifferent time horizons by the same or different businesses.