Introduction to Accounting
Take a notebook and pen first. Solve each question yourself, then pick an option. Only your first choice counts in the score, so do not rush.
Part A: MCQ (1 mark each)
- Recording transactions in the books
- Identifying the transactions and events to be recorded
- Preparing financial statements
- Communicating information to users
- Salary of ₹25,000 paid to the manager
- Goods sold on credit to Neha for ₹12,000
- Appointment of a new manager at ₹25,000 per month from next month
- Rent of ₹10,000 paid by UPI
- 1394
- 1494
- 1594
- 1941
- Chief Financial Officer
- Store manager
- Labour union
- Line supervisor
- Relevance
- Comparability
- Reliability
- Understandability
- Assets side, because it is the owner's money
- Liabilities side, because the business owes it to the owner
- Expenses side
- It is not shown in the Balance Sheet
- ₹26,400
- ₹27,000
- ₹26,460
- ₹29,400
- A trading profit of ₹6,000
- A gain of ₹6,000
- A loss of ₹6,000
- Drawings of ₹6,000
Reason (R): Drawings are withdrawals of money or goods by the owner for personal use, and they reduce the owner's capital.
- Both Assertion (A) and Reason (R) are true, and R is the correct explanation of A.
- Both Assertion (A) and Reason (R) are true, but R is not the correct explanation of A.
- Assertion (A) is true, but Reason (R) is false.
- Assertion (A) is false, but Reason (R) is true.
Reason (R): Shareholders are the owners of a company.
- Both Assertion (A) and Reason (R) are true, and R is the correct explanation of A.
- Both Assertion (A) and Reason (R) are true, but R is not the correct explanation of A.
- Assertion (A) is true, but Reason (R) is false.
- Assertion (A) is false, but Reason (R) is true.
Part B: Exam-style questions
Distinguish between book-keeping and accounting on any three bases.
| Basis | Book-keeping | Accounting |
|---|---|---|
| Meaning | Recording of financial transactions in the books and keeping them up to date | Process of identifying, measuring, recording, classifying, summarising, interpreting and communicating financial information |
| Scope | Narrow; it is only the recording stage | Wide; book-keeping is a part of accounting |
| Nature of work | Routine and clerical | Analytical; requires skill and judgement |
| Result | Complete, chronological records | Financial statements and reports that help users take decisions |
(Any three bases, 1 mark each.)
Name the three branches of accounting and state the main purpose of each.
(i) Financial accounting: keeps a systematic record of all financial transactions so that the profit or loss of the period and the financial position at its end can be found, and financial information can be given to management and other interested parties. It relates to the past and is expressed in money.
(ii) Cost accounting: analyses expenditure to find the cost of each product or service, helps in fixing prices, controls costs and gives costing information to management for decisions.
(iii) Management accounting: provides accounting and other (financial and non-financial) information to people within the organisation for planning, controlling and decision-making, such as budgeting, pricing and capital expenditure decisions. Much of it relates to the future.
State and explain the four primary objectives of accounting.
(i) Maintenance of records of business transactions: nobody can remember the many purchases, sales, receipts and payments of a business, so a complete and systematic record is kept. It can be verified and serves as evidence.
(ii) Calculation of profit or loss: owners want to know the result of their business for a period. Profit = Revenue − Expenses; if expenses are more, the difference is a loss. It is found by preparing a Profit and Loss Account.
(iii) Depiction of financial position: accounting shows the assets owned and the liabilities (claims against them) at the end of each period through a Balance Sheet.
(iv) Providing accounting information to users: information is communicated through reports, statements, graphs and charts to internal users (management) and external users (investors, lenders, government and others) for their decisions.
Describe the information needs of any four external users of accounting information.
(i) Investors and potential investors: want to know the risk and return on their investment, profitability and share performance, to decide whether to invest, hold or sell.
(ii) Lenders and financial institutions: want to judge creditworthiness, i.e. the ability of the business to repay loans and pay interest on time.
(iii) Suppliers and creditors: want to know whether the amounts owed to them will be paid when due and whether the business will continue.
(iv) Government and regulators: need information for tax assessment (income tax, GST, customs), allocation of resources and to check compliance with laws such as the Companies Act, 2013.
(Other valid users: employees/unions, customers, social responsibility groups, competitors, each with its need.)
Rohan started a mobile accessories business on 1 April 2026 with ₹4,00,000 in cash. During the month he bought furniture for ₹80,000; bought goods for ₹1,50,000 in cash and goods for ₹90,000 on credit from Sagar Traders; sold goods for ₹1,20,000 in cash and for ₹60,000 on credit to Mohit; paid salaries ₹15,000 and rent ₹10,000; bought a laptop for office use for ₹35,000 and later sold it for ₹38,000; lost goods worth ₹12,000 in a fire; and withdrew ₹8,000 in cash for personal use.
Find: (a) capital; (b) value of fixed assets bought; (c) total purchases; (d) total sales; (e) the creditor and the amount payable; (f) the debtor and the amount receivable; (g) total expenses; (h) the gain; (i) the loss; (j) total of expenses and losses; (k) drawings. Also state whether drawings are an expense.
| Item | Answer |
|---|---|
| (a) Capital | ₹4,00,000 |
| (b) Fixed assets bought | Furniture ₹80,000 + laptop ₹35,000 = ₹1,15,000 |
| (c) Purchases | 1,50,000 + 90,000 = ₹2,40,000 |
| (d) Sales | 1,20,000 + 60,000 = ₹1,80,000 |
| (e) Creditor | Sagar Traders, ₹90,000 |
| (f) Debtor | Mohit, ₹60,000 |
| (g) Expenses | Salaries 15,000 + rent 10,000 = ₹25,000 |
| (h) Gain | Laptop sold 38,000 − cost 35,000 = ₹3,000 |
| (i) Loss | Goods lost by fire ₹12,000 |
| (j) Expenses and losses | 25,000 + 12,000 = ₹37,000 |
| (k) Drawings | ₹8,000 |
Drawings are not an expense; they are withdrawals for the owner's personal use and reduce his capital.
Neha runs "Neha Boutique" in Khurja. For April 2026 her records show: sales ₹2,40,000; alteration charges received from customers ₹16,000; cost of goods sold ₹1,50,000; salaries ₹36,000; rent ₹20,000; electricity ₹6,000. On 30 April she took a dress worth ₹10,000 from the boutique as a gift for her sister. In May, she applies to a bank for a loan to buy two new sewing machines.
(i) Find the total revenue for April. (1)
(ii) Find the profit or loss for April. (1)
(iii) How will the dress taken for her sister be treated? Give a reason. (1)
(iv) Is the bank an internal or external user, and what will it mainly look for in her accounts? (1)
(i) Total revenue = 2,40,000 + 16,000 = ₹2,56,000.
(ii) Total expenses = 1,50,000 + 36,000 + 20,000 + 6,000 = ₹2,12,000. Profit = 2,56,000 − 2,12,000 = ₹44,000.
(iii) It is drawings (₹10,000): goods withdrawn by the owner for personal use. It reduces her capital and is not a business expense.
(iv) The bank is an external user. It will look at her creditworthiness and liquidity, i.e. her ability to repay the loan and pay interest on time.
4 topper-level HOTS problems for this chapter, with hints and full solutions.