Andhra Pradesh BIEAP AP Inter 1st Year Accountancy Study Material 2nd Lesson Accounting Principles Textbook Questions and Answers.
AP Inter 1st Year Accountancy Study Material 2nd Lesson Accounting Principles
Essay Type Questions
Question 1.
What are accounting concepts ? Explain any four accounting concepts in detail.
Answer:
The term concept means an idea or thought. Basic accounting concepts are the fundamental ideas underlying in the theory and practice of financial accounting. The Ifnpdftant accounting concepts are –
- Business Entity Concept: Business is treated as separate form the proprietor. All the transactions are recorded in the books of business and not in the books of the proprietor. The accounting system gives information only about the business and not its owner. The proprietor is also treated as a creditor for the business.
- Dual Aspect Concept: Dual aspect concept principle is the basis for Double Entry System of book-keeping. All business transactions recorded in accounts have two aspects : receiving benefit and giving benefit.
For example, when a business acquires as asset: receiving of benefit. It must pay cash : giving of benefit. - Going Concern Concept: According to this concept it is assumed that the business will continue for long time. All transactions are recorded from this point of view. The investors lend money and the creditors supply goods with the expectation that the enterprise would continue for long period of time. Hence financial statements are prepared on a going concern basis and not on liquidation basis.
- Money Measurement Concept: This concept suggests that accountancy should record only the transactions which can be measured in terms of money. The transactions which cannot be measured in terms of money fall beyond the scope of accountancy.
For example the events of machinery breakdown is not recorded as it does not have monetary value. However, the expenditure incurred for the repair of the machinery can be measured in monetary value.
Question 2.
What are accounting conventions ? Explain them briefly.
Answer:
Conventions mean customs or traditions. These conventions provide useful guidance in preparing accounts or financial statements. The important accounting conventions are –
- Convention of Disclosure : Accounting statements should disclose fully and completely and significant information, based on which, decisions can be taken by various interested parties. It involves proper classification and explanations of accounting information which are published in the financial statements.
- Convention of Materiality : According to this convention only those events should be recorded which have a significant bearing and insignificant things should be ignored. The avoidance of insignificant things will not materially off the records of the business.
- Convention of Consistency: The accounting practices should be remained same from one year to another year. This is useful to the entrepreneur to compare the financial statements of one year with that of the other years. For example, an organization should not change its method of depreciation every year.
- Convention of Conservation : According to this convention the accountant has to record the actual financial position. We should be careful in calculating profits. Profits should never be anticipated or exaggerated. But losses should be anticipated and provided for. Example : While taking the value of the closing stock the market cost or actual cost which ever is less is to be taken into the books of accounts.
Short Answer Questions
Question 1.
Explain business entity concept of accounting. (Mar. 2018 – A.P. & T.S.; Mar. ’17 – A.P.; May 17 – T.S.)
Answer:
Business is treated as separate from the proprietor. All the transactions are recorded in the books of business and not in the books of the proprietor. The accounting system gives information only about the business and not its owner. The proprietor is also treated as a creditor for the business.
Question 2.
Explain money measurement concept. (Mar. 2019 – T.S.)
Answer:
This concept suggests that accountancy should record only the transactions which can be measured in terms of money. The transactions which cannot be measured in terms of money fall beyond the scope of accountancy.
For example the event of machinery breakdown is not recorded as it does not have monetary value. However, the expenditure incurred for the repair of the machinery can be measured in monetary value.
Question 3.
Explain convention of conservatism. (Mar. ’17 – T.S.)
Answer:
According to this convention the accountant has to record the actual financial position. We should be careful in calculating profits. Profits should never be anticipated or exaggerated. But losses should be anticipated and provided for.
Example : While taking the value of the closing stock the market cost or actual cost whichever is less is to be taken into the books of accounts.
- Convention of Disclosure : Accounting statements should disclose fully and completely and significant information, based on which, decisions can be taken by various interested parties. It involves proper classification and explanations of accounting information which are published in the financial statements.
- Convention of Materiality : According to this convention only those events should be recorded which have a significant bearing and insignificant things should be ignored. The avoidance of insignificant things will not materially off the records of the business.
- Convention of Consistency: The accounting practices should be remained same from one year to another year. This is useful to the entrepreneur to compare the financial statements of one year with that of the other years. For example, an organization should not change its method of depreciation every year.
- Convention of Conservation : According to this convention the accountant has to record the actual financial position. We should be careful in calculating profits. Profits should never be anticipated or exaggerated. But losses should be anticipated and provided for.
Example : While taking the value of the closing stock the market cost or actual cost which ever is less is to be taken into the books of accounts.
Short Answer Questions
Question 1.
Explain business entity concept of accounting. (Mar. 2018 – A.P. & T.S.; Mar. ’17 – A.P.; May 17 – T.S.)
Answer:
Business is treated as separate from the proprietor. All the transactions are recorded in the books of business and not in the books of the proprietor. The accounting system gives information only about the business and not its owner. The proprietor is also treated as a creditor for the business.
Question 2.
Explain money measurement concept. (Mar. 2019 – T.S.)
Answer:
This concept suggests that accountancy should record only the transactions which can be measured in terms of money. The transactions which cannot be measured in terms of money fall beyond the scope of accountancy.
For example the event of machinery breakdown is not recorded as it does not have monetary value. However, the expenditure incurred for the repair of the machinery can be measured in monetary value.
Question 3.
Explain convention of conservatism. (Mar. ’17 – T.S.)
Answer:
According to this convention the accountant has to record the actual financial position. We should be careful in calculating profits. Profits should never be anticipated or exaggerated. But losses should be anticipated and provided for.
Example : While taking the value of the closing stock the market cost or actual cost whichever is less is to be taken into the books of accounts.
Question 4.
Explain convention of consistency.
Answer:
The accounting practices should be remained same from one year to another year. This is useful to the entrepreneur to compare the financial statements of one year with that of other years. For example, an organization should not change its method of depreciation every year.
Question 5.
Write a brief note on accounting standards.
Answer:
Accounting standard is a principle that guides and standardizes accounting practices. The Generally Accepted Accounting Principles (GAAP) are a group of accounting standards that are widely accepted as appropriate to the field of accounting. Accounting standards are necessary so that financial statements are meaningful across a wide variety of businesses; otherwise, the accounting rules of different companies would make comparative analysis almost impossible.
Student Activity
Visit a nearest business organization and observe the book keeping and accounting systems adopted by it.