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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
What do you mean by Accounting? Explain in brief any four advantages of Accounting. |
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Answer» Meaning - Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business viz., the owners, creditors, investors, banks and financial institutions, Government and other agencies. Hence, it is rightly called as the language of business. Advantages of accounting are as follows: 1. Complete and Systematic Record : Accounting is based on generally accepted principles and a scientific way of presentation of business transactions in books of accounts. As such, accounting is a complete and systematic recording of all business transactions. The limitations of humans, that they can not keep all transactions in mind, is overcome by accounting because each and every business transaction can be recorded and analyzed through same. 2. Determination of Selling Price :The main function of the management is decision making. Accounting helps and guides the management to take decisions in respect of determining selling price, deduction of cost, increase in sales etc. 3. Valuation of the Business :In case of sale of business or conversion of one business into another, true and fair value of the business is calculated. Through accounting, the correct picture can be depicted in Balance Sheet and as such the purchase price can be determined. Balance Sheet shows the value of assets & liabilities of the business which can be used to calculate its net worth. 4. Helps in Raising Loan :For further expansion, business must have sufficient funds. Sometimes, due to paucity of funds business cannot do well. In those cases further funds can be raised by taking loan from some financial institutions like banks, IDBI, ICICI etc. These financial institutions lend money on the basis of profitability and soundness of the business enterprise. The profitability and soundness can be measured by the Trading and Profit & Loss Account and Balance Sheet, the final results of books of accounts. |
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| 2. |
Write a short note on double Entry System of Accounting. |
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Answer» Double Entry System of accounting deals with either two or more accounts for every business transaction. For instance, a person enters a transaction of borrowing money from the bank. So, this will increase the assets for cash balance account and simultaneously the liability for loan payable account will also increase. It’s a fundamental concept encompassing accounting and book-keeping in present times. Every financial transaction has an equal and opposite effect in at least two different accounts. Equation can be: ASSETS = LIABILITIES + EQUITY |
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| 3. |
Why the following parties are interested in Accounting Information: (a) Investors, (b) Government? |
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Answer» a) Investors - Investors ask concerned with the Profitability And Safety of their investments.They derive the information from the published Accounts.They also want to know whether the business will survive and pay Attractive dividend bonuses etc or not. b) Government - Financial statements of the business become the basis of government for future Tax Planning, production, price control, import-export facilities, Grants, license policy, etc. |
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| 4. |
What do you mean by Financial Accounting? Explain the four main limitations of Financial Accounting. |
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Answer» Meaning - Financial accounting is significant for management as it helps them to control the firm activities and in determining appropriate managerial policies in different areas production, sales, administration, finance etc. However, financial accounting does not provide adequate and useful information. Most of limitations are mainly due to the cumulative effect of recorded facts, accounting conventions and personal judgments on financial statements. limitations of Financial Accounting. 1. Transactions of non-monetary nature do not find place in accounting. Accounting is limited to monetary transactions only. It excludes qualitative elements like management reputation, employee morale, labour strike etc. 2. Cost concept is found in accounting. Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting. 3. Acceptable alternatives are so broad based that comparisons are likely to be confusing or misleading. For instance, inventory cost may be ascertained by LIFO or FIFO; or stock may be evaluated at cost price or market price. 4. Accounting policies are framed by the Accountant. The figures of balance sheet are largely resulted by personal judgement of accountant hence it is the subjective factor that prevails in accounting and objective factor is ignored. |
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| 5. |
Accounting provides information about the profitability and financial soundness of a concern. In addition, it provides various other valuable information also. However,accounting has certain limitations. Explain any three of such limitations. |
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Answer» Limitaton of Accounting : 1. Transactions of non-monetary nature do not find place in accounting. Accounting is limited to monetary transactions only. It excludes qualitative elements like management reputation, employee morale, labour strike etc. 2. Cost concept is found in accounting. Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting. 3. Acceptable alternatives are so broad based that comparisons are likely to be confusing or misleading. For instance, inventory cost may be ascertained by LIFO or FIFO; or stock may be evaluated at cost price or market price. |
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| 6. |
What do you mean by Financial Accounting? Explain its one main function. |
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Answer» Meaning - Financial Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business viz., the owners, creditors, investors, banks and financial institutions, Government and other agencies. Hence, it is rightly called as the language of business. functions of accounting: (a) Keeping Systematic Records:As a language of business, accounting is to report the results of most business events. Hence, its main function is to keep a systematic record of these events. This function embraces recording transactions in journal and subsidiary books like cashbook, sales book etc., posting them to ledger accounts and ultimately preparing the financial statements [final accounts]. (b) Communicating the Results:The second main function of accounting is to communicate the financial facts of the enterprise to the various interested parties like owners, investors, creditors, employees, government, and research scholars, etc.The purpose of this function is to enable these parties to have better understanding of the business and take sound and realistic economic decisions. |
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| 7. |
Which external user of accounting information is most intersted in knowing the long-term solvency position of the firm?A. EmployeesB. ManagementC. Bank and Financial InstitutionsD. Researchers |
| Answer» Correct Answer - C | |
| 8. |
Basic function of financial accounting is toA. record all business transactions.B. interpret financial data.C. assist the management.D. None of these. |
| Answer» Correct Answer - A | |
| 9. |
Explain any four objectives of Accounting. |
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Answer» Objectives of accounting: 1. To maintain full and systematic records of business transactions :Accounting is the language of business transactions. Given the limitations of human memory, the main objective of accounting is to maintain ‘a full and systematic record of all business transactions. 2. To ascertain profit or loss of the business : Business is run to earn profits. Whether the business earned profit or incurred loss is ascertained by accounting by preparing Profit & Loss Account or Income Statement. A comparison of income and expenditure gives either profit or loss. 3. To depict financial position of the business :A businessman is also interested in ascertaining his financial position at the end of a given period. For this purpose, a position statement called Balance Sheet is prepared in which assets and liabilities are shown.Just as a doctor will feel the pulse of his patient and know whether he is enjoying good health or not, in the same way by looking at the Balance Sheet one will know the financial health of an enterprise. If the assets exceed liabilities, it is financially healthy, i.e., solvent. In the other case, it would be insolvent, i.e., financially weak. 4. To provide accounting information to the interested parties :Apart from owner of the business enterprise, there are various parties who are interested in accounting information. These are bankers, creditors, tax authorities, prospective investors, researchers, etc. Hence, one of the objectives of accounting is to make the accounting information available to these interested parties to enable them to take sound and realistic decisions. The accounting information is made available to them in the form of annual report. |
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| 10. |
Explain the primary objectives of Accounting. |
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Answer» objectives of accounting: 1. To maintain full and systematic records of business transactions :Accounting is the language of business transactions. Given the limitations of human memory, the main objective of accounting is to maintain ‘a full and systematic record of all business transactions. 2. To ascertain profit or loss of the business :Business is run to earn profits. Whether the business earned profit or incurred loss is ascertained by accounting by preparing Profit & Loss Account or Income Statement. A comparison of income and expenditure gives either profit or loss. 3. To depict financial position of the business:A businessman is also interested in ascertaining his financial position at the end of a given period. For this purpose, a position statement called Balance Sheet is prepared in which assets and liabilities are shown.Just as a doctor will feel the pulse of his patient and know whether he is enjoying good health or not, in the same way by looking at the Balance Sheet one will know the financial health of an enterprise. If the assets exceed liabilities, it is financially healthy, i.e., solvent. In the other case, it would be insolvent, i.e., financially weak. 4. To provide accounting information to the interested parties :Apart from owner of the business enterprise, there are various parties who are interested in accounting information. These are bankers, creditors, tax authorities, prospective investors, researchers, etc. Hence, one of the objectives of accounting is to make the accounting information available to these interested parties to enable them to take sound and realistic decisions. The accounting information is made available to them in the form of annual report. |
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| 11. |
What do you mean by Accounting? What are its main objectives? |
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Answer» Meaning - Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business viz., the owners, creditors, investors, banks and financial institutions, Government and other agencies. Hence, it is rightly called as the language of business. objectives of accounting: 1. To maintain full and systematic records of business transactions :Accounting is the language of business transactions. Given the limitations of human memory, the main objective of accounting is to maintain ‘a full and systematic record of all business transactions. 2. To ascertain profit or loss of the business :Business is run to earn profits. Whether the business earned profit or incurred loss is ascertained by accounting by preparing Profit & Loss Account or Income Statement. A comparison of income and expenditure gives either profit or loss. 3. To depict financial position of the business:A businessman is also interested in ascertaining his financial position at the end of a given period. For this purpose, a position statement called Balance Sheet is prepared in which assets and liabilities are shown.Just as a doctor will feel the pulse of his patient and know whether he is enjoying good health or not, in the same way by looking at the Balance Sheet one will know the financial health of an enterprise. If the assets exceed liabilities, it is financially healthy, i.e., solvent. In the other case, it would be insolvent, i.e., financially weak. 4. To provide accounting information to the interested parties : Apart from owner of the business enterprise, there are various parties who are interested in accounting information. These are bankers, creditors, tax authorities, prospective investors, researchers, etc. Hence, one of the objectives of accounting is to make the accounting information available to these interested parties to enable them to take sound and realistic decisions. The accounting information is made available to them in the form of annual report. |
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| 12. |
Which of the following is not a business transactions?A. Purchase of goods for resale amounted to Rs. 50,000B. Paid salaries and wages amounted to Rs. 10,000C. Paid rent for office premises Rs. 5,000D. Purchased a LCD for personal use |
| Answer» Correct Answer - D | |
| 13. |
Transactions are posted into Ledger Account fromA. Vouchers.B. Journal book.C. Bank Statement.D. None of these. |
| Answer» Correct Answer - B | |
| 14. |
Which of the following will not be recorded in the books of account?A. Sales of goodsB. Payment of salaryC. Quality of staffD. Purchase of Goods |
| Answer» Correct Answer - C | |
| 15. |
Book Keeping is concerned withA. recording financial data relating to business operations.B. designing for systems recording, classifying and summarising recorded data.C. interpreting data for internal and external users.D. All of the above. |
| Answer» Correct Answer - A | |
| 16. |
Book Keeping and AccountingA. means same and are used interchangeably.B. does not mean same and are not used interchangeably.C. means both (a) and (b) .D. None of the above. |
| Answer» Correct Answer - B | |
| 17. |
Define Book Keeping. What is the function of Book Keeping? |
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Answer» Definition - Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to building a financially successful business. Function of Book Keeping : 1) Recording financial transactions 2) Posting debits and credits 3) Producing invoices 4) Maintaining and balancing subsidiaries, general ledgers, and historical accounts 5) Completing payroll |
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| 18. |
Define Accounting. Explain any two limitations of Accounting. |
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Answer» Meaning - Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business viz., the owners, creditors, investors, banks and financial institutions, Government and other agencies. Hence, it is rightly called as the language of business. Limitations of Accounting . 1. Transactions of non-monetary nature do not find place in accounting. Accounting is limited to monetary transactions only. It excludes qualitative elements like management reputation, employee morale, labour strike etc. 2. Cost concept is found in accounting. Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting. |
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| 19. |
What is Accounting? Explain four of its functions. |
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Answer» Meaning - Accounting is a means of communicating the results of business operations to various parties interested in or connected with the business viz., the owners, creditors, investors, banks and financial institutions, Government and other agencies. Hence, it is rightly called as the language of business. Functions of Accounting: The following are the major functions of accounting: (a) Keeping Systematic Records:As a language of business, accounting is to report the results of most business events. Hence, its main function is to keep a systematic record of these events. This function embraces recording transactions in journal and subsidiary books like cashbook, sales book etc., posting them to ledger accounts and ultimately preparing the financial statements [final accounts]. (b) Communicating the Results:The second main function of accounting is to communicate the financial facts of the enterprise to the various interested parties like owners, investors, creditors, employees, government, and research scholars, etc.The purpose of this function is to enable these parties to have better understanding of the business and take sound and realistic economic decisions. (c) Meeting the Legal Requirements:Accounting aims at fulfilling the legal requirements, especially of the tax authorities and regulators of the business. It discharges this function in accordance with certain fundamental truths and uniform enforcement of generally accepted accounting principles. (d) Protecting the Properties of the Business:Accounting helps protecting the property of the business. (e) Planning and Controlling the Business Activities:Accounting also helps planning future activities of an enterprise and controlling its day-to-day operations. This function is done mainly to promote maximum operational efficiency. |
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| 20. |
Which of the following is not a qualitative characteristic of accounting information?A. ReliabilityB. UnderstandabilityC. ComparabilityD. Materiality |
| Answer» Correct Answer - D | |
| 21. |
Which qualitative characteristic of accounting information is reflected when accounting information is clearly presented?A. ReliabilityB. RelevanceC. ComparabilityD. Understandability |
| Answer» Correct Answer - D | |
| 22. |
Qualitative characteristic of Accounting includesA. Reliability and Relevance.B. Understandability and Comparability.C. Both (a) and (b).D. None of the above. |
| Answer» Correct Answer - C | |