Class 11 Accountancy Chapter 2 Question Answers

The accounting process helps to communicate crucial information about the organisation to external and internal users. The data needs to be reliable and possess comparability so that inter-firm and intra-firm comparisons can occur. Class 11 Chapter 2 in Accountancy explains the theory base of accounting. It is established so that enterprises can have consistency in identifying economic events, measuring and recording transactions and finally communicating them to the related users without any confusion.

Class 11 Accountancy Chapter 2 is henceforth considered crucial for the students to develop a good understanding of the theory base used in accounting. 

With Extramarks, students can access Important Questions Class 11 Accountancy Chapter 2 that are collated from various sources such as NCERT books, reference books, and past years’ papers to help students revise Chapter 2. With subject experts providing solutions to the Important Questions Class 11 Accountancy Chapter 2 from Extramarks students can feel fully prepared to understand the exam pattern and answer questions accordingly in the examinations.

Apart from Accountancy Class 11 Chapter 2 Important questions students can also find various other study resources such as NCERT books, NCERT solutions,  CBSE Revision Notes, past years’ papers, etc by registering on the Extramarks’ website, for an all-rounded exam preparation 

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CBSE Class 11 Accountancy Important Questions

Sr No. Chapters Chapters Name
1 Chapter 1 Introduction to Accounting
2 Chapter 2 Theory Base of Accounting
3 Chapter 3 Recording of Transactions – 1
4 Chapter 4 Recording of Transactions II (Financial Accounting – I)
5 Chapter 5 Bank Reconciliation Statement
6 Chapter 6 Trial Balance and Rectification of Errors
7 Chapter 7 Depreciation, Provisions & Reserves
8 Chapter 8 Bill of Exchange
9 Chapter 9 Financial Statements – 1
10 Chapter 10 Financial Statements 2
11 Chapter 11 Accounts from Incomplete Records
12 Chapter 12 Applications of Computers in Accounting
13 Chapter 13 Computerised Accounting System

Important Questions Class 11 Accountancy Chapter 2 with Solutions

Here is a list of Important Questions Class 11 Accountancy Chapter 2 with easy solutions for maximum understanding.

Question 1. In India, the accounting standard board was set up in the year-

(a) 1972

(b) 1977

(c) 1956

(d) 1932.

Answer 1: (b) 1977

Explanation: The accounting Standard Board (ASB)was set up on 21st April 1977 to formulate accounting standards to bring consistency in the accounting policies and practices.

Question 2. The realisation concept determines when goods sent on credit to customers are to be included in the sales figure for the purpose of computing the profit or loss for the accounting period. Which of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period. When the goods have been:

  • Dispatched
  • Invoiced
  • Delivered
  • Paid for

Answer 2: (b) Invoiced

Explanation: When the goods are invoiced it gives the customer the right to own the goods from that point, hence credit sales are treated as revenue on that day’s sales 

Question 3. Which concept denotes that the existence of a business is separate from its owner?

Answer 3: Concept of Business Entity 

Question 4. What are the different basis of accounting?

Answer 4: The basis of accounting refers to the times at which the transactions are recorded into books of accounts. The two most used basis of accounting is

  1. Cash Basis of Accounting 
  2. Accrual Basis of Accounting

Question 5. What is the basic accounting equation?

Answer 5: The basic accounting equation is:

Assets = Liabilities + Capital

It means that the value of all assets of a firm is equal to the total liabilities or claims to the owners and outsiders.

Question 6.  ‘Do not anticipate a profit but provide for all possible losses’- State and explain the principle behind.

Answer 6: The principle behind the above statement is the concept of prudence or conservatism. Conservatism states that the enterprise’s profits should not be overstated; hence recording all future profits does not happen, but future losses are taken into account even if they have a remote possibility of occurring. 

Question 7. Why is it necessary for the accountants to assume that the business entity will remain a going concern? 

Answer 7: According to the going concern concept, the business entity will continue its operation for a reasonably long period and would not be liquidated in the foreseeable future. 

The Going Concern Concept helps divide expenditure into revenue and capital expenditure. 

Example: Suppose the business enterprise purchases a piece of machinery for producing cloth worth Rs. 50,000/- which has an estimated life span of 5 years. Rs. 50,000 will be treated as an item of capital expenditure as the machinery’s benefits will be derived for more than a year. And the per-year depreciation of Rs. 10,000 will be charged over the next five years and treated as revenue expenditure. 

Question 8. What is the nature of accounting principles?

Answer 8: The nature of Accounting Principles is as follows:

  1. Accounting principles are man-made and are derived from past experiences, usage, customs, statements from professional bodies and regulations by government agencies.
  2. The Accounting principles are not static and are constantly influenced by the changes in the legal, social, and economic environments and  in the needs of the organisations.
  3. Accounting principles provide a uniform way of treating accounting information that helps comparing and easily comprehend accounting data.

Question 9. What is the money measurement concept? Which one factor can make it difficult for a business to compare the monetary values of one year with the monetary values of another year?

Answer 9: The  money  measurement  concept states that transactions that can be measured in monetary terms will be recorded. For example, if an enterprise purchases 12 computer units of Rs. 1,20,000/-, then the monetary value, i.e. Rs. 1,20,000 will be considered while recording the purchase transaction; hence, this principle also focuses on the monetary value being recorded and not just the physical units. 

The yearly comparison of such monetary data becomes difficult because the nominal value of money is considered and not the real value of money. 

Hence as the purchasing power of money is different in different periods, it implies that what Rs. 10 could repurchase in five years , it could not buy today.  

Question 10. What are the components of GST

Answer 10: GST is an indirect tax levied on goods and services. It is a destination-based tax that has to replace indirect taxes such as VAT, excise duty, service tax, etc.

The three main components of GST are as follows:

  1. CGST: The Central Goods and Services Tax is the tax that the Central Government levies on the purchases that are made within the state. 
  2. SGST: The State Goods and Services Tax is the tax levied on the purchases made within the state, collectd by the State Government 
  3. IGST: Integrated Goods and Services Tax is a tax that is levied on the interstate supply (between two states) of goods and services

Question 11. What is the accrual basis of accounting?

Answer 11: The accrual basis of accounting is a method of financial accounting that allows the enterprises to record a revenue or expense when it occurs rather than when the payment is received or paid. 

This method also follows the matching principle of accounting, which states that expenses and revenues should be recognised in the same period. 

Question 12. ‘The Accounting Concepts and Accounting Standards are generally referred to as the essence of financial accounting’ Give your comment on the statement.

Answer 12: The process of financial accounting revolves around recording and classifying financial data relating to an enterprise and presenting it as financial statements to users of accounting information. 

Concepts such as Conservatism, Money Measurement, Consistency etc., provide the accountants with several ways of treating such transactions. For example, there are different ways enterprises might calculate depreciation, which can result in incorrect interpretation of data by the users. The accounting concepts and standards help with the problem of inconsistency mentioned above. 

Institute of Chartered Accountants of India came up with these accounting concepts and standards that help establish consistency in the financial recording undertaken by enterprises.

By applying these accounting standards and concepts, the business can successfully remove ambiguities that will help the companies create reliable, consistent, comparable financial records that do not lead to wrong interpretations. Hence they are rightfully considered the essence of financial accounting.

Question 13. State the difference between the Accrual Basis of Accounting and the Cash Basis of Accounting?

Answer 13: The following are the differences between the Accrual Basis and the Cash Basis of Accounting:

Basis Accrual Basis of Accounting Cash Basis of Accounting
Meaning  The accrual basis of accounting involves recording entries relating to revenues or expenses as and when they occur, irrespective of whether the payment is received or not. Cash basis of accounting involves recording entries into the books of accounts only when cash is paid or received for a transaction and not when it is made due.
Acceptability  This basis of accounting is considered acceptable as it accurately shows the expenses and revenues. It is not significantly acceptable as it does not show an accurate account of profit and loss incurred by the enterprise.
Reliability  The accrual basis of accounting is considered very reliable as it considers cash and credit transactions. It also shows the actual asset and liabilities. The cash basis of accounting has lesser reliability than accrual Basis as only cash transactions are recorded.
Suitability Exceptionally suitable for businesses as it gives way for recording complicated business transactions. Incredibly suitable for non-profits, doctors, etc, as having a smaller amount of data to consider.

Question 14. What is the Matching Concept? Why should a business concern follow this concept? Discuss.

Answer 14: The matching concept says that the expenses paid in a particular accounting period should match with revenues earned in that period. It necessitates that all expenses paid or not, or revenues earned or not during the accounting period, should be considered when the enterprise’s profit and loss are calculated. 

The reasons why businesses should follow the matching concept are as follows:

  1. The matching concept helps show the business enterprise’s exact financial position.
  2. As the matching principle involves matching revenues with expenses, the profits are neither overstated nor understated.
  3. It also ensures that transactions occurring in one accounting period and realised in another accounting period are recognised in the period in which they occur.

Question 15. Complete the following worksheet:

  1. If a firm believes that some of its debtors may default, it should act on this by making sure that all the possible losses are recorded in the books. This is an example of the ___________ concept.
  2. Everything a firm owns, it also owns out to somebody. This coincidence is explained by the ___________ concept.
  3. A firm may hold the stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.
  4. The management of a firm is remarkably incompetent, and the firm accountants can not take this into account while preparing the book of accounts because of the ___________ concept.
  5. The fact that the business is separate and distinguishable from its owner is best exemplified by the ___________ concept.

Answer 15: 

  1. Conservatism
  2. Dual 
  3. Conservatism
  4. Money measurement
  5. Business Entity

Benefits of Solving Important Questions Class 11 Accountancy Chapter 2

Theory  base of  accounting contains essential concepts and principles, a better understanding of which can help students build strong foundational knowledge in Accountancy Chapter 2 Class 11 Accountancy Important Questions from Extramarks are a great way to begin your examination preparations. Not only do these questions provide a comprehensive list of questions to go through, but they also make the chapter easy to comprehend. 

Some of the benefits of going through the Important Questions Class 11 Accountancy Chapter 2 are as follows:

  1. Easy-to-understand solutions for Chapter 2 in Accountancy prepared by experts having years of experience in the subject.
  2. Access to sources such as NCERT Solutions, important questions, and past years’ papers to ensure students become confident after practising solving the questions.
  3. Extramarks provides questions that can most likely appear in the examination, so by practising them the students will be exam ready so going through Important Questions Class 11 Accountancy Chapter 2 can be beneficial for the students.
  4. Class 11 Accountancy Chapter 2 Important Questions list was created keeping in mind the recent CBSE guidelines and syllabus so students can rely on them.

Students in classes 1 to 12 can find comprehensive study resources on Extramarks’ official site. The website has many materials in addition to the essential questions and answers. Students can access some of these resources by clicking on the links provided below:

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Q.1 The rules and guidelines used in preparing accounting reports are known as_______.

A. Basic rules

B. Accounting rules

C. Generally accepted accounting principle

D. Double entry system



In order to maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by the accounting profession. They are popularly known as GAAP.

Q.2 Name the convention that states closing stock is valued at cost price or market price which ever is lower.

A. Conservation of conservatism

B. Convention of full disclosure

C. Convention of conservatism

D. Accounting lower assumption



Convention of conservatism requires that business transactions should be recorded in such a manner that profits are not overstated. All anticipated losses should be accounted for but all unrealized gains should be ignored.

Q.3 With introduction of GST in India, It subsumed multiple indirect taxes of Center and State both. Which of the following is the objective of GST

A. Ensuring that the cascading effect of tax on tax will be eliminated

B. Reducing the tax slab rates to avoid further clarification issues

C .Making a unified law involving all the tax bases, laws and administration
procedures across the country

D. All of the above



The objectives of introducing GST are-
1. Ensuring that the cascading effect of tax on tax will be eliminated.
2. Decreasing the unhealthy competition among the states due to taxes and revenues.
3. Reducing the tax slab rates to avoid further clarification issues.

Q.4 An investment company has been valuing its inventory of land at lower of market price or cost. It now wants to value its inventory at the current market price which is higher than the cost. Which accounting concept will be violated



Prudence principle will be violated in this case.

The Prudence concept is many a time described using the phrase ‘Do not anticipate a profit, but provide for all possible losses.’ Prudence concept takes into consideration all prospective losses but not the prospective profits.

Q.5 What are the objectives of introducing GST



  1. Ensuring that the cascading effect of tax on tax will be eliminated.
  2. Improving the competitiveness of the original goods and services, thereby improving the GDP rate too.
  3. Ensuring the availability of input credit across the value chain.
  4. Reducing the complications in tax administration and compliance.
  5. Making a unified law involving all the tax bases, laws and administration procedures across the country.
  6. Decreasing the unhealthy competition among the states due to taxes and revenues.
  7. Reducing the tax slab rates to avoid further clarification issues.

Q.6 What do you understand by ‘The Going Concern Assumptions’



The going concern assumption holds that a business or the institution shall last for a long time. Therefore, it is also known as ‘continuity assumption’. In other words, it is assumed that the business will exist for an indefinite period of time and therefore, transactions are recorded from this point of view.

On the basis of this assumption, fixed assets are recorded at their original cost and are depreciated in a systematic manner without reference to their market value.

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FAQs (Frequently Asked Questions)

1. Where can students easily get access to Important Questions Class 11 Accountancy Chapter 2?

By registering on the Extramarks, students can easily access Important Questions Class 11 Accountancy Chapter 2 with many other important materials significant for creating a solid base of knowledge. The solutions provide an easy way to revise the chapter and help to understand key concepts that are covered in it.

2. How many books are assigned for Class 11 Accountancy

As per CBSE there are two books assigned for Accountancy in Class 11. The first book, Financial Accountancy 1, contains 8 chapters, and the second book, Financial Accountancy 2, contains 5 chapters. Both of these books are also available in Hindi.