NCERT Solutions for Class 11 Accountancy – Chapter 1: Introduction to Accounting
As students study accountancy for the first time, they often find it tough to understand the concepts associated with the chapters . Class 11 Chapter 1 covers the fundamental theory of Accountancy and its essential aspects. Extramarks intends to ease the preparation of the NCERT textbook questions for the students by providing them with NCERT Solutions for Class 11 Accountancy Chapter 1. The solutions are the answers to the questions that are given at the end of the Chapter 1 NCERT textbook.
Class 11 Accountancy NCERT Solutions Chapter 1: Introduction to Accounting
Access NCERT Solutions for Class 11 Accountancy Chapter – Introduction to Accounting
NCERT Accountancy Class 11 Solutions
NCERT Accountancy Chapter 1 covers the primary objectives of accountancy, differences between debtors and creditors, short-term liability, revenue, capital, and other topics related to accounting. In addition to reading the chapter thoroughly, students should also attempt the questions given at the end to gauge their understanding of the concepts explained in Introduction to Accounting.
The NCERT Solutions for Class 11 Chapter 1 by Extramarks have answers to all the questions that are at the end of the chapter. Subject matter experts have written the answers in a simple language and as per the guidelines by CBSE.
What Are the Types of Accounting?
Financial Accounting: Financial Accounting is a type of accounting that performs identification, distinction, record, and analysis of the phases of accounting to understand the economic status of the business entity. Every transaction involves money and gets recorded in the account record track. The record system is similar to that of a balance sheet. It might be an income amount or an expense.
The assessment of the monetary transactions is based on the impact they leave on the business organisation. After completing the process, the overall status of the company is determined. The process is based on conventional accounting laws, rules and regulations, and principles. The laws are implemented during the recording process of the transactions. It depends on the effects on the company that is under consideration.
What is Financial Accounting?
Financial accounting is a specific branch of accounting that primarily focuses on various financially-associated operations of a business organisation. The process is comprehensive and maintains the accounts or the record of every monetary transaction in a business firm daily.
Financial accounting focuses on the periodic review of the cash flow mechanisms present in the daily transaction course of a business entity. Specific rules and regulations must be followed to help the accountants register, track, and assess various transaction processes happening during a particular interval.
Usually, accounting or financial accounting is processed from the beginning of April to the end of March of every year. The prime reason to formulate financial accounting is to ensure the financial status of a business firm and to detect the probable sources that indicate a constant loss to the business firm. Therefore, it is essential to identify the sources and rectify the flaws to boost the economic standard and encourage more investments. It also smoothens the way to accepting loans for capital to operate a monetary program.
What is the Necessity of Financial Accounting?
One of the essential aspects of financial accounting in a business firm is identifying the scopes. Financial accounting finds opportunities to represent the company’s economic status to the authority. The concerned authorities can be higher authorities, lenders, banks, dealers, wholesalers, or the masses.
The primary reason to showcase the financial resources to the public is to motivate them to purchase shares and enjoy a lucrative percentage of ownership in the case of a public limited company. Banks and financial firms can approve loans depending on the financial statements stated by the organisation.
A business firm can leverage financial accounting to decide the share of the liquid cash available, the assets, net worth, liabilities, etc. The shares can be easily deduced from the respective financial statements. It leads to a profound analysis of a company’s economic stature without any doubt or conflicts.
The origin of the concept of accounting dates back to more than 7,000 years in Mesopotamia. The documents recovered from ancient mesopotamia show the list of expenditures, goods received and goods traded.
The authority granted the people to acquire official recognition in Accounting. Those who cleared the Certified Public Accountancy Examination officially were recognised as accountants. The exam first took place in 1896.
Why Should One Choose Extramarks NCERT Solutions?
Extramarks gives students many reasons to refer to NCERT Solutions for Class 11 Accountancy Chapter 1. Some of them are listed below:
- Solutions are prepared by subject matter experts, which ensures their accuracy
- Solutions are written in simple and easy to understand language
- Solutions are prepared as per the guidelines by CBSE
- Solutions have answer to every question in the NCERT textbook
Q1. State the principle objectives of accounting.
A1. The principle objectives of accounting are to:
- Determine the liabilities, assets, and revenue of an organisation
- Make decisions based on the financial condition of an organisation
- Maintain continuity of transactions of the business entity
- Prepare balance sheet
- Provide relevant data to customers, dealers, wholesalers, and investors
Q.1 Define accounting.
Accounting is a process of identifying, measuring, recording the business transactions and communicating thereof the required information to the interested users.
Q.2 State the end product of financial accounting.
End product of accounting are the financial statements (i.e. Profit & Loss account and Balance Sheet) and reports which provide information that are useful to a variety of users who want to know the profitability and financial position of an enterprise.
Q.3 Enumerate main objectives of accounting.
Objectives of Accounting:
- Maintenance of records of Business Transactions.
- Calculation of Profit and Loss.
- Depiction of Financial Position.
- Providing Accounting information to its users.
Q.4 Who are the users of accounting information?
Users of accounting information can be divided into two categories: Internal and External users.
Internal users include: Chief Executive, Financial Officer, Vice President, Business Unit Managers, Store Managers and Line Supervisors etc.
External users include: Present and Potential investors (shareholders), Creditors (Banks and other Financial Institutions, Debenture-holders and other Lenders), Tax Authorities, Regulatory Agencies (Dept. of Company Affairs, SEBI, Trade Associations and Customers etc.
Q.5 State the nature of accounting information required by long-term lenders.
Long-term lenders want information about the creditworthiness and the ability of the enterprise to pay interest and repayment of their loans.
Q.6 Who are the external users of information?
External users are potential investors, creditors, lenders, employee unions, customers and Government etc.
Q.7 Enumerate information needs of management.
Management needs timely information regarding sales, costs, profitability etc for planning, controlling and decision making.
Q.8 Give any three examples of revenue.
Examples of Revenue are commission, interest, dividend, royalties, rent received etc.
Q.9 Distinguish between debtors and creditors; profit and gain.
Debtors are persons and/or other entities who owe to an enterprise an amount for buying goods and services on credit, while Creditors are persons and/or other entities who have to be paid by an enterprise an amount for providing the enterprise goods and services on credit.
The excess of revenues of a period over its related expenses during an accounting year is profit while gain is a profit that arises from events or transaction which are the operating activities of the business such as sale of fixed assets or winning a court case.
Q.10 ‘Accounting information should be comparable’. Do you agree with this statement? Give two reasons.
Comparability means that the users should be able to compare the accounting information of an enterprise of the period either with that of other periods, known as intra-firm comparison or with the accounting information of other enterprises, known as inter-firm comparison.
Q.11 If the accounting information is not clearly presented, which of the qualitative characteristics of the accounting information is violated?
If the accounting information is not clearly presented, Reliability characteristics are violated.
Reliability means the users must be able to depend on the information. The reliability of accounting information is determined by the degree of correspondence between what the information conveys about the transaction that have occurred, measured and displayed.
Q.12 “The role of accounting has changed over the period of time”. Do you agree? Explain.
For centuries, the role of accounting has been changing with the changes in economic development and increasing societal demands. It describes and analyses a mass of data of an enterprise through measurement, classification and summarization and reduces those date into reports and statements.
Q.13 Giving examples, explain each of the following accounting terms:
- Fixed assets;
- Short-term liability;
- Fixed assets: Fixed assets held on a long-term basis such as land, buildings, machinery, plant and furniture, etc.
- Revenue: Revenues are the amounts of the business earned by selling its products or providing services. The common items of revenue are Commission, interest, dividends, royalties, rent received, etc.
- Expenses: Costs incurred by a business in the process of earning revenue are known as expenses. The usual items of expense are Depreciation, rent, wages, salaries, interest, light and water, telephone, etc.
- Short-term liability: These are obligations that are payable within a period of one year, for example, Creditors, Bills payable and bank overdraft etc.
- Capital: Amount invested by the owner in the firm is known as Capital. It may be brought in the form of cash or assets by the owner for the business entity.
Q.14 Define revenues and expenses.
Revenues are the amounts of the business earned by selling its products or providing services to customers called sales revenue. While Costs incurred by a business in the process of earning revenue are known as expenses. Generally, expenses are measured by the cost of assets consumed or services used during an accounting period..
Q.15 What is the primary reason for the business students and others to familiarise themselves with the accounting discipline?
In present scenario, everybody is required to get familiarized with accounting discipline, because accounting today is much more than just book-keeping and preparation of financial reports. With the help of accounting, now we are capable of working in exciting new growth areas such as forensic accounting (solving crimes such as computer hacking and the theft of large amounts of money on the internet), e-commerce (designing web-based payment system), financial planning, environmental accounting etc.
This realization came due to the fact that accounting is capable of providing the kind of information that managers and other interested persons need in order to make better decisions. This aspect of accounting gradually assumed so much importance that it has now been raised to the level of an information system.
Q.16 What is accounting? Define its objectives.
Accounting is a process of identifying, measuring, recording the business transactions and communicating thereof the required information to the interested users.
Objectives of Accounting:
- Maintenance of Records of Business Transactions: Accounting is used for the maintenance of a systematic record of all financial transactions in book of accounts.
- Calculation of Profit and Loss: The owners of business are keen to have an idea about the net results of their business operations periodically, i.e. whether the business has earned profits or incurred losses. Thus another objective of accounting is to ascertain the profit earned or loss sustained by a business during an accounting period which can be easily workout with help of record of incomes and expenses relating to the business by preparing a profit or loss account for the period.
- Depiction of financial position: Accounting also aims at ascertaining the financial position of the business concern in the form of its assets and liabilities at the end of every accounting period. A proper record of resources owned by business organisation (Assets) and claims against such resources (Liabilities) facilitates the preparation of a statement known as balance sheet position statement.
- Communicating accounting information to users: The accounting information generated by the accounting process is communicated in the form of reports, statements, graphs and charts to the users who need it in different decision situations, users such as investors, unions and employee groups, Lenders and financial institutions, suppliers and creditors, customers, Government and competitors.
- Protecting business assets: Another objective of accounting is to have records of assets owned by the business. Accounting maintains record of assets owned by the business which enables the management to protect them and exercise control.
Q.17 Explain the factors which necessitated systematic accounting.
A systematic accounting is the demand of time. Now the time has changed, this is the age of industrial advancement. Now the recording of business transaction is not only necessary from an owner’s point of view.
On the other hand, demand for corporate social responsibility is increased day by day. In such a situation, if systematic accounting is not followed, we will not able to save our face in case of any unfavourable circumstances.
The factors that are necessitated systematic accounting are:
- Identification of financial transactions: Accounting records only those transactions and events which are of financial nature as they bring in the resources of a firm.
- Measuring the identified transaction: Accounting measures the transactions and events in terms of a common measurement unit, i.e., the currency of the country.
- Recording: Accounting is an art of recording business transaction in the books of accounts. Recording is the process of recording business transactions of financial character in the book of original entry, i.e. journal.
- Classifying: Accounting is an art of classifying business transaction. Classification is the process of collecting similar transactions at one place by opening accounts in the ledger book.
- Summarising: Accounting is an art of summarizing financial transactions. This involves presenting the classified data in a manner which is understandable and useful to internal as well as external users of accounting statements.
- Analysis and interpretation: Financial data is analysed and interpreted so that the users of financial data can make a meaningful judgement of the financial performances (profit) and financial position of the business.
- Communicating: Accounting function involves communication the financial data, i.e., financial statement to its users. The accounting information must be provided in time and presented to the users so that decisions are taken at the appropriate time.
Q.18 Describe the informational needs of external users.
The external users are interested in the following:
- Investors and potential investors: Information on the risks and return on investment.
- Unions and employee groups: information on the stability, profitability and distribution of wealth with in the business.
- Lenders and financial institutions: information on the creditworthiness of the company and its ability to repay loans and pay interest.
- Suppliers and Creditors: information on whether amounts owed will be repaid when due and on the continued existence of the business.
- Customers: information on the continued existence of the business and thus the probability of a continued supply of products, parts and after sales service.
- Government and other regulators: information on the allocation of resources and the compliance to regulations.
- Competitors: information on the relative strengths and weaknesses of their competition and for comparative and bench-marking purposes.
Q.19 What do you mean by an asset and what are different types of assets?
Assets are economic resources of an enterprise that can be usefully expressed in monetary terms. Assets are items of value used by the business in its operations. For example Super Bazar owns a fleet of trucks, which is used by it for delivering foodstuffs; the trucks, thus provide economic benefit to the enterprise. This item will be shown on the asset side of the balance sheet of Super Bazar.
Assets can be broadly classified into two types: Fixed and Current Assets.
- Fixed assets are assets held on a long-term basis, such as land, buildings, machinery, plant, furniture and fixtures. These assets are used for the normal operations of the business.
- Current assets are assets held on a short term basis such as debtors (accounts receivable), bills receivable (notes receivable), stock (inventory), cash and bank balances.
Q.20 Explain the meaning of gain and profit. Distinguish between these two terms.
Profit: The excess of revenues of a period over its related expenses during an accounting year is profit. Profit increases the investment of the owners.
Gain: A profit that arises from events or transactions which are incidental to business such as sale of fixed assets, winning court case, appreciation in the value of an asset.
Q.21 Explain the qualitative characteristics of accounting information.
Qualitative characteristics are the attributes of accounting information which tend to enhance its understandability and usefulness.
- Reliability means the users must be able to depend on the information. The reliability of accounting information is determined by the degree of correspondence between what the information conveys about the transactions or events that have occurred, measured and displayed.
- A reliable information should be free from error and bias and faithfully represents what it is meant to represent.
- To be relevant, information must be available in time, must help in prediction and feedback and must influence the decisions of users by:
- Helping them form prediction about the outcomes of past, present or future events;
- Confirming or correcting their past evaluations.
- It means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them.
- The qualities that distinguish between good and bad communication in a message are fundamental to the understandability of the message.
- Accountants should present the comparable information in the most intelligible manner without sacrificing relevance and reliability.
- It is equally important that the users of the general purpose financial reports are able to compare various aspects of an entity over different time period and with other entities.
- To be comparable accounting reports must belong to a common period and use common unit of measurement and format of reporting.
Q.22 Describe the role of accounting in the modern world.
For centuries, the role of accounting has been changing with the changes in economic development and increasing societal demands. It describes and analyses a mass of data of an enterprise through measurement, classification and summarization and reduces those date into reports and statements, which show the financial condition and results of operations of that enterprise. Hence it is regarded as a language of business.
It also performs the service activity by providing quantitative financial information that helps the users in various ways.
Accounting as an information system collects and communicates economic information about an enterprise to a wide variety of interested parties.
FAQs (Frequently Asked Questions)
1. Where will I find the subject-wise Class 11 NCERT Solutions?
You will find the subject-wise NCERT Solutions for Class 11 on Extramarks website or app.
2. What does the term 'revenue' mean?
The term ‘revenue’ means the amount of money that a company enjoys as its profit from selling products or services during a specific time. Revenue is a common term often used in accountancy. Revenue is also synonymous with income.
3. What are the benefits of referring to NCERT Solutions?
The benefits of NCERT Solutions include:
- Subject-matter experts have drafted the solutions.
- The answers are precise yet elaborate.
- NCERT Solutions are made as per the CBSE guidelines.
- Students find accurate information and explanations.
- Students can download the solutions from the website and study offline anytime, anywhere, at their convenience.
4. What is a balance sheet?
A balance sheet is a financial statement prepared by accountants to maintain the monetary transaction that occurs in a business entity during a specific period. The balance sheet reflects the chronological representation of assets, liabilities, and equity that the company owns.