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Introduction to Book Keeping and Accountancy: NBSE Class 9
Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 1 Introduction to Book Keeping and Accountancy, NBSE Class 9 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
If you notice any errors in the notes, please mention them in the comments
Summary
Textbook solutions
Multiple Choice Questions (MCQs)
1. Accounting is :
(a) Only an Art
(b) Only a Science
(c) Art and Science both
(d) Neither Art nor Science
Answer: (c) Art and Science both
2. In accounts recording is made for :
(a) Only Financial Transactions
(b) Only Non-financial transactions
(c) Financial as well as non-financial transactions
(d) Personal transactions of the Proprietor
Answer: (a) Only Financial Transactions
3. Book Keeping means:
(a) To keep the books in an almirah
(b) To record the business transactions in the account books of the trading concern
(c) To record the business activities by a trader in his diary
(d) To write all the books
Answer: (b) To record the business transactions in the account books of the trading concern
4. Which of the following transactions is not of financial character ?
(a) Purchase of asset on credit
(b) Purchase of asset for cash
(c) Purchases of goods
(d) Strike by Employees
Answer: (d) Strike by Employees
5. Accounting cycle includes:
(a) Recording
(b) Classification
(c) Summarising
(d) All of the above
Answer: (d) All of the above
6. Book keeping is mainly concerned with:
(a) Recording of financial data
(b) Designing the systems of summarising the recorded data
(c) Interpreting the data for internal and external users
(d) Preparation of financial statements of the business enterprise
Answer: Recording of financial data
True/False
State whether each of the following Statement is true or false.
1. Book keeping and Accounting are one and the same thing.
Answer: False
2. Book keeping is the art of recording business transactions in a systematic manner.
Answer: True
3. In Book keeping only monetary transactions are recorded.
Answer: True
4. Accountancy helps in taking large number of decisions.
Answer: True
Assertion Reason Based Questions
Choose the correct option
A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of the Assertion (A).
B. Both Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A).
C. Only Assertion (A) is correct.
D. Only Reason (R) is correct.
1. Assertion: In Book keeping only monetary transactions are recorded.
Reason: In Book keeping only those transactions and events are recorded which are expressed in terms of money.
Answer: (A)
2. Assertion Book keeping the art of recording business transaction in a systematic way.
Reason: Book keeping provides enough information about the position of various accounts.
Answer: (B)
Statement Based Questions
Choose the correct option from the options given below :
A. Statement I is true and II is false.
B. Statement II is true and I is false.
C. Both the statements are false.
D. Both the statements are true.
1. Statement I: Book keeping records are backed by documentary evidence.
Statement II: The records are admitted by the courts as authentic evidence admissible in court cases.
Answer: (D)
2. Statement I: Book keeping is the initial step for recording business transactions.
Statement II Book keeping ignores the non-monetary transactions.
Answer: (D)
Short Answer Type-l Questions
1. Define Book Keeping.
Answer : Book Keeping is a combination of two words, i.e., ‘BOOK’ and ‘KEEPING’. Here, ‘BOOK’ means maintenance of books of business, and ‘KEEPING’ means to keep the books in a systematic manner and updated with the complete records of all the transactions. Book Keeping is that branch of knowledge which tells us to keep a record of financial transactions in a systematic manner. It is the initial step to record the financial transactions.
2. Mention the objectives of Book Keeping.
Answer : The objectives of Book Keeping are as follows:
(i) To maintain a permanent record of business transactions based on accounting rules, principles, and concepts. This helps to reduce errors while recording the transactions. For a permanent record of business, all transactions are first recorded in the Journal and then transferred to the Ledger.
(ii) To determine the profit or loss of the business at the end of a financial year. For this purpose, the trading and profit and loss account of the business is prepared, showing all incomes and expenses. If the total income exceeds total expenses, it results in NET PROFIT. Conversely, if expenses exceed income, it results in NET LOSS.
(iii) To ascertain the financial position of the business. For every businessman, knowing the profit or loss is not sufficient; they must also understand the financial health of the business. To achieve this, a Balance Sheet is prepared to know the financial position of the business, recording assets, liabilities, and capital.
3. Define Accountancy.
Answer : Accountancy refers to a systematic knowledge of accounting. It involves the procedural aspects of preparation of books of accounts, summarisation, and communication of accounting information to interested parties. Accountancy refers to the entire body of the theory and practice of accounting.
4. Write two advantages of Accountancy.
Answer : Two advantages of accountancy are:
(i) Replacement of Memory: Human memory is limited by its very nature. Therefore, the need arises to record financial transactions in different books of account. Accounting helps in keeping a systematic record of business transactions, which may be referred to from time to time.
(ii) Helpful in Planning: An efficient management always plans for the future targets, such as production, purchase of goods, sales, marketing of goods, acquisition of fixed assets, and funds in the next accounting period. All this has to be planned in a systematic manner. Without adequate accounting data, it is not possible to make effective planning.
Short Answer Type-Il Questions
1. Why Book Keeping is needed?
Answer : Book Keeping is needed for the following points:
- Need for Financial Information : Financial information of the business is required for preparing policies, budgets, etc. This is possible only when proper records are maintained. So, Book Keeping helps in maintaining proper records.
- Limited Human Memory : The capacity of human beings is limited to remember or learn a large number of transactions done in the business. Book Keeping helps them to store the information in a systematic way.
- Information Needs of Various Users : Book Keeping provides relevant information to the users whenever they need it. These users include investors, bankers, owners, etc.
- Provides Evidence : Book Keeping records are backed by documentary evidence, and therefore, they are admitted by courts as authentic evidence admissible in court cases.
- Preparation of Financial Statements : Every businessman wants to know the profit earned or loss suffered during the year and the financial position at the end of the year. Book Keeping provides necessary data for preparing the financial statements.
2. Write three objectives of Book Keeping?
Answer : Three objectives of book keeping are:
(i) The first main objective of Book Keeping is to keep a permanent record of all business transactions on the basis of accounting rules, principles, and concepts. This helps in reducing errors while recording the transactions.
(ii) The second main objective is to determine the profit or loss of the business at the end of a financial year. For this purpose, the trading and profit and loss account is prepared, showing all incomes and expenses. If the total income exceeds total expenses, it results in a net profit; otherwise, it leads to a net loss.
(iii) Another objective is to ascertain the financial position of the business. For this, a balance sheet is prepared to record assets, liabilities, and capital, which helps in understanding the financial health of the business.
3. What do you mean by Accountancy? Explain three objectives.
Answer : Accountancy refers to a systematic knowledge of accounting. It involves the procedural aspects of preparation of books of accounts, summarisation, and communication of accounting information to interested parties.
The main objectives of accountancy are as follows:
- Record of Financial Transactions and Events: The main objective of accountancy is to keep a systematic record of financial transactions or events of an organisation in the books of accounts according to specified rules. Complete record of business transactions can be used by different persons for different decision-making purposes and act as evidence of transactions.
- Determine Financial Position: For a businessman, merely ascertaining profit or loss of the business is not sufficient. The businessman must also know the financial health of the business. To achieve this objective, after preparing the Profit & Loss Account, a Position Statement (also called Balance Sheet) is prepared which serves as a barometer for ascertaining the financial position of the business on a particular date.
- Communicating Accounting Information to Users: Another main objective of accountancy is to communicate accounting information to the various interested parties like owners, investors, creditors, bankers, employees, and government authorities, etc., who analyse them as per their individual requirements.
4. What is an Accounting Cycle?
Answer : An accounting cycle is a complete sequence beginning with the recording of transactions and ending with the preparation of the final accounts. The steps involved in an accounting cycle include analyzing and recording financial transactions or events in the journal, posting them into the ledger, preparing the trial balance, summarizing the data, and finally communicating the information to users through financial statements like the Trading and Profit and Loss Account (Statement of Profit and Loss) and the Balance Sheet.
5. Explain four advantages of Accountancy.
Answer : Four advantages of accountancy are:
(i) Replacement of Memory: Human memory is limited by its very nature. Therefore, the need arises to record financial transactions in different books of account. Accounting helps in keeping a systematic record of business transactions, which may be referred to from time to time.
(ii) Helpful in Planning: An efficient management always plans for future targets, such as production, purchase of goods, sales, marketing of goods, advertisement, acquisition of fixed assets, and funds for the next accounting period. All this has to be planned systematically, and without adequate accounting data, effective planning is not possible.
(iii) Facilitates Control over Assets: Accountancy facilitates control over assets by providing information regarding Cash Balance, Bank Balance, Debtors, Fixed Assets, Stock, etc. The accounting records provide the necessary information to the management in this regard.
(iv) Facilitates to Ascertain Financial Performance: Accountancy facilitates the preparation of an Income Statement for an accounting period. The Profit & Loss Account prepared at the end of each accounting period discloses the net profit earned or loss suffered during that period. This evaluation of business performance gives vital information to the owners and various other interested parties.
Long Answer Type Questions
1. What is Book Keeping? Explain its need.
Answer : Book Keeping is a combination of two words, i.e., ‘BOOK’ and ‘KEEPING’. Here, ‘BOOK’ means maintenance of books of business, and ‘KEEPING’ means to keep the books in a systematic manner and updated with the complete records of all the transactions. Book Keeping is that branch of knowledge which tells us to keep a record of financial transactions in a systematic manner. It is the initial step to record the financial transactions.
Book Keeping is needed for the following points:
- Need for Financial Information : Financial information of the business is needed for preparing policies, budgets, etc. This is possible only when proper records are maintained. So, Book Keeping helps them to maintain proper records.
- Limited Human Memory : The capacity of human beings is limited to remember or learn a large number of transactions done in the business. So, Book Keeping helps them to store the information in a systematic way.
- Information Needs of Various Users : Book Keeping provides relevant information to the users whenever they need information. These users are investors, bankers, owners, etc.
- Provides Evidence : Book Keeping records are backed by documentary evidence; therefore, the same are admitted by the courts as authentic evidence admissible in court cases.
- Preparation of Financial Statements : Every businessman wants to know the profit earned or loss suffered during the year and the financial position at the end of the year. Book Keeping provides necessary data for preparing the financial statements.
2. Explain the advantages of Book Keeping.
Answer : The advantages of Book Keeping are as follows:
(i) Data : Book Keeping creates hard data which is used by business owners to take useful decisions. It facilitates effective decision-making, which leads to the growth and expansion of the business.
(ii) Reduced Tax Liabilities : Book Keeping helps the businessman to reduce tax liabilities because when proper books are maintained according to tax rules and laws, this will lead to tax deductions.
(iii) Minimise Errors : When a bookkeeper records all the transactions accurately, then the possibility of errors is minimised. The bookkeeper should have knowledge of recording the transactions properly.
(iv) Performance of Enterprise : Book Keeping helps the businessman to know the financial position of the enterprise, whether it is gain or loss, at the end of the year.
3. What is meant by Accountancy? Explain its process.
Answer : Accountancy refers to a systematic knowledge of accounting. It involves the procedural aspects of preparation of books of accounts, summarisation, and communication of accounting information to interested parties.
The process of Accountancy includes the following steps:
- Recording of Financial Transactions and Events: The main objective of accountancy is to keep a systematic record of financial transactions or events of an organisation in the books of accounts according to specified rules. For this purpose, all the business transactions are first recorded in Journal or Subsidiary Books.
- Classifying (Posting into Ledger): After recording the transactions in the Journal or Subsidiary Books, they are posted into the Ledger. Ledger is the storehouse of information where transactions are classified under respective accounts.
- Summarising: The recorded and classified data is then summarised to prepare the Trial Balance, which checks the arithmetical accuracy of the books.
- Preparation of Final Accounts: Based on the Trial Balance, the Trading and Profit & Loss Account (or Statement of Profit and Loss) is prepared to determine the profit or loss for the period. Additionally, a Balance Sheet is prepared to ascertain the financial position of the business on a particular date.
- Communicating to Users: The final step in the process of Accountancy is to communicate the accounting information to various interested parties like owners, investors, creditors, bankers, employees, and government authorities, who analyse it as per their individual requirements.
Extras
Additional questions and answers
Q. What is the meaning of ‘Book’ in Book Keeping?
Answer : In Book Keeping, ‘Book’ means the maintenance of books of business.
Q. Define ‘Keeping’ in the context of Book Keeping.
Answer : In Book Keeping, ‘Keeping’ means to keep the books in a systematic manner and updated with the complete records of all the transactions.
Q. Who defined Accounting as an art concerned with recording, classifying, summarising, and interpreting business transactions?
Answer : The American Institute of Certified Public Accountants (AICPA) defined Accounting as an art concerned with recording, classifying, summarising, and interpreting business transactions.
Q. What year did the American Institute of Certified Public Accountants define Accounting?
Answer : The American Institute of Certified Public Accountants (AICPA) defined Accounting in the year 1941.
Q. According to Northcott, what is Book Keeping?
Answer : According to Northcott, Book Keeping is the art of recording in the books of accounts the monetary aspect of commercial and financial transactions.
Q. What does R.N. Carter say about Book Keeping?
Answer : According to R.N. Carter, “Book Keeping is the science and art of recording correctly in the books of accounts all those business transactions that result in the transfer of money or money’s worth.”
Q. Name one characteristic of Book Keeping.
Answer : One characteristic of Book Keeping is that it is both a science as well as an art.
Q. What is the first step in the process of Book Keeping?
Answer : The first step in the process of Book Keeping is the identification of transactions.
Q. Which transactions are ignored in Book Keeping?
Answer : Non-monetary transactions are ignored in Book Keeping, such as employer-employee relationships.
Q. What is the purpose of maintaining a ledger in Book Keeping?
Answer : The purpose of maintaining a ledger in Book Keeping is that it serves as the storehouse of information where entries recorded in the journal, the book of original entry, are posted.
Q. What is the significance of balancing ledger accounts?
Answer : Balancing of ledger accounts is significant as it helps in finding the difference between the debit side and credit side of an account, ensuring accuracy in recording transactions.
Q. Why is a Trial Balance prepared in Book Keeping?
Answer : A Trial Balance is prepared in Book Keeping to check the arithmetical accuracy of the books and to help locate and rectify errors.
Q. How does Book Keeping help in reducing tax liabilities?
Answer : Book Keeping helps in reducing tax liabilities because when proper books are maintained according to tax rules and laws, this leads to tax deductions.
Q. What is the primary objective of Book Keeping?
Answer : The primary objective of Book Keeping is to keep a complete record of business transactions on the basis of accounting rules, principles, and concepts.
Q. Name one user group that benefits from Book Keeping.
Answer : One user group that benefits from Book Keeping is investors.
Q. Explain the term ‘Book Keeping’ in your own words.
Answer : Book Keeping is a combination of two words, i.e., ‘BOOK’ and ‘KEEPING’. Here, ‘BOOK’ means maintenance of books of business, and ‘KEEPING’ means to keep the books in a systematic manner and updated with the complete records of all the transactions. It is that branch of knowledge which tells us to keep a record of financial transactions in a systematic manner. Book Keeping is the initial step for recording business transactions and includes activities such as identifying financial transactions in terms of money, measuring them in terms of money, recording financial transactions and events in the books of accounts, and classifying the recorded transactions and events in the Ledger.
Q. Describe the relationship between Accountancy, Accounting, and Book Keeping.
Answer : The relationship between Accountancy, Accounting, and Book Keeping shows that Book Keeping is the narrow term and represents the primary or initial stage to record the transactions. Accounting is comparatively narrower than Accountancy and serves as the second stage where transactions are recorded and classified. Accountancy is the broader term and encompasses the complete process, including both Book Keeping and Accounting. In practice, Accounting and Accountancy are often used interchangeably.
Q. What are the main activities involved in the process of Book Keeping?
Answer : The main activities involved in the process of Book Keeping include:
- Identifying financial transactions in terms of money.
- Measuring in terms of money.
- Identifying and recording financial transactions and events in the books of accounts.
- Classifying the recorded transactions and events in the Ledger.
Q. Discuss the need for maintaining financial information through Book Keeping.
Answer : The need for maintaining financial information through Book Keeping arises for the following reasons:
- Financial information of the business is required for preparing policies, budgets, etc., which is possible only when proper records are maintained.
- Human memory is limited, so Book Keeping helps store information systematically.
- Book Keeping provides relevant information to users such as investors, bankers, owners, etc., whenever they need it.
- Book Keeping records are backed by documentary evidence and are admitted by courts as authentic evidence admissible in court cases.
- Book Keeping provides necessary data for preparing financial statements, which help determine the profit earned or loss suffered during the year and the financial position at the end of the year.
Q. How does limited human memory necessitate the practice of Book Keeping?
Answer : Limited human memory necessitates the practice of Book Keeping because, as we know, the capacity of a human being is limited to remember or learn a large number of transactions done in the business. Therefore, Book Keeping helps them store the information in a systematic way.
Q. Explain how Book Keeping provides evidence in legal matters.
Answer : Book Keeping provides evidence in legal matters because Book Keeping records are backed by documentary evidence, and therefore, the same are admitted by the courts as authentic evidence admissible in court cases.
Q. What role does Book Keeping play in preparing financial statements?
Answer : Book Keeping provides necessary data for preparing the financial statements. Every businessman wants to know the profit earned or loss suffered during the year and the financial position at the end of the year, and Book Keeping facilitates this by maintaining systematic records of all transactions.
Q. List and explain the objectives of Book Keeping.
Answer : The objectives of Book Keeping are as follows:
- To Show Permanent Record of Business: The main objective of Book Keeping is to keep a complete record of business transactions on the basis of accounting rules, principles, and concepts. This helps reduce errors while recording transactions. For permanent record of business, all transactions are first recorded in the Journal and then transferred to the Ledger.
- To Know the Profit and Loss of Business: Another main objective of Book Keeping is to determine the profit or loss of the business at the end of a financial year. For this purpose, the trading and profit and loss account of the business is prepared, showing all incomes and expenses. If total income exceeds total expenses, it results in NET PROFIT; otherwise, it results in NET LOSS.
- To Know the Financial Position of the Business: It is not sufficient for a businessman to only ascertain profit or loss; they must also know the financial health of the business. For this, a Balance Sheet is prepared to determine the financial position of the business, recording assets, capitals, and liabilities.
Q. How does Book Keeping assist in effective decision-making for business owners?
Answer : Book Keeping assists in effective decision-making for business owners by creating hard data, which is used by the business owners to take useful decisions. This facilitates effective decision-making, leading to growth and expansion of the business.
Q. What is the importance of recording transactions accurately in Book Keeping?
Answer : The importance of recording transactions accurately in Book Keeping is that when the bookkeeper records all the transactions accurately, the possibility of errors is minimised. The bookkeeper should have knowledge of recording the transactions properly.
Q. Explain the concept of Accountancy and its relevance to businesses.
Answer : Accountancy refers to a systematic knowledge of accounting. It involves the procedural aspects of preparation of books of accounts, summarisation, and communication of accounting information to interested parties. The main objectives of accountancy include keeping a systematic record of financial transactions or events of an organisation in the books of accounts according to specified rules. Accountancy helps in determining the financial position of the business by preparing a Balance Sheet at the end of each accounting period, which discloses the position of assets and their values on one side and liabilities and capital on the other. It also facilitates ascertaining financial performance by preparing an Income Statement for the accounting period, showing the net profit earned or loss suffered. Furthermore, accountancy communicates accounting information to various interested parties like owners, investors, creditors, bankers, employees, and government authorities, enabling them to analyse the data as per their individual requirements.
Accountancy is relevant to businesses because it assists management by providing financial information necessary for taking sound and judicious decisions about the business entity. It also helps in planning for future targets, controlling assets, and evaluating the solvency position of the business.
Q. Describe the accounting cycle and its various steps.
Answer : The accounting cycle is a complete sequence beginning with the recording of transactions and ending with the preparation of the final accounts. The steps involved in the accounting cycle are as follows:
- Recording Financial Transactions or Events : All financial transactions are recorded in the Journal or Subsidiary Books like the Cash Book, Purchases Book, Sales Book, Purchases Return Book, Sales Return Book, Bills Payable Book, Bills Receivable Book, and Journal Proper.
- Classifying (Posting into Ledger) : After recording, the entries are posted into the Ledger, which serves as the storehouse of information.
- Summarising : The recorded and classified data is summarised to prepare the Trial Balance, which checks the arithmetical accuracy of the books.
- Preparation of Final Accounts : Based on the Trial Balance, the Trading and Profit & Loss Account (or Statement of Profit and Loss) is prepared to determine the profit or loss for the period. Additionally, the Balance Sheet is prepared to show the financial position of the business on a particular date.
- Communicating to Users : Finally, the accounting information is communicated to users such as owners, investors, creditors, bankers, employees, and government authorities for analysis and decision-making.
Q. What are the main objectives of Accountancy?
Answer : The main objectives of Accountancy are as follows:
- Record of Financial Transactions and Events: The main objective of Accountancy is to keep a systematic record of financial transactions or events of an organisation in the books of accounts according to specified rules. Complete records of business transactions can be used by different persons for various decision-making purposes and act as evidence of transactions.
- Determine Financial Position: For a businessman, merely ascertaining profit or loss of the business is not sufficient. The businessman must also know the financial health of the business. To achieve this objective, after preparing the Profit & Loss Account, a Position Statement (also called Balance Sheet) is prepared, which serves as a barometer for ascertaining the financial position of the business on a particular date.
- Communicating Accounting Information to Users: Another main objective of Accountancy is to communicate accounting information to the various interested parties like owners, investors, creditors, bankers, employees, and government authorities, etc., who analyse them as per their individual requirements.
- Determine Profit or Loss: The main objective of Accountancy is to determine the financial performance, i.e., profit earned or loss incurred, for the accounting period. For this purpose, Trading and Profit & Loss Account or Statement of Profit and Loss (in case of companies) is prepared at the end of each accounting year. All items relating to purchases, sales, expenses, and revenues (incomes) of the business are recorded in Trading and Profit & Loss Account. If the amount of revenue for the period is more than the expenses incurred in earning that revenue, there is said to be a profit. If the expenses exceed the revenue, the difference is said to be a loss.
- Assisting the Management: Another objective of Accountancy is to assist the management by providing financial information to it. The information helps the management in taking sound and judicious decisions about the business entity.
Q. How does Accountancy help in planning for future business activities?
Answer : Accountancy helps in planning for future business activities by providing adequate accounting data, which enables efficient management to plan for future targets. This includes planning for production, purchase of goods, sales, marketing of goods, advertisement, acquisition of fixed assets, funds, etc., in the next accounting period. All this has to be planned in a systematic manner, and without adequate accounting data, it is not possible to make effective planning.
Q. Discuss the role of Accountancy in facilitating control over business assets.
Answer : Accountancy facilitates control over business assets by providing information regarding Cash Balance, Bank Balance, Debtors, Fixed Assets, Stock, etc. The accounting records provide the necessary information to the management in this regard, enabling them to exercise proper control over the assets.
Q. Explain the characteristics of Book Keeping.
Answer : The characteristics of Book Keeping are as follows:
- Book Keeping is the initial step for recording business transactions.
- Every transaction is properly analyzed before recording.
- The transactions to be recorded should be capable of being expressed in monetary terms.
- Book Keeping is both a science as well as an art.
- It provides enough information about the position of various accounts.
Q. What are the steps involved in the process of Book Keeping?
Answer : The steps involved in the process of Book Keeping are:
- Identification of Transactions: In Book Keeping, only monetary transactions are recorded. Non-monetary transactions, such as employer-employee relationships, are ignored.
- Recording of Transactions: In the first step, transactions are identified, and in the second step, they are recorded in journals, ledgers, cashbooks, etc.
- Ledger Posting: After recording the transactions into the Journal (the book of original entry), these entries are posted into the ledger accounts. The ledger is the storehouse of information.
- Balancing of Ledger Accounts: At periodic intervals, ledger accounts are balanced by finding the difference between the debit side and credit side of an account.
- Preparation of Trial Balance: The last step in the process of Book Keeping is preparing the trial balance by taking the ledger account balances. The trial balance is prepared to check the arithmetical accuracy of the books and helps locate and rectify errors.
Q. Discuss the need for maintaining proper records in Book Keeping.
Answer : The need for maintaining proper records in Book Keeping arises from several factors:
- Need for Financial Information : Financial information of the business is required for preparing policies, budgets, etc. This is only possible when proper records are maintained. Book Keeping helps in maintaining these records systematically.
- Limited Human Memory : The capacity of human beings to remember or learn a large number of transactions conducted in the business is limited. Book Keeping helps store this information in a systematic way.
- Information Needs of Various Users : Book Keeping provides relevant information to users such as investors, bankers, owners, etc., whenever they require it.
- Provides Evidence : Book Keeping records are backed by documentary evidence and are admitted by courts as authentic evidence admissible in court cases.
- Preparation of Financial Statements : Every businessman wants to know the profit earned or loss suffered during the year and the financial position at the end of the year. Book Keeping provides the necessary data for preparing financial statements.
Q. How does Book Keeping help in reducing tax liabilities?
Answer : Book Keeping helps the businessman reduce tax liabilities because when proper books are maintained according to tax rules and laws, it leads to tax deductions.
Q. Explain how Book Keeping provides evidence in legal matters.
Answer : Book Keeping records are backed by documentary evidence, and therefore, the same are admitted by the courts as authentic evidence admissible in court cases.
Q. Discuss the role of ledger posting in the Book Keeping process.
Answer : Ledger posting is the process where, after recording the transactions into the Journal (the book of original entry), these entries are posted into the ledger accounts. The ledger is the storehouse of information, and this step ensures that all recorded transactions and events are classified properly for further processing, such as balancing of accounts and preparation of financial statements.
Q. What is a Trial Balance? Explain its significance in Book Keeping.
Answer : A Trial Balance is prepared by taking the ledger account’s balances at periodic intervals. It is the last step in the process of Book Keeping and is used to check the arithmetical accuracy of the books. The significance of the Trial Balance lies in its ability to help locate and rectify errors, ensuring that the debit and credit sides of all accounts are balanced.
Q. How does Book Keeping assist in the preparation of financial statements?
Answer : Book Keeping assists in the preparation of financial statements by providing necessary data. Every businessman wants to know the profit earned or loss suffered during the year and the financial position at the end of the year. Book Keeping creates hard data which is used by business owners to take useful decisions. This data facilitates the preparation of financial statements such as the Trading and Profit and Loss Account and the Balance Sheet, which reveal the financial performance and position of the business.
39. How does Accountancy assist management in planning and decision-making?
Answer : Accountancy assists management in planning and decision-making in the following ways:
- Helpful in Planning : An efficient management always plans for future targets, such as production, purchase of goods, sales, marketing, acquisition of fixed assets, and funds for the next accounting period. All this has to be planned systematically, and without adequate accounting data, it is not possible to make effective planning.
- Helpful in Decision Making : Accountancy helps in taking a large number of decisions, such as the amount to be withdrawn by the proprietor, the price at which goods should be sold, and other critical business decisions.
- Facilitates Control over Assets : Accountancy provides information regarding cash balance, bank balance, debtors, fixed assets, stock, etc., which helps the management exercise control over the assets of the business.
- Assisting the Management : Accountancy provides financial information to the management, which helps in taking sound and judicious decisions about the business entity.
Additional MCQs
1. What is the main purpose of Book Keeping?
A. To maintain employee records
B. To record financial transactions
C. To prepare marketing strategies
D. To manage inventory
Answer: B. To record financial transactions
Q. Which of the following is NOT a characteristic of Book Keeping?
A. It involves monetary transactions
B. It is both a science and an art
C. It ignores non-monetary transactions
D. It focuses on personal transactions
Answer: D. It focuses on personal transactions
Q. What does the term “Book Keeping” combine?
A. Book and Writing
B. Book and Keeping
C. Book and Accounting
D. Book and Ledger
Answer: B. Book and Keeping
Q. Who defined Accounting as the process of identifying, measuring, and communicating economic information?
A. AICPA
B. AAA
C. Northcott
D. R.N. Carter
Answer: B. AAA
Q. Which step in the Book Keeping process involves transferring entries to the ledger?
A. Identification
B. Recording
C. Posting
D. Balancing
Answer: C. Posting
Q. What is the final step in the Book Keeping process?
A. Preparing the Trial Balance
B. Recording transactions
C. Posting to the ledger
D. Identifying transactions
Answer: A. Preparing the Trial Balance
Q. Which of the following is NOT a book of original entry?
A. Journal
B. Ledger
C. Cash Book
D. Sales Book
Answer: B. Ledger
Q. What is the primary objective of Book Keeping?
A. To reduce tax liabilities
B. To show a permanent record of business
C. To assist in marketing
D. To manage employees
Answer: B. To show a permanent record of business
Q. Which account is prepared to check the arithmetical accuracy of books?
A. Profit and Loss Account
B. Trial Balance
C. Balance Sheet
D. Trading Account
Answer: B. Trial Balance
Q. What is the main advantage of maintaining proper Book Keeping records?
A. Improved employee relations
B. Reduced errors in recording
C. Increased sales
D. Better advertising
Answer: B. Reduced errors in recording
Q. Which of the following is NOT a user of Book Keeping information?
A. Investors
B. Bankers
C. Customers
D. Owners
Answer: C. Customers
Q. What is the purpose of preparing a Balance Sheet?
A. To determine profit or loss
B. To know the financial position
C. To record daily transactions
D. To calculate tax liabilities
Answer: B. To know the financial position
Q. Which of the following is a key feature of Accountancy?
A. Replacement of memory
B. Ignoring financial data
C. Focusing on non-financial events
D. Managing inventory
Answer: A. Replacement of memory
Q. What is the relationship between Book Keeping and Accountancy?
A. Book Keeping is broader than Accountancy
B. Accountancy includes Book Keeping
C. They are unrelated fields
D. Accountancy is a subset of Book Keeping
Answer: B. Accountancy includes Book Keeping
Q. Which of the following is NOT a step in the accounting cycle?
A. Recording
B. Classifying
C. Advertising
D. Summarising
Answer: C. Advertising
Q. What is the purpose of the Trading and Profit & Loss Account?
A. To determine financial position
B. To calculate net profit or loss
C. To record daily transactions
D. To prepare budgets
Answer: B. To calculate net profit or loss
Q. Which of the following is NOT a financial transaction?
A. Purchase of goods
B. Sale of assets
C. Employee strike
D. Payment to creditors
Answer: C. Employee strike
Q. What is the role of Accountancy in decision-making?
A. To assist in planning
B. To ignore financial data
C. To focus on non-financial events
D. To manage inventory
Answer: A. To assist in planning
Q. Which statement is true about Book Keeping?
A. It includes non-monetary transactions
B. It is the initial step in recording transactions
C. It focuses on personal transactions
D. It ignores documentary evidence
Answer: B. It is the initial step in recording transactions
Q. What is the primary function of a Trial Balance?
A. To prepare budgets
B. To check arithmetical accuracy
C. To record daily transactions
D. To calculate tax liabilities
Answer: B. To check arithmetical accuracy
Q. Which of the following is NOT a book of accounts?
A. Journal
B. Ledger
C. Diary
D. Cash Book
Answer: C. Diary
Q. What is the main objective of Accountancy?
A. To replace memory
B. To record financial transactions
C. To focus on non-financial events
D. To manage inventory
Answer: B. To record financial transactions
Q. Which of the following is NOT an advantage of Accountancy?
A. Facilitates control over assets
B. Helps in planning
C. Ignores financial data
D. Assists in decision-making
Answer: C. Ignores financial data
Q. What is the purpose of maintaining a systematic record of transactions?
A. To improve employee relations
B. To assist in decision-making
C. To focus on non-financial events
D. To manage inventory
Answer: B. To assist in decision-making
Q. Which of the following is NOT a characteristic of Accountancy?
A. It is a systematic knowledge
B. It involves procedural aspects
C. It ignores financial transactions
D. It communicates accounting information
Answer: C. It ignores financial transactions
Q. What is the primary purpose of preparing financial statements?
A. To determine profit or loss
B. To record daily transactions
C. To focus on non-financial events
D. To manage inventory
Answer: A. To determine profit or loss
Q. Which of the following is NOT a component of the accounting cycle?
A. Recording
B. Classifying
C. Advertising
D. Summarising
Answer: C. Advertising
Q. What is the role of documentary evidence in Book Keeping?
A. To assist in planning
B. To provide authenticity
C. To focus on non-financial events
D. To manage inventory
Answer: B. To provide authenticity
Q. Which of the following is NOT a type of financial statement?
A. Balance Sheet
B. Trial Balance
C. Advertisement Report
D. Profit and Loss Account
Answer: C. Advertisement Report
