Subject – Accountancy Class-XI
Chapter -1
(Introduction to Accounting)
• Meaning of Accounting: Accounting is the systematic process of identifying, recording,
classifying, summarizing, interpreting, and communicating financial information
• Accounting Process
Identification (Transaction-financial events that can major in terms of money)
Book
Keeping Recording (By way of Journal Entry or Subsidiary books)
Classification (Grouping of transactions of similar nature at one place in
separate account (called as ledger) in chronological order
Summarizing (This process involves balancing of Ledger A/c and
preparation of “Trial Balance” thereafter preparation of “Final Accounts”)
Accounting
Analysis and Interpretation (Provide useful information to user thus
they can make a meaningful decision)
Communication (Presentation of all information in front of users)
Book Keeping
Accounting
Accountancy
• Accountancy = Accounting + Theory and practice (Systematic knowledge of the Accounting
Principles, Accounting Standards and rules provided by Law)
• Distinction between Book- Keeping and Accounting
Basis Book Keeping Accounting
[Link] It includes Identification, Accounting includes book-keeping,
Recording, Classification Summarizing, Analysis and Interpretation
and communication.
2. Stage Primary Secondary
[Link] of job Routine type and clerical in nature Analytical
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[Link] Keep and maintain day to day To ascertain portability and financial
transactions soundness
[Link] By Junior staff By Senior staff
[Link] of skill Normal Requires specialized skill
• Objectives, Advantage, Characteristics and uses
1. Science as well as Arts.
2. Provides complete and systematic record.
3. Provides information of profit or loss of business.
4. Provides information about financial position of business.
5. helps in taking managerial decisions.
6. Helps in inter or intra firm comparison.
7. Helps in the settlement of tax liability.
8. Helps in taking loan
9. Acts as proof in the court of law.
10. Helpful in detecting errors and frauds.
11. Facilitates sale of the business
• Limitations of accounting
1. Based on accounting concepts and conventions
For instance, fixed assets are valued at historical costs instead of their market value.
2. Sometime based on personal judgment/Subjectivity: Some aspects of accounting, like asset
valuation or depreciation methods, can involve subjective judgments. Different accountants
might make different choices, leading to inconsistencies.
3. Lack of qualitative information
In accounting only recorded transactions those can major in terms of money, loyalty of
employee couldn’t major in terms of money but it’s very important factor of business.
4. Suffers from window dressing - Window dressing in accounting is the practice of
manipulating financial statements to present a more favorable view of a company's financial
position or performance. This can include tactics such as inflating revenue, hiding liabilities,
manipulating expenses, or revaluing assets to make the financial statements appear stronger
than they actually are.
• Qualitative characteristics
1. Reliability – The transactions should be supported by proper verifiable documentary evidence.
2. Relevance – Accounting information by the financial statement must be relevant with the
information required by users but relevant information is a disputed things because one
information is relevant for one user may be non-relevant for another user. but it should be
fulfilled as per law
3. Understandability – It implies that users of financial statements must be interpreted the
accounting information in the sense as it is prepared and conveyed to users.
4. Comparability – This is possible only when the accounting period, accounting concepts and
conventions are used consistently by the management.
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• Users of Accounting Information and their needs
Internal Users
(1) Management To smooth and efficient functioning , Ex. Decide selling price
(2) Proprietors Long term Profitability
(3) Employees They need bonus, salary on time, provident fund etc.
External Users
(1) Investors Return on investments and safety of their investments
(2) Financial Institution Repayment capacity and regularity of interest payment on loan
(3) Creditors To know creditworthiness
(4) Government For collection of direct and indirect taxes
Direct Tax – income Tax; Indirect Tax – GST
(5) Researchers To know effect of their research on productivity, profitability
(6) Public Quality of product, employments opportunities etc.
• Single entry system and double entry system
Basis Double entry Single entry System
1. Dual Aspect (Debit and Credit) Single Aspect
2. Keep Complete recorded Incomplete
3. Accuracy more than single entry Less than double entry
4. Provide Arithmetic accuracy Not possible
5. Costly service activity Less expensive
6. For large scale business For small scale
• Branches of accounting
1. Financial Accounting – Recording of all financial transaction to ascertain portability and financial
position
2. Cost Accounting - To ascertain cost of product and helps to cost control
[Link] Accounting – Use of analytical tools to take managerial decision like – Capital
structure, Investments etc.
[Link] Accounting – Effect on accounting as per tax laws to ascertain different tax liability Like – GST,
Income Tax
[Link] Responsibility Accounting – This is the responsibility of organization towards welfare of
society within and outside the organization so recording of this responsibility in the books of accounts
is social responsibility accounting (CSR).
Let’s Try
Q. 1. Which is the first step of accounting process?
(a) Journalizing (b) Posting to ledger
(c) Analysis and Interpretation (d) Communicating the results
Q. 2. Which is the last step of accounting as a process of information?
(a) Posting to ledger (b) Communicating the results
(c) Journalizing (d) Analysis and Interpretation
Q. 3. Which of the following is not an objective of accounting?
(a) Maintaining records (b) Estimating profit and loss
(c) Providing useful information to various users (d) Recording all the qualitative factors
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Q. 4. Which of the following is an example of an accounting transaction?
(a) A company hires a new employee (b) A business purchases office furniture for ₹10,000
(c) A manager attends a business seminar (d) A firm plan to expand its operations
Q. 5. Which of the following is NOT considered a business transaction?
(a) Purchase of raw materials for production (b) Payment of salaries to employees
(c) Discussion about future business expansion (d) Sale of goods to customers
Q. 6. Branches or sub-discipline of accounting:
(a) Financial Accounting (b) Management accounting
(c) Both (a) and (b) (d) None of the above
Q. 7. Which accounting helps to ascertain the cost of production and to provide useful costing
information to the management for decision making:
(a) Management (b) Cost
(c) Both (a) and (b) (d) None of the above [U]
Q. 8. The main task of which accounting is to find out the financial position of the business:
(a) Financial Accounting (b) Cost Accounting
(c) Both (a)and (b) (d) None of the above [U]
Q. 9. Which of the following is not an internal user of financial accounting?
(a) Chief Executive officer (b) Financial Manager
(c) Employees (d) Potential Inventors
Q.10. Which qualitative characteristic ensures that financial statements are free from bias and errors?
(a) Comparability (b) Reliability
(c) Relevance (d) Understandability
Q.11. Which characteristic of accounting information ensures that financial reports can be compared
across different periods and companies?
(a) Reliability (b) Comparability
(c) Relevance (d) Timeliness
Q.12. Which of the following is NOT a qualitative characteristic of accounting information?
(a) Faithful representation (b) Relevance
(c) Profitability (d) Understandability
Q.13. Which of the following is a limitation of accounting?
(a) It provides complete future predictions (b) It records only monetary transactions
(c) It considers qualitative aspects of business (d) It eliminates all financial risks
Q.14. Which of the following best explains the relationship between bookkeeping and accounting?
(a) Bookkeeping is a part of accounting (b) Accounting is a part of bookkeeping
(c) Both are completely independent of each other(d) None of the above.
Q.15. Accountancy refers to the field that deals with:
(a) Maintaining financial records only (b) Applying accounting principles and frameworks
(c) Handling cash transactions only (d) Preparing only tax-related reports
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