Introduction to Accounting NCERT Textbook With Solution PDF

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Introduction to Accounting Textbook With Solution PDF Free Download

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Chapter 1: Introduction to Accounting

O ver the centuries, accounting has remained confined to the financial record-keeping functions of the accountant.

But, today’s rapidly changing business environment has forced the accountants to reassess their roles and functions both within the organisation and the society.

The role of an accountant has now shifted from that of a mere recorder of transactions to that of the member providing relevant information to the decision-making team.

Broadly speaking, accounting today is much more than just bookkeeping and the preparation of financial reports.

Accountants are now 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); eCommerce (designing web-based payment systems); 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.

As an information system, it collects data and communicates economic information about the organization to a wide variety of users whose decisions and actions are related to its performance.

This introductory chapter, therefore, deals with the nature, need, and scope of accounting in this context. 

1.1 Meaning of Accounting In 1941, The American Institute of Certified Public Accountants (AICPA) defined accounting as the art of recording, classifying, and summarising in a significant manner and in terms of money, transactions, and events which are, in part at least, of financial character, and interpreting the results thereof’.

With greater economic development resulting in changing role of accounting, its scope became broader.

 In 1966, the American Accounting Association (AAA) defined accounting as ‘the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information.

In 1970, the Accounting Principles Board of AICPA also emphasized that the function of accounting is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions.

Accounting can therefore be defined as the process of identifying, measuring, recording, and communicating the required information relating to the economic events of an organization to the interested users of such information.

In order to appreciate the exact nature of accounting, we must understand the following relevant aspects of the definition:

• Economic Events • Identification, Measurement, Recording and Communication • Organisation • Interested Users of Information Business organisations involves economic events.

An economic event is known as a happening of consequence to a business organization which consists of transactions that are measurable in monetary terms.

For example, the purchase of machinery, installing, and keeping it ready for manufacturing is an event that comprises a number of financial transactions such as buying a machine, transportation of machine, site preparation for installation of a machine, expenditure incurred on its installation and trial runs.

Thus, accounting identifies a bunch of transactions relating to an economic event. If an event involves transactions between an outsider and an organization, these are known as external events.

The following are examples of such transactions: • Sale of merchandise to the customers. • Rendering services to the customers by ABC Limited.

• Purchase of materials from suppliers. • Payment of monthly rent to the landlord.

An internal event is an economic event that occurs entirely between the internal wings of an enterprise, e.g., supply of raw material or components by the store’s department to the manufacturing department, payment of wages to the employees, etc.

AuthorNCERT
Language English
No. of Pages22
PDF Size1.8 MB
CategoryAccountancy
Source/Creditsncert.nic.in

NCERT Solutions Class 11 Accountancy Chapter 1 Introduction to Accounting

1. What is accounting? Define its objectives.

Accounting is defined as the systematic process of identifying, recording, classifying, summarising, interpreting, and communicating information about financial transactions to the users of the accounting information such as the owners, government, investors, creditors etc.

Objectives of Accounting:

  1. Maintaining records of business transactions: Accounting helps in the systematic maintenance of all the financial transactions in books of accounts.
  2. Determining profit or loss: Profit and loss should be determined in a business to understand how the business is running. It is determined by creating P & L account.
  3. Determining the financial position of the firm: A balance sheet is prepared to determine the exact financial position of the business. It shows the assets and liabilities of the business.
  4. Providing accounting information to various users: Communicating accounting information to internal and external user helps understand accounting data in a structured manner.

2. Explain the factors which necessitated systematic accounting.

The following factors necessitated systematic accounting.

  1. Recording only financial transactions: Only those transactions that are financial in nature are recorded among all the transactions and events that occur in the organization.
  2. Recording transactions in monetary terms: All economic events must be recorded in terms of monetary value.
  3. Recording information: The information should be accurately and carefully segregated keeping the recording rules under consideration. In addition, the economic events are recorded in sequential order.
  4. Classification: Transaction must be classified and logged into the respective account records maintained in the form of ledgers.
  5. Summarising transactions: All the transactions get prepared in the form of Trading Account, Profit and Loss Account, Balance Sheet, and Trial Balance providing users with information for whom these accounts are prepared.
  6. Analysis and Data Interpretation: Recording accounting information in a systematic manner helps the users to analyze and interpret the accounting information efficiently and accurately. Data presented in various formats like charts, graphs, and accounting statements make it easier to communicate to the users.

3. Describe the informational needs of external users.

The informational needs of external users are discussed below:

1. Customers: Customers require the information to ensure there is continuity of the business so that they have a good probability of supply of products, parts, and after-sales service.

2. Competitors: Competitors need information on the relative strengths and weaknesses of their competition in the market and also for performance benchmarking purposes. Their information need is purely strategic in nature.

3. Government and other regulatory agencies: They need the information to decide about the allocation of resources and to ensure that the business is complying with the regulations.

4. Investors and potential investors: They need the information to assess the risks and the return on their investment.

5. Lenders and financial institutions: Information required to assess the creditworthiness of the business and its ability to repay loans.

6. Social responsibility groups: They need the information to assess the impact on the environment and its protection.

7. Unions and employee groups: They need this information to understand the profitability, stability, and distribution of wealth within the business.

NCERT Class 11 Accountancy Textbook Chapter 1 Introduction To Accounting With Answer PDF Free Download

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