Financial Accounting Important 10 Mark theory Questions & Answer

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1. Accounting Concepts:

    Going Concern Concept: Assumes that the business will continue its operations for the foreseeable future, allowing assets to be recorded at their original cost rather than their liquidation value. This concept impacts how assets and liabilities are presented in the financial statements.

    Consistency Concept: Requires a company to use the same accounting methods and principles consistently from one accounting period to another. It ensures comparability between financial statements over time, aiding analysis and decision making.

    Accrual Concept: Transactions should be recorded when they occur, regardless of when the actual cash is exchanged. This means recognizing revenues when earned (even if the cash hasn't been received) and expenses when incurred (even if the cash hasn't been paid).

    Matching Concept: Directly links expenses with the revenues they help generate during the same accounting period. It ensures that the financial statements reflect the actual profitability of the period.

    Materiality Concept: Encourages accountants to consider the significance of transactions and items. Immaterial items can be overlooked to prevent unnecessary complexity in financial reporting.

    Prudence Concept: Also known as the conservatism principle, it advises caution in recognizing revenues and gains only when realized, but expenses and losses are recognized as soon as they are probable.

 

2. Methods of Providing Depreciation:

    Straight line Method: Allocates an equal amount of depreciation expense for each year of an asset's useful life. It divides the cost of the asset minus its salvage value by the number of useful years.

    Diminishing Balance Method: Applies a constant rate to the reducing book value of the asset each year, resulting in higher depreciation expenses in the early years and decreasing amounts in subsequent years.

    Units of Production Method: Determines depreciation based on the actual usage or production of the asset. It calculates the depreciation cost per unit produced or used.

    Sum of Years Digits Method: Uses an accelerated depreciation rate based on the sum of the asset's useful life. The formula applies a fraction to the depreciable amount to calculate the expense.

3.  Difference Between Balance Sheet and Trial Balance:


4. Difference Between Double Entry and Single Entry System



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