Question 1. What Is Financial Accounting?
Financial accounting gathers and summarizes monetary data to prepare economic reports which includes stability sheet and income assertion for the corporation's control, investors, creditors, providers, tax authorities, and different stakeholders.
Question 2. What Is The Role Of Financial Accounting In Business?
Every enterprise is needed via regulation, in which the enterprise is registered and operated, to hold a record of its commercial enterprise transaction and speak the ones inside the shape of economic reviews. These reviews are generally known as monetary statements.
The users of these monetary statements are what we call stakeholders. These are individual, institution of individuals or agency which might be immediately and not directly interested in the direction of a business which incorporates the owner, managers, employees, lenders, the authorities or popular public.
Financial accounting is the accounting method that culminates in the instruction of economic reviews of a commercial enterprise which is used by stakeholders in forming their economic selections.
The predominant objective of economic accounting is to offer statistics concerning the economic situation and overall performance of a business entity. This information are said and communicated inside the shape of economic statements.
Additionally, monetary accounting indicates the effects of stewardship of a business management. By looking at the monetary reviews, users can interpret how well or bad the business control has operated and used its resources.
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Question three. Who Governs The Financial Reporting Standard?
Since monetary accounting is the method that provides financial reviews to the general public, specialists within the accounting, change and trade, have evolved and fashioned an accounting general with the intention to function the foundation of all accounting system and techniques achieved. Such accounting widespread is known as the Generally Accepted Accounting Principles (GAAP).
GAAP represents the policies, tactics, practice and standards followed inside the education and presentation of the monetary statements. Its cause is to make sure consistency and comparison of suggested financial information of business entities, so one can protect the customers or widespread public, for the reason that they use monetary reports in their economic choices.
Question 4. Difference Between Financial Accounting And Bookkeeping?
Financial accounting isn't like bookkeeping. Bookkeeping is a department of financial accounting which pertains to the procedural technique of recording and retaining the commercial enterprise transactions. The most effective function of bookkeeping is to hold the economic file of the commercial enterprise accurate and whole. On the alternative hand, monetary accounting consists of a broader position as compared to bookkeeping. It isn't always merely procedural in nature but also conceptual. Financial accounting is likewise problem with the why, purpose or justification of any action followed. It is responsible no longer simplest inside the whole and correct recording of enterprise transactions however also it ensures that the stated monetary statement abides by using the accounting requirements, and all other reporting standards, which includes the authorities.
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Question 5. What Is The Primary Objective Of Financial Accounting?
The number one objective of the Financial Accounting is to speak and offer records to the investors and lenders at the economic sports of the agency in order to assist them in their investment decisions.
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Question 6. What Are Financial Statements? Name The Major Financial Statements?
The Financial statements are the reviews that result from the method of accounting which allow the involved parties to assess the profitability and the solvency of the enterprise. The main economic statements are:
Profit and Loss Account
Cash Flow declaration.
Question 7. What Is The Difference Between Balance Sheet And Profit & Loss Account?
The balance sheet is one of the most crucial economic statements of a company. It is suggested to buyers at least once in keeping with 12 months. It may also be supplied quarterly, semiannually or monthly. The stability sheet presents data on what the organisation owns (its assets), what it owes (its liabilities), and the price of the business to its stockholders (the shareholders' equity). The name, balance sheet, is derived from the fact that these accounts should usually be in stability. Assets have to constantly same the sum of liabilities and shareholders' fairness.
A company's income assertion/income and loss account declaration is a document of its earnings or losses for a given duration. It shows all of the cash a business enterprise earned (revenues) and all the cash a organization spent (costs) all through this period. It additionally money owed for the results of some basic accounting standards inclusive of depreciation. The income statement is critical for buyers as it's the primary measuring stick of profitability. A business enterprise with little or no income has very little cash to pass on to its traders in the shape of dividends. If a corporation keeps to record losses for a sustained period, it may cross bankrupt. In one of these case, both bond and stock investors could lose a few or all of their funding. On the alternative hand, a organisation that realizes massive income may have extra cash to pass directly to its traders.
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Question eight. What Are The Principal Qualitative Characteristics Of Financial Statements?
The precept traits of financial statements are the attributes that make the records furnished in the economic statements useful to the customers. The precept qualitative traits are
Understandability: They must be comfortably comprehensible to the customers. For this cause users are deemed to have reasonable information of business and monetary sports.
Relevance: To be useful statistics need to be applicable to the selection-making wishes of the users.
Reliability: Information is stated to be dependable when it is loose from errors, bias and may be depended upon via the customers to represent faithfully, which it purports to symbolize.
Comparability: Users need to be capable of examine the monetary statements of an company thru time as a way to identify traits in its economic function and overall performance.
Question nine. What Is Meant By The Quality Of Financial Reporting? What Is Conservatism, And How Does It Affect The Quality Of Earnings?
The exceptional of monetary reporting refers to how near the monetary statements are to financial truth. The nearer the monetary statements are to monetary reality, the higher is the high-quality of monetary reporting. The much less that control uses discretionary approach to manipulate earnings, the better the pleasant of economic reporting. Conservatism manner that management need to take excellent care not to overstate belongings and revenues and now not to understate liabilities and expenses. The more conservative control is in making accounting judgments, the higher could be the excellent of monetary reporting.
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Question 10. What Are The Major Constraints On Relevant And Reliable Financial Statements?
The primary constraints on applicable and reliable financial statements are:
Timeliness: If there's undue postpone facts becomes irrelevant.
Balance between fee and benefit: The advantages derived from facts ought to exceed the value of imparting it.
Balance between the numerous qualitative characteristics: In exercise it has emerge as important to obtain the best balance among the qualitative traits.
True and honest view presentation: There is not any clarity in the term actual and honest view as required by way of the Companies Act. The conceptual framework does no longer speak this.
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Question 11. What Are The Golden Rules Of Accounting?
The golden Rules of Accounting are:
Debits continually identical Credits
Increases do now not always equal Decreases
Assets - Liabilities = Owner's Equity (The accounting equation).
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Question 12. What Is Fundamental Accounting Equation?
Accounting equation is a mathematical expression used to explain the connection between the property, liabilities and owner's equity of the business model. The simple accounting equation states that assets identical liabilities and proprietor's equity, however may be modified via operations implemented to both facets of the equation, e.G., belongings minus liabilities identical proprietor's fairness.
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Question 13. What Are Accounting Standards? List Few Advantages?
Accounting Standards are guidelines and standards of accounting measurement evolved by means of several accounting fashionable putting our bodies established in developing and developed countries.
International Accounting Standard Board (IASB) - International Accounting Standards.
Financial Accounting Standards Board (FASB) US Generally Acceptable Accounting Practices (specifically Statements on Financial Accounting Standards).
In India Institute of Chartered accountants of India Accounting Standards.
The benefits are:
Reduces to an affordable quantity gets rid of perplexing variations within the accounting remedy.
Lays down disclosure requirements past that required via law.
To a restricted quantity helps evaluation of economic statements globally.
Question 14. Discuss The Gaap Measures Used In India?
The monetary statements are organized under the historical cost convention, according with Indian Generally Accepted Accounting Principles ( GAAP ) comprising of the accounting requirements issued by using the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted continuously by the agency.
All profits and expenditure having a material bearing on the financial statements are identified on the accrual foundation. The preparation of the economic statements in conformity with GAAP calls for, that the management of the employer ( Management ) make estimates and assumptions, that affect the said amounts of revenue and expenses of the duration, said balances of assets and liabilities and disclosures referring to contingent assets and liabilities as of the date of the economic statements. Examples of such estimates consist of, expected settlement expenses to be incurred to complete software program development, provision for doubtful money owed, future obligations underneath worker retirement advantage plans and the beneficial lives of fixed assets. Actual outcomes ought to vary from the ones estimates.
Question 15. Tell Us What You Know About Accounts Receivables And Payables?
Accounts Receivable, commonly abbreviated as A/R, is the cash that is presently owed to a agency by its customers. The reason why the customers owe money is that the product has been brought but has no longer been paid for yet. Companies routinely buy items and services from different businesses the use of credit score. Although usually A/R is nearly constantly became coins inside a short quantity of time, there are times where a corporation may be compelled to take a write-off for terrible debts receivable if it has given credit score to a person who cannot or will now not pay. This is why you will see some thing known as allowance for terrible debt in parentheses beside the money owed receivable wide variety.
Accounts Payable is the cash that the business enterprise presently owes to its providers, its partners and its personnel. Basically, these are the simple costs of doing business that a business enterprise, for anything motive, has not paid off but. One business enterprise's debts payable is any other organization's debts receivable, that's why both terms are similarly established. A agency has the electricity to push out a number of its bills payable, which regularly produces a short-term boom in income and cutting-edge belongings.
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Question 16. Tell Me Something About Accounting For Goodwill Finance?
Goodwill is taken into consideration to be one in every of the largest intangible belongings, the value of which corporations want to reflect efficaciously in their monetary statements. Accounting for this asset, poses many demanding situations for accountants, as it's far an unidentifiable intangible asset.
Question 17. Can You Provide Us A Suitable Definition Of Goodwill?
Goodwill as an intangible asset can be defined from two techniques:
Under this technique, goodwill is taken to be the difference between the acquisition rate and the truthful market price of an obtained companys assets.
Excess earnings approach
Under this technique, the present value of the projected future extra earnings over normal earnings for comparable companies is recorded as goodwill. Due to uncertainty of future earnings, valuing goodwill using this approach is tough.
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Question 18. What Is Debenture Redemption Reserve?
The agencies (Amendment) Act 2000 require each agency to create debenture redemption reserve for redemption of debentures out of appropriation of income every 12 months till redemption. This reserve can not be utilized by the agency besides for the cause of redemption.
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Question 19. What Is Deferred Revenue Expenditure?
Deferred revenue expenditures constitute styles of property whose usefulness do no longer expire within the year in their occurrence but commonly expires within the close to future. These styles of costs are carried ahead and are written off in destiny accounting intervals.
Sometimes, we make a few sales expenditure but it ultimately becomes a capital asset (commonly of an intangible nature). Example, if we undertake vast repairs to the existing building, the deterioration of the premises can be averted. If we charge the whole expenditure during the modern-day, the cutting-edge yr fees are have an effect on. However, for the reason that gain of this expenditure is enjoyed over some of years. So, to triumph over this simplest a part of the expenditure is charged present day 12 months and the stability carried forward and written off regularly throughout the future periods.
Question 20. What Are Contingent Liabilities?
These are liabilities, which materialize at the going on or non-taking place of an event.
Contingent liabilities are not actual liabilities and as such do now not appear in the liability aspect of stability sheet. But are disclosed by way of a observe in the balance sheet.
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Question 21. What Is Depreciation? List Few Methods Of Providing Depreciation?
It is not unusual information that once an asset is used over a time period, it looses its fee. This loss in fee is known as depreciation. Pickles defines it as "the everlasting and persevering with diminution inside the excellent, quantity or price of an asset" Depreciation is the non-stop shrinkage of e book cost of an asset.
Few technique of depreciation are
Straight line Method: An same amount is written off each yr at some stage in the working lifestyles of an asset so that it will reduce the fee of the asset to nil or its residual cost on the end of its beneficial life.
Reducing Balance Method: A fixed percent of the diminishing fee of the asset is written off every year that allows you to lessen to its split fee on the quit of its existence.
Machine hour method: If it's miles conceivable to preserve a file of the real jogging hours of each system, depreciation can be calculated on the basis of the hours for which the worried machine labored.
Question 22. What Do You Understand By Contract Account ?
Account wherein posting information for contracts or agreement items are processed for which the equal collection/charge agreements apply. Contract bills are managed on an open object foundation inside agreement bills receivable/payable.
Question 23. Please Tell How You Can Analyze A Balance Sheet Vis-à-vis The Performance Of The Company In The Capital Market? Give Examples With Reference To Some Specific Parameters?
The evaluation of a stability sheet can identify potential liquidity issues. These can also signify the agency's incapacity to satisfy economic obligations. An investor could also spot the diploma to which a agency is leveraged, or indebted. An overly leveraged company may additionally have difficulties elevating destiny capital. Even more severe, they may be headed in the direction of financial disaster. These are just a few of the hazard signs that may be detected with cautious analysis of a balance sheet.
Beyond liquidity and leverage, there are sure very crucial benchmarks and elements, which are useful within the analysis of balance sheet.
Bottom line growth
ROI - Return on Investment
PSR (Price-to-Sales Ratio)
Return on Equity
Earnings Per Share (EPS).
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Question 24. Define Fifo And Lifo. Explain What Effects That Fifo And Lifo Have On The Balance Sheet During A Period Of Rising Prices And During A Period Of Falling Prices?
FIFO is the inventory value glide assumption that treats the primary goods in as the first goods bought. LIFO is the inventory value drift assumption that treats the last items in because the first goods bought. In a period of rising fees, FIFO values inventory at present day costs. However, LIFO might cost inventory at expenses that the enterprise could have incurred years in the past. The analyst have to take the LIFO cost float assumption into consideration and keep in mind adjusting the inventory of a enterprise using LIFO upward to account for inflation.
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Question 25. What Are Marketable Securities?
Marketable securities are cash substitutes. Marketable securities are investments with quick-time period maturities with little chance due to interest charge fluctuations. Examples of marketable securities consist of Treasury Bills, Negotiable Certificates of Deposit, and Commercial Paper.
Question 26. What Is The Entry For Deferred Tax Liability According To As22?
Deferred tax property and liabilities have to be prominent from property and liabilities representing modern-day tax for the duration. Deferred tax property and liabilities should be disclosed beneath a separate heading in the balance sheet of the organisation, one at a time from current belongings and cutting-edge liabilities.
The ruin-up of deferred tax assets and deferred tax liabilities into primary additives of the respective balances need to be disclosed inside the notes to bills.
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Question 27. What Is Sec 72a Of Income Tax Act?
Incentive for amalgamation prolonged to resorts and positive banks - Sec. 72A. The advantage of deliver ahead and set off of gathered losses and unabsorbed depreciation could be prolonged inside the case of amalgamation of a organisation owning a motel with another enterprise or an amalgamation of a banking organization with the State Bank of India or its subsidiary or different distinctive banks. Two extra conditions for amalgamating a employer will ought to be fulfilled, viz. That it have to have been engaged within the enterprise for as a minimum three years all through which the amassed loss has took place or the unabsorbed depreciation has accumulated and it has held constantly as at the date of amalgamation at least three/4ths of the e book value of fixed property held through it two years prior to the date of amalgamation.
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Question 28. What Is The Accrual Basis Of Accounting?
Under the accrual basis of accounting, sales are said on the income statement when they're earned. (Under the coins foundation of accounting, sales are mentioned at the earnings announcement when the coins is obtained.) Under the accrual basis of accounting, charges are matched with the associated sales and/or are pronounced while the expense takes place, not while the coins is paid. The result of accrual accounting is an earnings assertion that better measures the profitability of a organisation at some stage in a specific time period.
Question 29. What Is The Difference Between Financial Accounting And Management Accounting?
Financial accounting: has its attention on the financial statements that are dispensed to stockholders, creditors, financial analysts, and others outdoor of the enterprise. Courses in monetary accounting cowl the typically ordinary accounting ideas which ought to be followed when reporting the results of a agency's past transactions on its balance sheet, income statement, assertion of cash flows, and assertion of changes in stockholders' fairness.
Managerial accounting: has its awareness on offering statistics within the corporation so that its control can perform the enterprise extra successfully. Managerial accounting and value accounting also offer commands on computing the value of merchandise at a production organisation. These costs will then be used within the outside economic statements. In addition to price structures for producers, courses in managerial accounting will encompass topics along with value conduct, smash-even point, income making plans, operational budgeting, capital budgeting, applicable charges for choice making, hobby primarily based costing, and wellknown costing.
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Question 30. What Is The Difference Between Accounts Payable And Accrued Expenses Payable?
I might use the legal responsibility account Accounts Payable for suppliers' invoices which have been obtained and have to be paid. As a end result, the balance in Accounts Payable is probably to be a precise quantity that has the same opinion with assisting documents inclusive of invoices, agreements, and so forth.
I might use the liability account Accrued Expenses Payable for the accrual type adjusting entries made on the cease of the accounting period for gadgets including utilities, interest, wages, and so on. The stability inside the Accrued Expenses Payable have to be the whole of the fees that had been incurred as of the date of the balance sheet, however had been no longer entered into the debts due to the fact an bill has no longer been received or the payroll for the hourly wages has now not yet been processed, etc. The amounts recorded in Accrued Expenses Payable will regularly be estimated amounts supported by means of logical calculations.