Chapter financial-statements-i: Financial Statements - I Short Questions | accountancy Class 11 CBSE

ByteNotes

Chapter financial-statements-i: Financial Statements - I Short Questions | accountancy Class 11 CBSE | ByteNotes.in

Short Answer

Easy difficulty • Direct answer format

Easy

Question 1

Quick Recall

What are the two main objectives of preparing financial statements?

To present a true and fair view of the financial performance of the business through the profit and loss account.
To present a true and fair view of the financial position of the business through the balance sheet.
To provide useful accounting information to various stakeholders such as owners, managers, banks, and the government for informed decision-making.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 2

Quick Recall

Distinguish between internal and external users of accounting information with one example of each.

Internal users are those who are inside the business organisation, such as owners and managers, who need information for operational and strategic decision-making.
External users are those outside the business, such as banks, the government, and prospective investors, who need information for lending, taxation, or investment decisions.
While internal users require detailed operational data, external users primarily rely on published financial statements to assess the business's profitability and financial position.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 3

Quick Recall

What is meant by capital expenditure? Give two examples.

Capital expenditure is expenditure whose benefit extends beyond one accounting period; it is incurred to acquire or improve fixed assets that will serve the business for many years.
Example 1: Purchase of furniture for use in the office — the furniture will provide benefits for multiple accounting periods.
Example 2: Construction of a factory building — this is a non-recurring expenditure that increases the earning capacity of the business.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 4

Quick Recall

What is revenue expenditure? How does it differ from capital expenditure in terms of accounting treatment?

Revenue expenditure is expenditure whose benefit is limited to one accounting period; it is incurred for the day-to-day conduct of the business, such as payment of salaries or rent.
Revenue expenditure is transferred to the trading and profit and loss account for the current period, whereas capital expenditure is recorded in the balance sheet.
Capital expenditure is spread over its useful life as depreciation, while revenue expenditure is fully charged to the current year's income statement.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 5

Quick Recall

What is deferred revenue expenditure? Give one example.

Deferred revenue expenditure is a revenue expenditure that is expected to provide benefits for more than one accounting period; it is a borderline case between revenue and capital expenditure.
Example: Heavy advertising expenditure — while advertising is normally revenue in nature, a large campaign may benefit the business for several accounting periods.
Like capital expenditure, deferred revenue expenditure is written off gradually over its expected period of benefit rather than being charged fully in the year of incurrence.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 6

Quick Recall

Distinguish between capital receipts and revenue receipts.

Capital receipts are those receipts that create an obligation to return the money or arise from the sale of a fixed asset, such as a loan from a bank or sale of old machinery.
Revenue receipts are those that do not carry an obligation to return the money and do not arise from fixed asset sales, such as sales proceeds and interest on investments.
Capital receipts are shown in the balance sheet, while revenue receipts are credited to the profit and loss account for the period.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 7

Quick Recall

Why is the distinction between capital and revenue items important for the preparation of financial statements?

Revenue items must be shown in the trading and profit and loss account, while capital items must be recorded in the balance sheet; incorrect classification distorts both statements.
If a revenue expenditure is treated as capital expenditure, expenses are understated and profit is overstated, misrepresenting the true performance of the business.
The distinction is also important for taxation purposes, as capital profits and revenue profits are taxed differently under the law.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 8

Quick Recall

What is meant by 'gross profit'? Write its formula.

Gross profit is the excess of net sales revenue over the cost of goods sold; it reflects the profitability of the basic buying and selling operations of the business.
Formula: Gross Profit = Sales – (Purchases + Direct Expenses – Closing Stock), or equivalently, Sales – Cost of Goods Sold.
If cost of goods sold exceeds net sales, the resulting negative figure is termed a gross loss, which is transferred to the debit side of the profit and loss account.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 9

Quick Recall

What is net profit? How is it calculated?

Net profit is the final profit earned by the business after accounting for all revenues and all expenses for an accounting period.
Formula: Net Profit = Gross Profit + Other Incomes – Indirect Expenses. If indirect expenses exceed gross profit and other incomes combined, the result is a net loss.
Net profit (or net loss) is transferred to the capital account in the balance sheet by means of a closing journal entry at the end of the accounting period.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 10

Quick Recall

Define operating profit and state its formula.

Operating profit (EBIT – Earnings Before Interest and Tax) is the profit earned from the normal operations and activities of the business, excluding purely financial items and abnormal items.
Formula: Operating Profit = Net Profit + Non-Operating Expenses – Non-Operating Incomes. Non-operating expenses include interest paid on loans; non-operating incomes include interest received and dividend received.
Abnormal items such as loss by fire are also excluded from operating profit, making it a purer measure of core business performance than net profit.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 11

Quick Recall

What is the cost of goods sold? Write its formula when both opening and closing stock exist.

Cost of goods sold is the total cost attributable to the goods actually sold during the accounting period; it excludes the cost of unsold closing stock.
Formula: Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock.
If there is neither opening stock nor closing stock, cost of goods sold equals purchases plus direct expenses, assuming all purchased goods have been sold.

ByteNotes

Short Answer

Medium difficulty • Direct answer format

Medium

Question 12

Quick Recall

Why does closing stock not normally appear in the trial balance? How is it brought into the books?

Closing stock represents the value of unsold goods at the end of the year; it is determined by physical counting and valuation only at the year-end, after the trial balance has already been prepared.
It is brought into the books through a journal entry: Closing Stock Account Dr. To Trading Account, which creates a new asset account and credits the trading account.
This entry causes the closing stock to appear on the credit side of the trading account (reducing cost of goods sold) and as a current asset in the balance sheet.

ByteNotes

Short Answer

Easy difficulty • Direct answer format

Easy

Question 13

Quick Recall

What are direct expenses? Give three examples from the trading account.

Direct expenses are all expenses directly connected with the manufacture, purchase of goods, or bringing them to the point of sale; they are debited to the trading account.
Examples: (i) Wages — remuneration paid to workers directly engaged in production or loading/unloading of goods.
Examples continued: (ii) Carriage inwards/Freight inwards — transport expenses incurred for bringing purchased goods to the place of business; (iii) Fuel, water, power, and gas — costs incurred in the production process.

ByteNotes

Premium Access

Unlock all Short Questions

You are viewing 13 free short questions from this chapter. Upgrade to Premium to unlock the remaining 12 questions.

Upgrade to Premium12 questions locked

Chapter sections

Chapter financial-statements-i: Financial Statements - I | Short Questions

What are the two main objectives of preparing financial statements?

Distinguish between internal and external users of accounting information with one example of each.

What is meant by capital expenditure? Give two examples.

What is revenue expenditure? How does it differ from capital expenditure in terms of accounting treatment?

What is deferred revenue expenditure? Give one example.

Distinguish between capital receipts and revenue receipts.

Why is the distinction between capital and revenue items important for the preparation of financial statements?

What is meant by 'gross profit'? Write its formula.

What is net profit? How is it calculated?

Define operating profit and state its formula.

What is the cost of goods sold? Write its formula when both opening and closing stock exist.

Why does closing stock not normally appear in the trial balance? How is it brought into the books?

What are direct expenses? Give three examples from the trading account.

Unlock all Short Questions