Chapter introduction-to-accounting: Introduction to Accounting Application Questions | accountancy Class 11 CBSE

Chapter introduction-to-accounting: Introduction to Accounting Application Questions | accountancy Class 11 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

Priya runs a textile shop. She purchased cloth worth Rs. 2,00,000 on credit from a supplier, sold cloth worth Rs. 1,50,000 for cash and Rs. 80,000 on credit, and paid rent of Rs. 10,000 and salaries of Rs. 15,000. With reference to these transactions, identify: (i) the creditor, (ii) the debtor, and (iii) the expenses incurred.

The supplier from whom cloth was purchased on credit is the creditor; Priya owes Rs. 2,00,000 to this supplier, which will appear on the liabilities side of her balance sheet as sundry creditors until payment is made.
The customer who purchased cloth worth Rs. 80,000 on credit is the debtor; this amount is receivable from the customer and will appear on the asset side of the balance sheet as sundry debtors.
The expenses incurred during the period are rent (Rs. 10,000) and salaries (Rs. 15,000), totalling Rs. 25,000; these are costs incurred in the process of earning revenue and will be charged to the profit and loss account.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 2

Applied Concept

Mr. Arun is the owner of a manufacturing firm. During the year, his company earned total revenue of Rs. 12,00,000 and incurred total expenses of Rs. 10,50,000. Additionally, he sold an old machine (which cost Rs. 50,000) for Rs. 65,000. Identify: (i) whether the business made a profit or loss from operations, (ii) the nature of the Rs. 15,000 surplus from the machine sale, and (iii) the effect of both on owner's investment.

The business made an operating profit of Rs. 1,50,000 (Rs. 12,00,000 revenue minus Rs. 10,50,000 expenses); this arises from the regular operations of the business and increases the owner's investment.
The Rs. 15,000 surplus from the machine sale (Rs. 65,000 selling price minus Rs. 50,000 cost) is a gain — a profit arising from a transaction incidental to the main business, not from normal trading operations.
Both profit and gain increase the owner's investment; however, profit is a recurring outcome of normal business activity, while a gain is non-recurring and must be distinguished from operating profit for a true assessment of business performance.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 3

Applied Concept

A bank is evaluating a loan application from XYZ Enterprises. The bank manager asks for the company's financial statements. With reference to the qualitative characteristics of accounting information, explain what qualities the bank manager would look for in the financial statements to make a reliable lending decision.

The bank manager would first check reliability — the financial statements must be free from error and bias, verified by an independent auditor, and faithfully represent the company's actual transactions; unreliable data could lead to a poor lending decision.
The manager would also assess relevance — the information must be current and help predict the company's future cash flows and ability to repay the loan and pay interest; outdated or irrelevant data would not support an accurate lending evaluation.
Comparability would also matter — the bank would compare XYZ Enterprises' financial ratios (liquidity, profitability, leverage) over multiple years and against industry benchmarks to assess trends and relative financial health before approving the loan.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 4

Applied Concept

Sunita purchased a computer for Rs. 60,000 for use in her office. In the same month, she also purchased pens, notepads, and files for Rs. 3,000. How would each of these items be classified in accounting? Justify your answer by referring to the concepts of capital expenditure and revenue expenditure.

The computer (Rs. 60,000) is capital expenditure because its benefit will last for more than one year; it will be treated as a fixed asset (non-current asset) on the balance sheet and depreciated over its useful life.
The stationery items — pens, notepads, and files (Rs. 3,000) — are revenue expenditure because their benefit will be exhausted within the current accounting year; they are treated as an expense and charged to the profit and loss account.
This distinction is crucial: misclassifying the computer as an expense would understate assets and overstate expenses, reducing reported profit — while misclassifying stationery as an asset would overstate assets and understate expenses, inflating profit.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 5

Applied Concept

A retail chain employs a forensic accountant to investigate a suspected case of large-scale internet fraud by one of its employees. With reference to the chapter, explain (i) how this relates to the modern role of accountants, (ii) what branch of accounting this falls under, and (iii) what this reveals about the changing scope of accounting.

The deployment of a forensic accountant illustrates the modern expanded role of accountants — moving beyond traditional bookkeeping to working in exciting new growth areas such as forensic accounting, which involves solving crimes including computer hacking and theft of large sums of money on the internet.
This work falls under forensic accounting, which is one of the emerging specialised areas mentioned in the chapter alongside e-commerce (web-based payment systems), financial planning, and environmental accounting.
It reveals that accounting's scope has broadened significantly beyond financial record-keeping; modern accountants now contribute to decision-making teams, fraud investigation, digital commerce, and social responsibility — reflecting the profession's response to rapidly changing business and technological environments.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 6

Applied Concept

Mr. Ramesh, the owner of a bakery, withdrew Rs. 20,000 cash and goods worth Rs. 5,000 from the business for personal use. His accountant recorded these as 'drawings'. Explain why these are classified as drawings and not expenses, and state their effect on the balance sheet.

Drawings represent withdrawal of money and/or goods by the owner from the business for personal use; they are not business expenses because they are not incurred in the process of earning revenue but are personal withdrawals from the business.
The total drawings of Rs. 25,000 (Rs. 20,000 cash + Rs. 5,000 goods) will reduce Mr. Ramesh's capital — drawings decrease the owner's investment in the business and are deducted from capital on the liabilities side of the balance sheet.
If recorded as expenses, it would incorrectly reduce profit and distort the financial performance of the bakery; correct classification as drawings maintains the distinction between business transactions and personal transactions, which is fundamental to the business entity concept.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 7

Applied Concept

A garment manufacturer offers a 15% trade discount to a wholesaler on a list price of Rs. 50,000, and an additional 2% cash discount if the wholesaler pays within 10 days. Calculate both discounts and explain their accounting treatment.

Trade discount = 15% of Rs. 50,000 = Rs. 7,500; this is deducted from the list price at the time of sale, so the invoice price becomes Rs. 42,500. Trade discount is not recorded separately in the books — the sale is recorded at the net invoice price of Rs. 42,500.
If the wholesaler pays within 10 days, cash discount = 2% of Rs. 42,500 = Rs. 850; this is allowed at the time of actual payment and acts as an incentive for prompt settlement of the debt.
Unlike trade discount (which reduces the sale price from the outset), cash discount is recorded separately in the books as a discount allowed (expense for the seller) and discount received (income for the buyer) because it arises only when payment is made within the stipulated period.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 8

Applied Concept

With reference to Mr. Sunrise's business scenario from the chapter, identify: (i) the capital invested, (ii) the nature of furniture purchased, and (iii) the type of loss incurred due to the fire accident.

Mr. Sunrise started the business with Rs. 5,00,000 as initial investment, which is the capital; it is the amount invested by the owner in the firm and is shown on the liabilities side of the balance sheet as owner's equity.
Furniture purchased for Rs. 1,00,000 is a non-current (fixed) asset — its benefit lasts for more than one year, making it capital expenditure treated on the asset side of the balance sheet and depreciated over time.
The fire accident resulting in the loss of Rs. 30,000 worth of stationery is a loss — money's worth lost without receiving any benefit in return; it represents a decrease in owner's equity and is charged to the profit and loss account for the period.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 9

Applied Concept

An investor is considering purchasing shares in a listed company. She reviews the company's financial statements. With reference to the chapter, explain what specific information she would seek and why accounting is called the 'language of business'.

The investor would seek information on risks and returns on investment — specifically, profitability trends (profit and loss account), financial position (balance sheet showing assets and liabilities), and the ability of the company to generate future cash flows and pay dividends.
She would also assess financial health — whether the company is solvent and generating adequate returns, comparing its performance across years and against industry peers to make an informed buy, hold, or sell decision.
Accounting is called the language of business because it communicates financial information about an enterprise to all interested parties in a standardised, structured manner — just as a common language allows people to exchange ideas, accounting provides the common 'vocabulary' through which the financial reality of a business is expressed and understood.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 10

Applied Concept

Super Bazaar purchased goods worth Rs. 10,000 on credit from Fast Food Products on March 25 and also took a three-year loan from Delhi State Co-operative Bank. How would these obligations appear in the balance sheet, and what is their classification?

The Rs. 10,000 credit purchase from Fast Food Products creates a current liability — since it is payable within one month (before March 31 balance sheet date), it appears as trade payable (sundry creditor) on the liabilities side under current liabilities.
The three-year bank loan is a non-current liability because it is to be repaid over a period exceeding 12 months; it appears on the liabilities side of the balance sheet under long-term borrowings.
This classification matters for liquidity analysis: current liabilities must be matched against current assets to assess whether Super Bazaar can meet its short-term obligations, while non-current liabilities reflect long-term financial commitments that affect the company's capital structure.

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Chapter introduction-to-accounting: Introduction to Accounting | Application Questions

Sunita purchased a computer for Rs. 60,000 for use in her office. In the same month, she also purchased pens, notepads, and files for Rs. 3,000. How would each of these items be classified in accounting? Justify your answer by referring to the concepts of capital expenditure and revenue expenditure.

Mr. Ramesh, the owner of a bakery, withdrew Rs. 20,000 cash and goods worth Rs. 5,000 from the business for personal use. His accountant recorded these as 'drawings'. Explain why these are classified as drawings and not expenses, and state their effect on the balance sheet.

A garment manufacturer offers a 15% trade discount to a wholesaler on a list price of Rs. 50,000, and an additional 2% cash discount if the wholesaler pays within 10 days. Calculate both discounts and explain their accounting treatment.

With reference to Mr. Sunrise's business scenario from the chapter, identify: (i) the capital invested, (ii) the nature of furniture purchased, and (iii) the type of loss incurred due to the fire accident.

An investor is considering purchasing shares in a listed company. She reviews the company's financial statements. With reference to the chapter, explain what specific information she would seek and why accounting is called the 'language of business'.

Super Bazaar purchased goods worth Rs. 10,000 on credit from Fast Food Products on March 25 and also took a three-year loan from Delhi State Co-operative Bank. How would these obligations appear in the balance sheet, and what is their classification?

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