Unit – I

1. What are Accounting Principles?

Accounting principles refer to the rules and guidelines followed by companies while reporting
their financial data. Through these rules, experts can examine the financial data by standardizing
accounting methods. These principles ensure that the quality of the financial information reported
by companies is improved.

2. What is management accounting?

Management accounting is an accounting branch that is used by managers for making decision to
benefit the management. The provision of financial data and advice to a company for use in the
organization and development of its business.

3. What are the objectives of financial accounting?

• Accurate transaction record
• Asset and liability tracking
• Business decision guidance
• Compliance with legal regulations
• Control over fraud and risk
• Economic data recording
• Financial budgeting and planning
• Information for financing

4. What are accounting concepts?

Accounting concepts are ideas, assumptions and conditions based on which a business entity
records its financial transactions and organises its bookkeeping. It helps a business interpret and
integrate a financial transaction into the accounting process

5. What is meant by accounting?

Accounting, also known as accountancy, is the measurement, processing, and communication of
financial and non-financial information about economic entities such as businesses and
corporations

6. What is double entry system of book keeping?

Double-entry bookkeeping is a method of recording transactions where for every business
transaction, an entry is recorded in at least two accounts as a debit or credit. In a double-entry
system, the amounts recorded as debits must be equal to the amounts recorded as credits.

7. What do you understand by Money Measurement concept?

The money measurement concept states that a business should only record an accounting
transaction if it can be expressed in terms of money. This means that the focus of accounting
transactions is on quantitative information, rather than on qualitative information. Thus, a large
number of items are never reflected in a company's accounting records, which means that they
never appear in its financial statements
8. How does accounting differ from book keeping?
Book Keeping Accounting
Level of Learning No high-level learning High-level learning required
required for understanding and
analysing accounting concepts
Preparation of Financial Not done in the case of Financial statements are a part
Statement bookkeeping of the accounting process
Analysis No analysis is required in the Accounting analyses the data
bookkeeping and creates insights for the
business
Determining Financial Bookkeeping does not show Accounting helps in showing a
Position the financial position of a clear picture of the financial
business position of a business

9. What is meant by Generally Accepted Accounting Principles (GAAP)?

GAAP (generally accepted accounting principles) is a collection of commonly followed
accounting rules and standards for financial reporting. The acronym is pronounced gap. GAAP
specifications include definitions of concepts and principles, as well as industry-specific rules.

10. State the need for preparing a Trial Balance.

Preparing a trial balance for a company serves to detect any mathematical errors that have
occurred in the double entry accounting system. If the total debits equal the total credits, the trial
balance is considered to be balanced, and there should be no mathematical errors in the ledgers.

11. What is ledger?

An accounting ledger is an account or record used to store bookkeeping entries for balance-sheet
and income-statement transactions. Accounting ledger journal entries can include accounts like
cash, accounts receivable, investments, inventory, accounts payable, accrued expenses, and
customer deposits.

Unit – II
1. State the limitations of Ratio Analysis.
• Base of Comparison.
• Differences in Situations of Company Conditions.
• Inflationary Impacts.
• Change in the Definitions of Variables.
• Change in Financial Situations.
• Dependence on Historical Data.

2. Define Fund Flow Statement.

A fund flow refers to the inflow and outflow of funds or assets for a company and is often
measured on a monthly or quarterly basis. A fund flow statement reveals the reasons for these
changes or anomalies in the financial position of a company between two balance sheets.

3. Define Cashflow analysis.

A cash flow analysis determines a company's working capital — the amount of money available
to run business operations and complete transactions. That is calculated as current assets (cash or
near-cash assets, like notes receivable) minus current liabilities (liabilities due during the
upcoming accounting period)
4. What do you mean by Acid Test Ratio?
The acid-test ratio compares a company's “quick assets” (cash and accounts receivable) to its
current liabilities. It is one of six basic calculations used to determine short-term liquidity—the
ability of a company to pay its bills as they come due

5. What is the difference between current ratio and liquid ratio?

Current Ratio Liquid Ratio
Inventory The Current Ratio includes the The Liquid Ratio excludes the inventory
inventory stock of a firm. stock of a firm.
Ideal Ratio Although anything more than 1 is The ideal Liquid Ratio for a company is
the ideal scenario for a company, a more than 1.
Current Ratio of 2:1 is preferable.
Current The Current Ratio includes all the The Liquid Ratio includes only those
Assets Current Assets of the business. Current Assets that the firm can liquidate
to cash within the next ninety days.
Comparison The Current Ratio will be naturally The Quick Ratio will be naturally lower for
higher for a company that has a a company that has a higher stock of
higher stock of inventory. inventory.

6. What is the meaning of ‘Funds from operations’?

Funds from operations (FFO) is a measure of the amount of cash flow generated by a company's
business operations.

7. What do you mean by Comparative Financial Statements?

A comparative statement is a document used to compare a particular financial statement with
prior period statements. Previous financials are presented alongside the latest figures in side-by-
side columns, enabling investors to identify trends, track a company's progress and compare it
with industry rivals.

8. Write down any two differences between cash flow analysis and funds flow analysis.
Cash Flow Fund Flow
Discloses Inflows and Outflows of Source and application of the available
cash funds
Accounting Basis Cash Basis of accounting Accrual basis of accounting
Part of Financial Statement Yes No
Used for Cash Budgeting Capital Budgeting

9. Define Dupont analysis.

DuPont analysis is a framework for analyzing fundamental performance originally popularized by
the DuPont Corporation, now widely used to compare the operational efficiency of two similar
firms. DuPont analysis is a useful technique used to decompose the different drivers of return on
equity (ROE).

10. List the different methods of Financial statement analysis.

• horizontal analysis
• vertical analysis
• ratio analysis
• trend analysis
• cost-volume profit analysis
 Unit – III

1. What is Activity-based Costing?

Activity-based costing (ABC) is a method of assigning overhead and indirect costs—
such as salaries and utilities—to products and services. The ABC system of cost
accounting is based on activities, which are considered any event, unit of work, or
task with a specific goal

2. What is Target Costing?

Target costing is an approach to determine a product's life-cycle cost which should be
sufficient to develop specified functionality and quality, while ensuring its desired
profit. It involves setting a target cost by subtracting a desired profit margin from a
competitive market price

3. What is a cost sheet?

A cost sheet is a statement that shows the various components of total cost for a
product and shows previous data for comparison. You can deduce the ideal selling
price of a product based on the cost sheet. A cost sheet document can be prepared
either by using historical cost or by referring to estimated costs

4. What is Process Costing?

Process costing is an accounting methodology that traces and accumulates direct
costs, and allocates indirect costs of a manufacturing process. Costs are assigned to
products, usually in a large batch, which might include an entire month's production

5. State the objectives of Activity-Based Costing.

• To improve product costing.
• To identify non-value adding activities in the production process which might
be a suitable focus for attention or elimination.
• To provide required information for decision making.

6. How can Costs be classified?

7. What is Fixed cost? Give two examples.
Fixed cost is a business expense that does not change regardless of the activity level
of the business. Examples of fixed costs include rent, salaries, insurance, property
taxes, interest expenses, depreciation, and potentially some utilities.

8. How does an organization benefit from Target Costing?

• Assures that profitability targets for a product portfolio are achievable.
• Improves sales prospects, since product development is focused on customer
needs and wants.
• Improves profitability of product variants.
• Reduces the cost and effort of managing a profitable product lifecycle.

Unit – IV

1. Define marginal costing.

The marginal cost is the change in total production cost that comes from making or
producing one additional unit. To calculate marginal cost, divide the change in
production costs by the change in quantity.

2. What is meant by Angle of incidence?

The angle which is created by cost and sales line is called the angle of incidence. This
angle is formed from the starting of a break-even point. The angle of incidence shows
the rate at which a company is making profits. The simple rule is that the bigger the
angle of incidence higher is the rate of profit

3. How does the contribution margin (P/V Ratio) impact Break Even Point?
The contribution margin shows how much additional revenue is generated by making
each additional unit product after the company has reached the breakeven point. In
other words, it measures how much money each additional sale "contributes" to the
company's total profits

4. Is depreciation a relevant cost in make-or-buy decisions?

Depreciation – this is not a relevant cost as it is not a cash flow. Sale proceeds – this
is a relevant cost as it is a cash inflow which will occur in 10 years as a result of the
decision to invest. Annual insurance cost – this is a relevant cost as this is an
additional fixed cost caused by the decision to invest

Unit – V

1. What is Flexible budget?

Flexible budgets are essentially budgets that can be adjusted depending upon revenue
and cost changes throughout the fiscal year, accounting for expected unpredictability.
Companies first account for the fixed costs they expect, or at least costs that they
don't expect to change as the year progresses.
2. Define Standard cost.
Standard costing is the practice of estimating expenses in the production process since
manufacturers cannot predict actual costs in advance.

3. What is Zero-Based Budgeting?

Zero-based budgeting (ZBB) is a budgeting technique in which all expenses must be
justified for a new period or year starting from zero, versus starting with the previous
budget and adjusting it as needed.

4. Does India have a specific accounting standard? When was it adopted?

Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard
adopted by companies in India and issued under the supervision of Accounting
Standards Board (ASB) which was constituted as a body in the year 1977.