Mere disclosure of accounting policies and changes therein may not be sufficient. Accordingly, accounting standard on disclosure of accounting policies consider consistency as a fundamental accounting assumption along with accrual, and going concern. A comparison of the two shows whether the business earned a profit or incurred a loss.

It’s important to note that a debtor’s bankruptcy can only be imposed by a court. However, bankruptcy laws and rules vary greatly from one jurisdiction to the next. It’s worth noting that any corporate organization can be both a creditor and a debtor at the same time.

Introduction to Accounting Questions and Answers Class 11 Accountancy Chapter 1

Explain the qualitative characteristics of accounting information. External users are those users who are not part of a business but are interested in accounting information. Some examples are government, suppliers, banks, labour unions, tax authorities, etc. State the nature of accounting information required by long-term lenders. Results of the business are analyzed and interpreted so that users of financial statements can make a meaningful and sound judgment. Transactions recorded in the books of original entry – Journal or Subsidiary books are classified and grouped according to nature and posted in separate accounts known as ‘Ledger Accounts’.

Examples

Values and the Cash in Hand distinguish between debtors and creditors class 11 and Cash at Bank are shown at the actual figure. Transactions pertaining to different persons, whether custonters or suppliers, are recorded separately in the name of each person in the Ledger. Likewise, all expenses under various heads after being recorded in the Journal are classified under separate titles in the Ledger. As an information system, it collects data and communicates economic information about the organisation to a wide variety of users whose decisions and actions are related to its performance. Lenders can know from its study whether the firm is likely to earn profits in future also.

Can a person be both a debtor and a creditor?

However, still, there is a possibility that some debtors fail to pay the sum in time for which they have to pay interest for making a late payment. The word ‘debtor’ is derived from a Latin word ‘debere’, which means ‘to owe’. In this way, the term debtor means the party who owes a debt which needs to be payable by him in short duration. Debtors are the current assets of the company, i.e. they can be converted into cash within one year. They are shown under the head trade receivables on the asset side of the Balance Sheet.

Recently Viewed Questions of Class 11 Accountancy

→ Comparative study- In the modern world, accounting information helps us to know the performance of the business by comparing the current year’s profit with that of the previous years and also with other firms in the same industry. → Assisting management- Management uses accounting information for short-term and long-term planning of business activities, to predict the future conditions, prepare budgets, and various control measures. In the exercise of judgement needed in making the estimate required under conditions of uncertainties so that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income or deliberate over statement of liabilities or expenses. Examples of such assets are Goodwill, Patents, Trade Marks and Prepaid expenses. For example, with the help of patent rights businessman is able to produce goods and his goodwill helps in attracting customers easily.

→ Information to end-user- Accounting plays an important role in recording, summarising, and providing relevant and reliable information to its users, in form of financial data that helps in decision making. In practice, it has also become necessary to achieve an appropriate balance among the qualitative characteristics in order to meet the objective of financial statements. Assessment of the relative importance of the characteristics is a matter of professional judgment.

• Mr. Sunrise started a business for buying and selling of stationery “ with Rs. 5,00,000 as an initial investment.
• Mere disclosure of accounting policies and changes therein may not be sufficient.
• Secured and unsecured creditors are the two types of creditors.

Anyone to whom you as a business have to lend in any way, including unpaid invoices on products and services provided to clients, are considered as your trade debtors. A debtor is a legal entity about which we will learn in this topic. This article covers the meaning of debtors, exceptions, debtors vs creditors, and bad debts.

What are the types of accounting?

Here we are also going to differentiate between Creditors and debtors. At last, we are going to discuss some important questions related to this topic. Faithfully that which it either purpose to represent or could reasonable be expected to represent. Information may be relevant but so unreliable in nature or representation that its recognition may be potentially misleading and so it becomes useless. Lastly, Tax accounting involves the preparation of tax returns and payment of taxes.

• Creditors are the parties, to whom the company owes a debt.
• A businessmen wants to know what the business owes to other and what it owns, and what happened to his capital whether the capital has increased, decreased or remained constant.
• The parties can be an individual or a company or bank or government agency, etc.
• Historical functions deal with the record of past transactions, whereas managerial functions deal with preparing business operation reports.
• Then that individual or company is regarded as the creditor.

The only difference between Profit and Gain is the source of revenue earned. The profit is the amount of excess of income over expenditure, w’here as the amount of gain is the result of transactions incidental to business other than operating transactions. Lack of consistency may disturb the comparability quality of the financial statement information.

While external users consist of investors, creditors, the government, the public and customers. → Substitute of memory- In the modern world, every business incurs a large number of transactions and it is beyond human capability to memorize each and every transaction. Hence, it is very necessary to record transactions in the books of accounts.

If a debtor has been unable to meet his or her financial obligations, he or she may file for bankruptcy to seek protection from creditors and relief from some or all of his or her debts. Individuals and businesses can both petition for bankruptcy. In most cases, a debtor can start the bankruptcy procedure by filing a petition with the court.

The creditor is extending a modest amount of credit to a debtor for a short period of time, so the size of the credit line granted and payment terms are more important to the creditor than the requirement for collateral or personal guarantees. To keep track of the time between arriving and exiting payments, a corporation must properly manage its debtors and creditors. This procedure ensures that a corporation receives payments from its debtors and makes timely payments to its creditors.

Yes, it does matter for any organisation that has to operate in the long run to maximise its profit as the judgments of a company’s performance are based on the financial statements. So, one has to come up with accurate figures of the assets and revenues and try to avoid bad debts as much as possible. Current assets are also known as floating assets or circulating assets as the amount and nature of such assets keeps changing continuously. For example, a businessman purchases goods for cash and these goods are sold to X.

Here are some of the roles of accounting in the modern world. ‘Accounting information should be comparable.’ Do you agree with this statement? To thoroughly understand Class 11 Accountancy and excel in Board exams and competitive tests, it is highly beneficial to use NCERT Solutions. Developed by experts, these solutions encompass all key concepts from the chapter and are specifically designed for the CBSE curriculum, offering comprehensive coverage and crucial support for your academic success. Get answers to the most common queries related to the K-12 Examination Preparation.