Financial Accounting and Management Important Question Answer for BCA 2nd Semester

Financial Accounting and Management Important Question Answer for BCA 2nd Semester

Financial Accounting and Management Important Question Answer for BCA 2nd Semester – this post very helpful for BCA 2nd semester student. in this post we will learn about all the most important questions for BCA 2nd semester. that’s very important for examination purpose. if this post is helpful for you please share this post to your all friends. thanks. if you want to another subject BCA important question and BCA notes you can go this link. BCA Notes.

FINANCIAL ACCOUNTING & MANAGEMEMNT

IMPORTANT THEORY QUESTIONS

Very short questions:

Content in The Article

1) Define the term financial accounting.

Ans. Financial accounting: – Financial accounting is a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting from business operations over a period of time.

2) What do you meant by Trial balance?

Ans. Trial Balance: – Trial balance is a statement, prepared with the debit and credit balances of ledger account to test the arithmetical accuracy of the books. If the totals of the debit and credit amount columns of the trial balances are equal, it is presumed that the posting to the ledger in terms of debit and credit amounts is accurate.

3) What is double entry system?

Ans. Double Entry System: – Business transaction are recorded in the books accounts on the basis of double entry system. This system of accounting was invented by ‘Lucas Pacioli’ of Italy in 1494 in Venice. The system is based upon the fact that there are two aspects of every business transaction. Every transaction involve at least two persons, parties, or accounts. According to this approach if there is a receiver, of goods, there must be giver of goods also. Every business transaction has two aspects .recording dual aspects of business transaction in terms of ‘debit and credit’ is double entry system.

4) Name the external and internal users of accounting information.

Ans. External and Internal Users of Accounting

  • Internal users —- Owners , Management , Employees
  • External users —- Government, Investors, Vendors, Financial analysts consumers, Trade association, Labour unions.

5) What is meant by Fixed and current assets?

Ans. Assets: Valuable things (economic resources) owned by the business.

Fixed assets: land and building, plant and machinery

Current assets: cash, account receivable, stock, debtors

Intangible assets: Goodwill, patent, copyright.

6) What is meant by accounting process?

Ans. Accounting Process: –

Journal – > Ledger  –  > TB (Trial Balance) –  > Final Account

7) How the accounts are classified?

Ans. Accounts classification: – The accounts are classified into 3 types.

  • Personal Accounts: – Personal Account represents accounts relating to individual human beings.

Ex – company accounts, artificial accounts, human accounts, bank accounts, and organization accounts etc.

  • Real Accounts: – which are related to all assets. (Fixed assets, current assets, intangible assets.)

Ex – Cash a/c, building a/c, goodwill a/c, and patent a/c, etc.

  • Nominal Accounts: – Which related to –

Ex – Salaries a/c, rent a/c, wages a/c interest received a/c, commission received a/c, etc.

8) Define the explicit and implicit cost.

Ans. Cost: – the term cost refers to the monetary value of expenditures for raw materials, equipment, supplies, services, labor, products, etc.

  1. Explicit cost; It is the discount rate that equal the present value of the funds received by the firm net of underwriting costs, with present value of the expected cash outflow.
  2. Implicit cost: It I the rate of return associated with the best investment opportunity for the firm and its shareholder that will be foregone if the project presently under consideration by the firm were accepted.

9) Define cost of capital.

Ans. Cost of capital:- According to Solomon Ezra: – “cost of capital is the minimum required earning or cut-off rate of capital expenditure.”

10) What is break even analysis?

Ans. Break Even Analysis: – A break-even analysis is a financial calculation that weighs the costs of a new business, service or product against the unit sell price to determine the point at which you will break even. In other words, it reveals the point at which you will have sold enough units to cover all of your costs.

11) What do mean by EOQ?

Ans. EOQ (Economic Order Quantity): – EOQ refers to the level of inventory at which the total cost of inventory comprising ordering cost and carrying cost. Determining an optimum level involves two types of cost such as ordering cost and carrying cost. The EOQ is that inventory level that minimizes the total of ordering of carrying cost.

EOQ can be calculated with the help of the mathematical formula:

EOQ = 2ab/c (under root)

12) What is ratio analysis?

Ans. Ratio Analysis: – Ratio analysis is referred to as the study or analysis of the line items present in the financial statements of the company. It can be used to check various factors of a business such as profitability, liquidity, solvency and efficiency of the company or the business.

Definition: Ratio analysis is the process of examining and comparing financial information by calculating meaningful financial statement figure percentages instead of comparing line items from each financial statement

13) Discuss the role of financial manager.

Ans. Role of financial manager

  • Estimation of capital requirement
  • Choice of sources of funds.
  • Investment of funds
  • Management of cash
  • Disposal of funds
  • To plan a sound capital structure
  • Make proper plan and policy according to their budget

14) What is capitalization?

Ans. Capitalization: – Capitalization is an important constituent of financial plan. In common parlance, the phrase ‘Capitalization’ refers to total amount of capital employed in a business.

In its narrow sense, the term capitalization is used only in its quantitative aspect and refers to the amount at which a company’s business can be valued

15) Define capital structure.

Ans. Capital Structure: – The term ‘structure’ means the arrangement of the various parts. So capital structure means the arrangement of capital from different sources so that the long-term funds needed for the business are raised.

16) What is receivable management?

Ans. Receivable management: – Management of receivables refers to planning and controlling of debt owed to the customer on account of credit sales. In simple words, the successful closure of your order to sales is determined only when you convert your sales into cash

Short and long questions

1) Discuss various accounting concepts and conventions in detail.

Ans.

Accounting Concept

  • Simple Entity Concept: – Business and Business man, both are separate also called “Business Entity Concept”.
  • Going Concern Concept: – Company assume that, there business continuously carry out its operations for a longer period of time. Also called “non-death principle of business.
  • Full Discloser Principle: – Companies reveal the income and expenses of the company in that period where they have occurred. Also called “Recognition principle”.
  • Money Measurement Concept: – Those transactions which express in monetary term, shall be recorded books of accounts.
  • Dual Concept: – Transaction recorded on the basis of double entry system. On is debited and other one is credited.
  • Accrual Concept: – Expenses recorded immediately, bed income to be recorded when actual cash flow is occur. In addition to all those the principle of honestly to be maintained.
  • Matching Concept: – Expenses should be matched with the revenue.
  • Conservation: – provided for anticipated losses, ignore anticipated profit.
  • Time-period specific concept: – Balance sheet reported on a particular date i.e (monthly, quarterly, yearly, etc.

Accounting period – 1 April to 31st march.

  • Cost Concept: – Assets shall be recorded at original cost.
  • Consistency concept: Accounting policy consistently followed from year to year.

Accounting Conventions

  • Full Disclosure: This concept requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes.
  • Consistency: these concepts state that accounting policies and practices followed by enterprises should be uniform and consistent one the period of time so that results are compostable. Comparability results when the same accounting principles are consistently being applied by different enterprises for the period under comparison, or the same firm for a number of periods.
  • Conservatism: This concept requires that business transactions should be recorded in such a manner that profits are not overstated. All anticipated losses should be accounted for but all unrealized gains should be ignored.
  • Materiality: This concept states that accounting should focus on material facts. If the item is likely to influence the decision of a reasonably prudent investor or creditor, it should be regarded as material, and shown in the financial statements

2) What are the main objectives of accounting? Are there any branches of accounting?

Ans. Objectives of accounting

  • To keep systematic records: Accounting is done to keep systematic record of financial transactions. The primary objective of accounting is to help us collect financial data and to record it systematically to derive correct and useful results of financial statements.
  • To ascertain profitability: With the help of accounting, we can evaluate the profits and losses incurred during a specific accounting period. With the help of a Trading and Profit & Loss Account, we can easily determine the profit or loss of a firm.
  • To ascertain the financial position of the business: A balance sheet or a statement of affairs indicates the financial position of a company as on a particular date. A properly drawn balance sheet gives us an indication of the class and value of assets, the nature and value of liability, and also the capital position of the firm. With the help of that, we can easily ascertain the soundness of any business entity.
  • To assist in decision-making: To take decisions for the future, one requires accurate financial statements. One of the main objectives of accounting is to take right decisions at right time. Thus, accounting gives you the platform to plan for the future with the help of past records.
  • To fulfill compliance of Law: Business entities such as companies, trusts, and societies are being run and governed according to different legislative acts. Similarly, different taxation laws (direct indirect tax) are also applicable to every business house. Everyone has to keep and maintain different types of accounts and records as prescribed by corresponding laws of the land. Accounting helps in running a business in compliance with the law.

Branches of accounting

  • Financial accounting: It is concerned with recording and summarising financial transactions in the book of accounts in such a manner that on a particular date the profit or loss as well as financial position of the organisation may be known.
  • Cost accounting: it is concerned with the determination of costs of goods and services.
  • Management accounting: To provide information to the management for planning, policy formation, control and decision making.

3) What is meant by balance sheet? Draw the format of balance sheet

Ans. Balance Sheet: – A balance sheet is a statement of assets and liabilities of a business enterprise at a given data. It is prepared at the end of the accounting period after the trading account and profit and loss account have been prepared. It show the financial position of the business at the end of the accounting period.

Format of the Balance Sheet

format of the balance sheet

4) What is journal? Draw the format of journal

Ans. Journal: – A journal entry is the act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company’s debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit.

Format of Journal

5) Differentiate between book-keeping and accounting.

Ans. Differentiate Book-keeping and Financial Accounting

Basis Book keeping Financial accounting
Stage Primary stage Secondary stage
Object Maintain systematic record of business transaction Ascertain net result of business transaction
Scope Recording and maintain of books of accounts(limited in scope) It is not only recording and maintaining of book of accounts but also includes analysis, interpreting and communicating the result(wide scope)
Nature Often routine and clerical Analytical and executive in nature
Dependency Book-keeping is an independent work and not dependent on accounting Work of accounting is dependent on book keeping

6) What is ratio analysis? Explain the types of ratio analysis.

Ans. Ratio Analysis: – Ratio analysis is referred to as the study or analysis of the line items present in the financial statements of the company. It can be used to check various factors of a business such as profitability, liquidity, solvency and efficiency of the company or the business.

Definition: Ratio analysis is the process of examining and comparing financial information by calculating meaningful financial statement figure percentages instead of comparing line items from each financial statement

Types of Ratio Analysis

  1. Liquidity Ratios: Liquidity ratios are helpful in determining the ability of the company to meet its debt obligations by using the current assets. At times of financial crisis, the company can utilise the assets and sell them for obtaining cash, which can be used for paying off the debts. Some of the most commonly used liquidity ratios are quick ratio, current ratio, cash ratio, etc.
  2. Solvency Ratios: Solvency ratios are used for determining the viability of a company in the long term or in other words, it is used to determine the long term viability of an organisation. Solvency ratios calculate the debt levels of a company in relation to its assets, annual earnings and equity. Some of the important solvency ratios that are used in accounting are debt ratio, debt to capital ratio, interest coverage ratio, etc.
  3. Activity Ratio: Activity ratios are used to measure the efficiency of the business activities. It determines how the business is using its available resources to generate maximum possible revenue. These ratios are also known as efficiency ratios. Th ese ratios hold special significance for business in a way that whenever there is an improvement in these ratios, the company is able to generate revenue and profits much efficiently.
  4. Profitability ratios: The purpose of profitability ratios is to determine the ability of a company to earn profits when compared to their expenses. A better profitability ratio shown by a business as compared to its previous accounting period shows that business is performing well.

7) What do you mean by fund flow statement? Discuss the construction of fund flow statement.

Ans. Fund Flow statement: – A fund flow statement is a statement prepared to analyse the reasons for changes in the financial position of a company between two balance sheets. It portrays the inflow and outflow of funds i.e. sources of funds and applications of funds for a particular period.

It is also righteous to say that a fund flow statement is prepared to explain the changes in the working capital position of a company.

Construction of fund flow statement

Wait…

8) Differentiate between fund flow statement and cash flow statement.

Basis Fund flow Statement Cash Flow Statement
Meaning It is a statement of changes in financial position of business due to inflow and outflow of funds. It is a statement financial position of the changes in the business due to inflow and outflow of cash.
Basis of Concept It is based on a wider concept of Funds i.e. working capital. It is based on a narrower concept Funds i.e. cash.
Utility It proves useful for medium term and long term financial planning. It is Specially useful for short term analysis of cash position and planning.
Concerned With A Fund Flow statement is concerned with change in working capital position between two balance-sheet. A cash flow statement is concerned only with the change in cash position.
Purpose It analyses the reason for change in financial position between two balance sheets. It analyses the reasons for change in balance of cash in hand at bank.

9) Differentiate between profitability and liquidity.

Profitability Liquidity
Profitability is for a period and it not a position for a particular time Liquidity is for a particular time and it is as on date position and not for a particular time period
Profitability is an income statement item and not a balance sheet item Profitability is a balance sheet item and not an income statement item
The Key ratios to determine the profitability of the company is:-

  • Gross Profit Margin
  • Net Profit Margin
  • EBIDTA Margin
  • EBIT Margin
  • CAGR
The Key ratios to determine the Liquidity of the company is:-

  • Current Ratio
  • Acid Test Ratio
  • Quick Ratio
  • Interest Coverage Ratio
  • Fixed Coverage Ratio
Profitability is more important in the long run of the business Liquidity is more important in the short-run of the business
Profitability is a measure of financial performance Liquidity is a measure of cash position in the company and how liquid is the company is to meet its short-term obligations
Profitability is also a  degree of how well the company is generating margins from its business Liquidity is a degree of how well the company is able to convert its sales into cash

 

10) Define financial management. Discuss the nature and objective of financial management.

Ans. Financial Management: – Financial management is strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute.

Objective of Financial Management

  1. To ensure regular and adequate supply of funds to the concern.
  2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
  3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
  4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
  5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.

11) What do you mean by cost of capital? How to measure the cost of capital?

Ans. Cost of Capital: –

According to Solomon Ezra: – “cost of capital is the minimum required earning or cut-off rate of capital expenditure.”

Measure the cost of capital

It refers to the cost of each specific sources of finance like:

  • Cost of equity
  • Cost of debt
  • Cost of preference share
  • Cost of retained earnings

Cost of equity: – Cost of equity is the return that a company requires for an investment or project, or the return that an individual requires for an equity investment. The formula used to calculate the cost of equity is either the dividend capitalization model or the CAPM.

Cost of debt: – The cost of debt is the return that a company provides to its debtholders and creditors. When debtholders invest in a company, they are entering an agreement wherein they are paid periodically or on a fixed schedule

Cost of preference share: – They calculate the cost of preferred stock by dividing the annual preferred dividend by the market price per share. Once they have determined that rate, they can compare it to other financing options. The cost of preferred stock is also used to calculate the Weighted Average Cost of Capital.

Cost of retained Earning: – he cost of retained earnings is the cost to a corporation of funds that it has generated internally. If the funds were not retained internally, they would be paid out to investors in the form of dividends

12) What is cash management? Explain the cash management technique.

Ans. Cash management: – cash management refers to management of cash inflows and cash outflows. it is the process of forecasting, collecting, disbursing, investing and planning for the cash a company need to operate its business smoothly.

Cash Management Techniques

Managing cash flow constitutes two important parts:

Speedy Cash Collections.

Business concern must concentrate in the field of Speedy Cash Collections from customers. For that, the concern prepares systematic plan and refined techniques. These techniques aim at, the customer who should be encouraged to pay as quickly as possible and the payment from customer without delay. Speedy Cash Collection business concern applies some of the important techniques as follows:

  1. Prompt payment by customer.
  2. Early conversion of payment into cash.
  3. Concentrating banking.
  4. Lock box system

Slowing Disbursements.

  1. Avoiding the Early payment of tax.
  2. Centralised disbursement system.

13) Discuss the various factor affecting capital structure.

Ans. Factors affecting capital structure:

  1. The nature of business.
  2. Regularity of earnings.
  3. Conditions of money market.
  4. Attitude of the investor.
  5. Debt-equity mix.

14) Discuss the concept of working capital. Explain the theory of working capital.

Ans. Concept of working capital: – Working capital can be classified or understood with the help of the following two important concepts.

Gross Working Capital

Gross Working Capital is the general concept which determines the working capital concept. Thus, the gross working capital is the capital invested in total current assets of the business concern.

Gross Working Capital is simply called as the total current assets of the concern.

                                                                  GWC = CA

Net Working Capital

Net Working Capital is the specific concept, which, considers both current assets and current liability of the concern.

Net Working Capital is the excess of current assets over the current liability of the concern during a particular period.

If the current assets exceed the current liabilities it is said to be positive working capital; it is reverse, it is said to be Negative working capital.

                                                            NWC = C A – CL

15) What do you mean by working capital management? What are the factor which affect working capital?

Ans. Working Capital Management: – Working Capital Management formulates policies to manage and handle efficiently; for that purpose, the management established three policies based on the relationship between Sales and Working Capital

Factor affecting working Capital: –

  • Nature of business: – if business is manufacturing then it is related to more need of working capital while if the business is trading then there is need of less working capital.
  • Change in technology: – If business wants improvement in technology and required to change technology in business then need of more working capital arises.
  • Seasonal and cyclical factors: – if season comes and raw material available + more production need arises, hence more need of working capital arises. While if there is no season then production less, hence working capital need less.
  • Length of production cycle: – large production cycle means there is more working capital while if production cycle if short then less working capital is required.
  • Availability of credit: – If firm enjoy good credit system with banks then business have more finance means more working capital then if firm don’t have more good credit facility then less working capital business have.
  • Paying habits of customers: – if customer of company are accustomed of paying late, then business will short of finance, hence less working capital business have.
  • Growth and Expansion: – if business wants to grow more and more then it simple means there is need of more working capital.

16) Discuss the application of computer in accounting.

Ans. Application of computer in Accounting: – An accounting application is a software program that captures and records all accounting transactions. It often divides functions into modules such as accounts payable, accounts receivable, inventory, and more.

17) Define the objective of financial management. What are the long term source of finance?

Ans. Objectives of Financial Management: –

  1. To ensure regular and adequate supply of funds to the concern.
  2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
  3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
  4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
  5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.

Long term sources of finance

Long term sources of finance are included as.

  • capital market
  • special financial institutions
  • mutual funds
  • leasing companies
  • foreign sources
  • retained earnings

18) What is cash management? Explain the motive to holding cash.

Ans. Cash Management: – cash management refers to management of cash inflows and cash outflows. it is the process of forecasting, collecting, disbursing, investing and planning for the cash a company need to operate its business smoothly

Motive to Holding Cash

  1. Transaction motive It is a motive for holding cash or near cash to meet routine cash requirements to finance transaction in the normal course of business. Cash is needed to make purchases of raw materials, pay expenses, taxes, dividends etc.
  2. Precautionary motive It is the motive for holding cash or near cash as a cushion to meet unexpected contingencies. Cash is needed to meet the unexpected situation like, floods strikes etc.
  3. Speculative motive It is the motive for holding cash to quickly take advantage of opportunities typically outside the normal course of business. Certain amount of cash is needed to meet an opportunity to purchase raw materials at a reduced price or make purchase at favourable prices.
  4. Compensating motive It is a motive for holding cash to compensate banks for providing certain services or loans. Banks provide variety of services to the business concern, such as clearance of cheque, transfer of funds etc.

Financial Accounting and Management Important Question Answer for BCA 2nd Semester

Financial Accounting and Management Important Question Answer for BCA 2nd Semester


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