Cost and Management Accounting
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Questions and Answers

What is the primary objective of cost accounting?

  • To estimate future costs to be incurred
  • To assess the profitability of an enterprise
  • To exercise control over costs to achieve efficiency (correct)
  • To present accounting information to management

    • What does management accounting provide to management?

  • Necessary information for discharging its functions (correct)
  • Estimation of future costs
  • Assistance in policy creation
  • Control over costs

    • Which accounting concept implies that a business unit is separate and distinct from its owners?

  • Money Measurement Concept
  • Going Concern Concept
  • Dual Aspect Concept
  • Business Entity Concept (correct)

    • What is the purpose of the accounting equation?

    <p>To express the business entity concept</p> Signup and view all the answers

    Which of the following is NOT a function of management accounting?

    <p>Estimating future profits</p> Signup and view all the answers

    What is the main difference between cost accounting and management accounting?

    <p>Cost accounting focuses on costs, while management accounting focuses on management</p> Signup and view all the answers

    Which accounting concept is related to the idea that a business unit will continue to operate for a long period of time?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is the term used to describe the basic assumptions or conditions upon which the accounting super-structure is based?

    <p>Accounting concepts</p> Signup and view all the answers

    What is the primary purpose of the Money Measurement Concept in accounting?

    <p>To record transactions in terms of money</p> Signup and view all the answers

    Which concept assumes that a business will continue to exist for a longer period of time?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is the purpose of preparing an Income Statement at the end of an accounting period?

    <p>To determine the profit or loss made during the accounting period</p> Signup and view all the answers

    What is the underlying assumption of the Dual Aspect Concept?

    <p>Every debit has a corresponding and equal amount of credit</p> Signup and view all the answers

    According to the Cost Concept, at what value is an asset recorded in the accounting record?

    <p>At its historical cost</p> Signup and view all the answers

    What is the purpose of the Accounting Period Concept?

    <p>To measure income and study financial position over a shorter period</p> Signup and view all the answers

    What is the essence of the Matching Concept?

    <p>Matching revenues with expenses of the same period</p> Signup and view all the answers

    According to the Going Concern Concept, how are prepaid expenses treated?

    <p>As assets, although they may be practically unsaleable</p> Signup and view all the answers

    What is the accounting equation according to the Dual Aspect Concept?

    <p>Assets = Capital + Liabilities</p> Signup and view all the answers

    What is the purpose of accounting conventions?

    <p>To provide guidelines for preparing financial statements</p> Signup and view all the answers

    What is the main function of a journal?

    <p>To record transactions in chronological order</p> Signup and view all the answers

    Which concept is closely related to the valuation of assets at historical cost or replacement cost?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is journaling in the context of accounting?

    <p>The act of recording each transaction in the journal</p> Signup and view all the answers

    Why are adjustments necessary in financial statements?

    <p>To match costs with revenues of the same period</p> Signup and view all the answers

    What is the primary benefit of the Accounting Period Concept?

    <p>Helps in taking corrective steps at the right time</p> Signup and view all the answers

    What is the normal duration of an accounting period?

    <p>A year</p> Signup and view all the answers

    Study Notes

    Cost Accounting

    • Cost accounting aims to determine the cost of units produced and sold, or services rendered, to assess profitability and efficiency.
    • It involves estimating future costs to be incurred and exercises control over them.

    Management Accounting

    • Management accounting provides necessary information to the management for discharging its functions.
    • It presents accounting information to assist management in creating policy and day-to-day operations.

    Accounting Concepts

    • The following are common accounting concepts adopted by many business concerns:
      • Business Entity Concept
      • Money Measurement Concept
      • Going Concern Concept
      • Dual Aspect Concept
      • Accounting Period Concept
      • Cost Concept
      • Matching Concept
      • Realisation Concept
      • Accrual Concept
      • Objective Evidence Concept

    Business Entity Concept

    • The business unit is separate and distinct from the persons who provide capital to it.
    • This concept can be expressed through the accounting equation: Assets = Liabilities + Capital.

    Money Measurement Concept

    • All events and transactions are recorded in terms of money.
    • Money is considered a common denominator to record various facts, events, and transactions.

    Going Concern Concept

    • The business unit is assumed to exist for a longer period, i.e., a going concern, not a liquidated one.
    • This concept supports valuing assets at historical cost or replacement cost and treating prepaid expenses as assets.

    Dual Aspect Concept

    • Every transaction has a two-fold aspect: giving certain benefits and receiving certain benefits.
    • The accounting equation (Assets = Capital + Liabilities or Capital = Assets – Liabilities) clarifies this concept.

    Accounting Period Concept

    • The life of the business is segmented into different periods to ascertain the result of each period.
    • Each segmented period is called an "accounting period," usually a year.
    • At the end of an accounting period, an Income Statement is prepared to ascertain profit or loss, and a Balance Sheet is prepared to depict the financial position of the business.

    Cost Concept

    • Transactions are recorded in the books of account with the respective amounts involved.
    • The cost of an asset is considered the base for all future accounting.

    Matching Concept

    • All costs associated with a particular period should be compared with revenues associated with the same period to obtain net income.
    • This concept necessitates provisions for recording outstanding expenses, prepaid expenses, outstanding incomes, and incomes received in advance during the course of preparing financial statements.

    Accounting Conventions

    • Accounting conventions are customs and traditions that act as guidelines for preparing books of accounts.

    Journal and Ledger

    • A journal is a book of original entry where transactions are first recorded in chronological order.
    • A journal is a simple book of accounts in which all business transactions are originally recorded and then posted to ledger accounts at any convenient time.

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    Introduction to Accounting PDF

    Description

    This quiz covers the basics of cost accounting, including ascertaining unit costs and exercising control over them, as well as management accounting, which provides information to management for decision-making.

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