Q.Information in financial reports is based on :
(A) Economic transactions
(B) Manager's opinions
(C) Manager's observations
(D) None of these
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🔒 Start your 14-day free trial to unlock the full solution →Concept understanding — Nature Of Accounting Information
Nature of Accounting Information
Think about your monthly pocket money. You know roughly how much you get, what you spend on snacks, and what's left. But if your parents asked you exactly where the money went, you'd need a record. That record — organised, verifiable, and useful for decisions — is what accounting information is.
The Everyday Intuition
Imagine you run a small chai stall. Every day you buy milk, sugar, tea leaves, and sell cups of chai. At the end of the month, you want to know: Did I make a profit? How much do I owe the milkman? Can I afford to buy a bigger stove?
Your memory won't cut it. You need accounting information — a structured, reliable record of your financial transactions. It's not just numbers; it's numbers that tell a story about your business's financial health.
The Precise Meaning
Accounting information is the output of the accounting process. It is financial data that has been identified, measured, recorded, classified, summarised, and interpreted to help users make economic decisions.
The key characteristics that make it accounting information (and not just random numbers) are:
- Reliability — It must be verifiable and free from material error or bias.
- Relevance — It must influence decisions by helping predict the future or confirm the past.
- Comparability — You should be able to compare it across time periods or with other businesses.
- Understandability — It must be presented clearly for users who have reasonable knowledge of business and accounting.
Accounting information is not the same as raw data. A pile of receipts is data. A Profit & Loss Account that shows net profit of Rs 50,000 is accounting information — it has been processed, classified, and given meaning.
Why It Matters
Accounting information serves two broad groups of users:
Internal users (owners, managers) use it to decide whether to expand, cut costs, or change prices. Without reliable accounting information, they'd be flying blind.
External users (banks, investors, government) use it to decide whether to lend money, buy shares, or assess tax liability. A bank won't give a loan without seeing the business's financial statements — that's accounting information in action.
For a sole proprietor, accounting information helps answer: "Should I continue this business or shut it down?" For a company, it helps shareholders decide: "Should I hold or sell my shares?"
Accounting Treatment — How It's Recorded
Here's the crucial point: Accounting information itself is not a transaction. You don't "debit" or "credit" accounting information. Instead, accounting information is the result of recording transactions.
But the process of generating accounting information involves recording every transaction using the double-entry system. For example:
When you buy goods for cash:
- Debit: Purchases Account (expense increases)
- Credit: Cash Account (asset decreases)
When you sell goods on credit:
- Debit: Debtors Account (asset increases)
- Credit: Sales Account (revenue increases)
These individual entries, when summarised, produce accounting information in the form of financial statements.
The Formats That Present Accounting Information
The accounting information is presented in standard formats. Here are the two most important ones for a Class 12 student:
1. Trading and Profit & Loss Account (for a sole proprietorship)
| Particulars | Amount (Rs) | Particulars | Amount (Rs) |
|---|---|---|---|
| To Opening Stock | xxx | By Sales | xxx |
| To Purchases | xxx | By Closing Stock | xxx |
| To Direct Expenses | xxx | By Gross Loss (if any) | xxx |
| To Gross Profit (transferred) | xxx | ||
| Total | xxx | Total | xxx |
| To Administrative Expenses | xxx | By Gross Profit (brought down) | xxx |
| To Selling Expenses | xxx | By Other Incomes | xxx |
| To Financial Expenses | xxx |
Financial reports show only what has actually happened in the business, expressed in money terms. …
Financial reports are based on economic transactions, not on opinions or observations.
Accounting records only those events that are economic transactions — i.e., events that can be measured in monetary terms and that change the financial position of the business, such as purchase and sale of goods, payment of expenses, receipt of income, purchase of assets, etc. A manager's personal opinion about future prospects, or a manager's subjective observation of staff performance, is not an economic transaction and cannot be objectively verified or expressed in money terms, so it is never the basis of a financial report. This is rooted in the Objectivity a …
Showing the 12 most recent of 15 on this concept.
- CBSE 2022Set MARCH1 markMCQQ.Which of the following is not an element of a computer system?(a) Hardware(b) Software(c) Reports(d) Connectivity
›Reveal solutionSolution
Reports is not an element of a computer system — option (c). Kerala Plus One (DHSE) Accountancy, Computers in Accounting.
A computer system is made up of the following elements: hardware (the physical machine), software (programs), people/liveware (users), procedure (the steps followed), data (raw facts input) and connectivity (the way the machine links to networks/other devices).
…
- CBSE 2022Set ANNUAL1 markMCQQ.Which of the following is not a branch of accounting?(a) Management Accounting.(b) Cost Accounting.(c) Financial Accounting.(d) Book-keeping.
›Reveal solutionSolution
Financial, cost and management accounting are recognised branches of accounting; book-keeping is merely the recording stage. The correct option is (d) Book-keeping.
- (a) Management Accounting — supplies information to management for planning and control; a branch.
- (b) Cost Accounting — ascertains and controls the cost of products/services; a branch. …
- CBSE 2022Set ANNUAL1 markMCQQ.A primary function of accounting is(a) audit of accounts.(b) legal requirement.(c) maintenance of capital.(d) determination of financial results.
›Reveal solutionSolution
Accounting's basic purpose is to record transactions and ascertain the financial results (profit/loss) of the business, so the primary function is (d).
- (a) Audit of accounts — an independent check done after accounts are prepared; not a function of accounting itself.
- (b) Legal requirement — a reason for keeping accounts, not a function.
- (c) Maintenance of capital — a financial-management concern, not accounting's primary function. …
- CBSE 2022Set ANNUAL1 markMCQQ.RAM is(a) permanent memory.(b) temporary memory.(c) human memory.(d) None of these.
›Reveal solutionSolution
RAM stores data only while power is on and loses it when switched off, so it is temporary/volatile memory. The answer is (b).
- (a) permanent memory — this describes ROM/secondary storage, not RAM. …
- CBSE 2022Set ANNUAL1 markMCQQ.Which of the following is not an Operating System?(a) DOS.(b) LINUX.(c) WINDOWS 2,000(d) MS WORD.
›Reveal solutionSolution
DOS, LINUX and Windows are operating systems; MS WORD is an application program, so it is not an operating system. The answer is (d).
- (a) DOS — a disk operating system.
- (b) LINUX — an operating system.
- (c) WINDOWS 2000 — a Microsoft operating system. …
- CBSE 2022Set ANNUAL1 markQ.What is Software? Or What is the full form of CPU?
›Reveal solutionSolution
Software = the programs (instructions) that make a computer work; it is intangible, unlike hardware, and is of two types: system and application software.
Software means the set of programs, procedures and coded instructions that direct a computer to carry out specific tasks. Unlike hardware (the physical machine), software is intangible. It is broadly of two types: system software (which runs and manages the computer, e.g. operating systems such as Windows/Linux) and application software (which performs user tasks, e.g. a Tally accounting package, MS Word).
…
- CBSE 2021Set MARCH1 markMCQQ.Find the odd one:(a) Cost of training(b) Staff Opposition(c) System Failure(d) Quality Report
›Reveal solutionSolution
The odd one out is Quality Report — option (d).
This question, in the Kerala Plus One (DHSE) computerised-accounting context, groups items by whether they are drawbacks or benefits of a computerised accounting system:
- (a) Cost of training, (b) Staff opposition and (c) System failure are all limitations / problems of a computerised accounting system. …
- CBSE 2020Set MARCH1 markMCQQ.A series of operation in a certain order to achieve a desired result is known as _____.(a) Procedure(b) Data(c) Connectivity(d) Decisions
›Reveal solutionSolution
A series of operations in a certain order to achieve a desired result is a procedure. Correct option: (a).
Computerized accounting is part of the Kerala Plus One (DHSE) Accountancy syllabus. The terms mean:
Term Meaning Procedure A defined sequence of steps/operations to reach a result Data Raw facts and figures that are processed - CBSE 2020Set MARCH1 markMCQQ.Multiple types of taxes in goods and services were abolished through the introduction of _____.(a) VAT(b) GST(c) Octroi(d) Income tax
›Reveal solutionSolution
Multiple indirect taxes on goods and services were abolished by introducing GST. Correct option: (b).
GST (Goods and Services Tax), introduced in India in 2017, is a comprehensive, destination-based indirect tax that replaced a large number of earlier central and state indirect taxes:
Option Note VAT Was itself one of the taxes subsumed into GST GST The single tax that abolished the multiplicity of indirect taxes - CBSE 2020Set MARCH1 markMCQQ.Which among the following is not an advantage of computerized accounting system?(a) Speed(b) Cost of training(c) Reliability(d) Accuracy
›Reveal solutionSolution
Speed, accuracy and reliability are advantages of computerized accounting; cost of training is a disadvantage. Correct option: (b).
Computerized accounting is covered in the Kerala Plus One (DHSE) Accountancy syllabus. Its features fall into advantages and limitations:
Feature Advantage / Limitation Speed Advantage — faster processing of large volumes Accuracy Advantage — arithmetic done without errors - CBSE 2020Set MARCH1 markMCQQ.The database element which enables to retrieve data and information:(a) Tables(b) Queries(c) Forms(d) Report
›Reveal solutionSolution
The database element used to retrieve data and information is the query. Correct option: (b).
Database management is part of the computerized-accounting portion of the Kerala Plus One (DHSE) Accountancy syllabus. The main database objects are:
Object Function Table Stores data in rows and columns Query Retrieves/extracts and filters data based on conditions - CBSE 2020Set MARCH1 markMCQQ.[Rectangle symbol] This symbol represents a _____ in entity relationship model.(a) Entity(b) Weak entity(c) Relationship(d) Attribute
›Reveal solutionSolution
A rectangle in an ER model represents an entity. Correct option: (a).
The Entity-Relationship (ER) model, part of the database/computerized-accounting content in the Kerala Plus One (DHSE) Accountancy syllabus, uses standard shapes:
Symbol Represents Rectangle Entity Double rectangle Weak entity
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