Class 11 Accounts Chapter 2 Question Answers | Theory Base of Accounting
This chapter introduces students to the fundamental principles and assumptions that form the backbone of accounting. It explains why consistency, reliability, and transparency are essential in financial reporting. Students learn about key concepts like Going Concern, Business Entity, Money Measurement, and Matching, along with the role of Accounting Standards in maintaining uniformity across organizations.
By the end of this chapter, students should be able to:
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Understand the need for accounting principles
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Apply concepts like Conservatism, Consistency, and Dual Aspect
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Recognize how Accounting Standards guide financial reporting
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Answer exam-style questions with clarity and confidence
Very Short Answer Questions (1 Mark)
Q1. What is the basic accounting equation?
Ans: The basic accounting equation is: Assets = Capital + Liabilities It shows that all assets of a business are financed either by the owner’s capital or by external liabilities.
Q2. What does the Money Measurement Concept state?
Ans: Only transactions that can be measured in monetary terms are recorded in accounting. Non-monetary events like employee skill or brand reputation are not recorded.
Q3. What is the objective of Accounting Standards?
Ans: To ensure consistency, transparency, and comparability in financial statements across different organizations and time periods.
Read More Class 11th Accounts Chapter 1 Question Answer
Short Answer Questions (3 Marks)
Q4. Explain the Going Concern Concept.
Ans: This concept assumes that a business will continue to operate for the foreseeable future. It allows assets to be valued based on their long-term use rather than liquidation value.
Q5. What is the Matching Concept? Give an example.
Ans: Expenses should be matched with the revenues of the same accounting period. Example: If rent is paid for March, it should be matched with March’s revenue to calculate accurate profit.
Q6. Describe the Business Entity Concept.
Ans: Business and owner are treated as separate entities. Transactions of the business are recorded independently from the personal transactions of the owner.
Long Answer Questions (5–6 Marks)
Q7. Why are accounting principles important in financial reporting?
Ans:
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They ensure uniformity and consistency in financial statements.
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Help stakeholders make informed decisions.
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Prevent manipulation and misrepresentation.
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Build trust and reliability in financial data.
Read More Class 11 Commerce Subjects Books (2025–26)
Q8. Differentiate between Accounting Principles and Accounting Standards.
Ans:
Basis | Accounting Principles | Accounting Standards |
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Nature | Broad guidelines | Specific rules |
Issued by | Conceptual framework | ASB (India) |
Example | Going Concern | AS-1 (Disclosure of Accounting Policies) |
MCQs (Multiple Choice Questions)
Q9. Which concept assumes business continuity?
(a) Money Measurement (b) Going Concern (c) Matching (d) Dual Aspect
Ans: (b) Going Concern
Q10. In India, Accounting Standards Board was set up in:
(a) 1972 (b) 1977 (c) 1980 (d) 1991
Ans: (b) 1977
HOTS (Higher Order Thinking Skills)
Q11. A business buys a calculator worth ₹200. It is treated as an expense, not an asset. Which concept applies?
Ans: Materiality Concept – Small items with low value are expensed due to negligible impact on financial statements.
Q12. A firm changes its depreciation method. Which concept is affected and what should be disclosed?
Ans: Consistency Concept – Any change in accounting policy must be disclosed with reasons to maintain transparency.
Concept Matching
Concept | Example |
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Conservatism | Creating provision for doubtful debts |
Dual Aspect | Every transaction affects two accounts |
Full Disclosure | Notes to accounts in financial statements |
Objectivity | Using invoice as proof for purchase |
Revenue Recognition | Recording sales when goods are delivered |
Chapter Conclusion: Theory Base of Accounting
The Theory Base of Accounting lays the foundation for all financial reporting. It introduces students to the principles, concepts, and standards that ensure accounting is consistent, reliable, and comparable across businesses and time periods. By mastering this chapter, students gain clarity on how and why transactions are recorded, and how financial statements reflect the true position of a business.
Key takeaways include:
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Understanding Generally Accepted Accounting Principles (GAAP)
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Applying concepts like Going Concern, Matching, Business Entity, and Conservatism
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Recognizing the role of Accounting Standards in maintaining uniformity
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Differentiating between cash and accrual basis of accounting
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Appreciating the importance of qualitative characteristics like relevance and reliability
This chapter is not just theoretical—it’s the bedrock of practical accounting used in real-world businesses and board exams alike.
Extra Related Questions (For Practice & Depth)
These questions go beyond the basics and help students think critically:
Assertion & Reason Type:
Q1. Assertion: Accounting Standards ensure comparability of financial statements. Reason: They allow businesses to use different accounting policies for similar transactions.
Choose: (a) Both A and R are true, R explains A (b) Both A and R are true, R does not explain A (c) A is true, R is false (d) A is false, R is true
Case-Based Question:
Q2. A company changes its inventory valuation method from FIFO to Weighted Average without disclosure.
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Which accounting concept is violated?
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What impact might this have on stakeholders?
Fill in the Blanks:
Q3.
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The __________ concept ensures that financial statements reflect only measurable transactions.
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The __________ concept requires that expenses be matched with related revenues.
Diagram-Based:
Q4. Draw a flowchart showing how accounting concepts influence the preparation of financial statements.