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CBSE

Class 11 Important Question

Accountancy

Chapter 9: Financial Statements 1

Important Questions for CBSE Class 11 Accountancy Chapter 8 - Financial Statements 1

Q: 3. What is the fundamental difference between Capital Expenditure and Revenue Expenditure, a frequently asked question?

This is a critical concept for exams. Capital Expenditure is an amount spent to acquire or upgrade a long-term asset (like machinery or buildings) that will provide benefits for more than one accounting period. It is shown on the asset side of the Balance Sheet. In contrast, Revenue Expenditure is a recurring expense for the day-to-day running of the business (like salaries or rent) whose benefit is consumed within the same accounting period. It is shown on the debit side of the Trading or Profit & Loss Account.

Q: 5. How are 'Carriage Inwards' and 'Carriage Outwards' treated differently in financial statements?

This is a common point of confusion tested in exams. Carriage Inwards refers to the transportation costs incurred to bring goods to the factory or place of business. Since it is a direct expense related to purchases, it is debited to the Trading Account. On the other hand, Carriage Outwards refers to the costs incurred to deliver goods to customers. As a selling and distribution expense, it is considered an indirect expense and is debited to the Profit and Loss Account.

CBSE Class 11 Accountancy Important Questions Chapter 8 - Financial Statements 1 - Free PDF Download

Free PDF download of Important Questions with solutions for CBSE Class 11 Accountancy Chapter 8 - Financial Statements 1 prepared by expert Accountancy teachers from latest edition of CBSE(NCERT) books.

Study Important Questions for Class 11 Accountancy Chapter 8 – Financial Statements - I

Very short answer questions (1 Mark)

1. Fill In the Blanks:

i) Wages to the worker are place at ________ side in the trading account

Ans: Debit

ii) Interest paid is place in the _______ account

Ans: Profit and loss

iii) Sundry Creditors are placed at ________ side of a balance sheet

Ans: Liability

iv) Land and building is a ______

Ans: Fixed asset

2. True-false

i) Trading account show the assets and liability of the company.

Ans: False, The company's liabilities are outstanding expenses. We refer to outstanding expenses as those that are due for payment but have yet to be paid. Outstanding expenses are a company obligation that must be met. Liability refers to a contractual duty or a financial debt that arises in the course of business. Hence. Outstanding expenses will appear on the balance sheet's liabilities side.

The outcomes of the purchasing and selling of goods are shown in a trading account. The purpose of this sheet is to show the gap between the selling price and the cost price. The trading account is prepared to demonstrate the business's trading performance, such as gross profit earned or gross loss endured.

ii) A balance sheet is prepared at last in the financial statement.

Ans: True, At the end of an accounting period, such as month-end, quarter-end, or year-end, balance sheets are typically generated.

iii) Cash in hand is placed at the asset side of the balance sheet.

Ans: True, Accounts such as cash, inventory, and property are on the asset side of the balance sheet, while accounts payable and long-term debt are on the liability side.

iv) The gross profit or loss is carried forward to the profit and loss account

Ans: The gross profit or loss is carried forward to the profit and loss account. As a result, this statement is true.

3. What do you mean by carriage outwards?

Ans: The cost of delivering items from the seller to the buyer is known as carriage outbound.

4. What do you understand by return inward?

Ans: It is the buyer of the items returning the things.

5. How the gross loss is treated in a financial statement?

Ans: On the debit side of the profit and loss sheet, the gross loss is carried down.

Short Answer Questions (2 Marks)

1. Who are the stakeholder of the company

Ans: Stakeholders are those who are involved with a firm, such as investors, shareholders, board of directors, and employees.

2. What do you mean by bills payable?

Ans: It displays how much money a company has received in credit for services or commodities. This is the amount that the business must pay to the service provider or the supplier of the goods within the stipulated time.

3. What do you understand by account receivable?

Ans: It displays how much money a corporation has borrowed to supply services or commodities on credit. This is the amount that the business must receive from its debtors within the stipulated time.

4. Who are the sundry debtors to the company?

Ans: A person who owns money from the corporation is referred to as a sundry debtor. They are treated by the corporation as current assets.

5. Define the term current assets.

Ans: Cash or cash equivalents that can be turned into cash within a year are known as current assets. For instance, cash, cash equivalents, accounts payable, inventories, and so on.

Short answer questions (3 Marks)

1. Describe fixed assets

Ans: Fixed assets are assets that are expected to stay with the company for a long time and are not likely to be transformed into cash quickly. They are employed to generate capital revenue for the company. Land development, plant, machinery, equipment, furniture, and automobiles are only a few examples.

2. What are the needs to prepare a trading account?

Ans: The following are the reasons for keeping a trading account:

i. To keep track of the company's gross profit and gross loss.

ii. To obtain information on the company's equity.

iii. It contains information about factory expenses.

iv. It also informs the company about the direct costs associated with the activity.

3. Why it is necessary for the company to prepare a profit and loss account.

Ans: The company must create a profit and loss account for the following reasons: i. It provides information on the company's administrative expenses.

ii. The profit and loss statement determines the firm's profitability.

iii. It aids in determining the company's earnings per share.

4. What do you mean by current liabilities and how they are treated in the financial statement?

Ans: The amount due to the creditor within a year is referred to as current liabilities. It could include a short-term loan, an account receivable, an advance, an unclaimed dividend, a variety of creditors, and income tax due, among other things. On the liabilities side of the balance sheet, current liabilities are added

5. Describe Earnings before interest and tax (EBIT).

Ans: The difference between operating revenue and operating expense is known as operating profit. In other words, operating profit is the profit generated by business operations.

EBIT, or earnings before interest and taxes, is another term for operating profit. Net profit is added to non-operating expenses, and then non-operating income is subtracted to arrive at EBIT.

Long Answer Questions- 5 marks

1. State the purpose of preparing the financial statement in a business.

Ans: The objective of preparing a financial statement in a business is to:

i. Aid in the presentation of the true and fair value of the company's performance.

ii. It aids the stakeholder in determining the company's genuine position.

iii. It aids in determining the company's overall profitability.

iv. It serves as the foundation for determining the annual dividend paid to shareholders.

v. It alerts the company to its flaws.

2. Differentiate between Capital Expenditure and Revenue Expenditure

Ans: Differentiate between Capital Expenditure and Revenue Expenditure. Given below:

Sr. No	Capital Expenditure	Revenue Expenditure
1.	It boosts the company's earnings.	It helps to keep the company's earning capability.
2.	It's used to get the job done. for the fixed assets Company.	It is utilised for the company's day-to-day expenses.
3.	It's usually a one-time expense.	It is a recurrent company expense that provides advantages for one
4.	It is beneficial in more ways than one. one year or longer an era of accounting	It is a recurrent company expense that provides advantages for one accounting period.
5.	They're written down in a financial statement	It is documented in the trading and profit and loss accounts.

3. Describe briefly the types of financial statements.

Ans: The two forms of financial statements created by any firm are

i. Trading and Profit & Loss Account – This account is also known as the company's income statement since it shows the profit and loss earned by the company during a financial year. The trade account indicates the company's gross profit from operations, whereas the profit and loss account shows the company's net profit.

ii. The financial statement. A balance sheet is used to determine the financial position of a company's assets and liabilities. I also assist in estimating the rate of return and reviewing the company's capital structure.

4. Explain any five items of a trading account

Ans: The following are the five relative items in a trading account:

i.Opening stock: The opening stock is the previous year's closing stock that can be used in the current year.

ii. Purchase: The gods are the things that the corporation buys from the supplier, whether on credit or in cash.

iii. Purchase return: Purchase return refers to goods that are returned to the provider.

iv. Freight inward: This refers to the expense of carriage or transportation to the company's factory or warehouse.

v. Wages: Wages are the remuneration paid to factory workers.

5. Explain any five items of a profit and loss account

Ans: The five relative items in a profit and loss account are:

i. Salaries: The salaries paid to the office employee for administrative purposes. It

includes the cash salary and it is also paid in kind for accommodation, rent, transportation, medical etc.

ii. Commission paid: Commission paid to the agent for selling the goods.

iii. Electricity and power: power and electricity charges for an office building

iv. Rent: Rent paid on the office building

v. Miscellaneous: A few little expenses are grouped together to save money.

referred to as Miscellaneous Expense.

Related Study Materials for Class 11 Accountancy Chapter 8 Financial Statements- I

S. No	Study Materials for Class 11 Accountancy Chapter 8 Financial Statements- I
1.	CBSE Class 11 Accountancy Chapter 8 Financial Statements- I Solutions
2.	CBSE Class 11 Accountancy Chapter 8 Financial Statements- I Notes

CBSE Class 11 Accountancy Chapter-wise Important Questions

CBSE Class 11 Accountancy Chapter-wise Important Questions and Answers cover topics from all 9 chapters, helping students prepare thoroughly by focusing on key topics for easier revision.

S. No	Chapter-wise Important Questions for Class 11 Accountancy (Financial Accounting Part I)
1	Chapter 1 - Introduction to Accounting Important Question
2	Chapter 2 - Theory Base of Accounting Important Question
3	Chapter 3 - Recording of Transactions 1 Important Question
4	Chapter 4 - Recording of Transactions 2 Important Question
5	Chapter 5 - Bank Reconciliation Statement Important Question
6	Chapter 6 - Trial Balance and Rectification of Errors Important Question
7	Chapter 7 - Depreciation, Provisions & Reserves Important Question
Chapter-wise Important Questions for Class 11 Accountancy (Financial Accounting Part II)
8	Chapter 9 - Financial Statements- 2 Important Question

Additional Study Materials for Class 11 Accountancy

S. No	Study Material for Class 11 Accountancy
1.	CBSE Class 11 Accountancy NCERT Books
2.	CBSE Class 11 Accountancy NCERT Solutions
3.	CBSE Class 11 Accountancy Notes
4.	CBSE Class 11 Accountancy Sample Papers
5.	CBSE Class 11 Accountancy Syllabus

FAQs on Important Questions for CBSE Class 11 Accountancy Chapter 8 - Financial Statements 1

1. What are the most important topics to focus on from Chapter 8, Financial Statements 1, for the CBSE Class 11 Accountancy exam 2025-26?

For the CBSE 2025-26 exams, students should prioritise the following high-weightage topics from Financial Statements 1:

The distinction between Capital and Revenue Expenditure, with examples.
Preparation of a Trading Account to calculate Gross Profit or Gross Loss.
Preparation of a Profit and Loss Account to determine Net Profit or Net Loss.
Understanding the purpose, components, and format of a Balance Sheet.
Correct classification of items into assets (Current/Non-Current) and liabilities (Current/Non-Current).

2. How are marks typically distributed for important questions from Financial Statements 1 in the Class 11 exams?

Based on recent CBSE paper patterns, the expected marks distribution is:

1-mark questions: Objective-type questions asking for definitions (e.g., 'What are current assets?') or a specific item's treatment.
3-4 mark questions: Short answer questions requiring differentiation (e.g., 'Distinguish between Carriage Inwards and Carriage Outwards') or explaining the purpose of a financial statement.
5-6 mark questions: Long answer questions that involve preparing a complete Trading and Profit & Loss Account or a Balance Sheet from a given trial balance.

3. What is the fundamental difference between Capital Expenditure and Revenue Expenditure, a frequently asked question?

This is a critical concept for exams. Capital Expenditure is an amount spent to acquire or upgrade a long-term asset (like machinery or buildings) that will provide benefits for more than one accounting period. It is shown on the asset side of the Balance Sheet. In contrast, Revenue Expenditure is a recurring expense for the day-to-day running of the business (like salaries or rent) whose benefit is consumed within the same accounting period. It is shown on the debit side of the Trading or Profit & Loss Account.

4. Why is a Trading Account prepared, and how is Gross Profit or Gross Loss treated?

A Trading Account is prepared as the first stage of the income statement to determine the profitability of a business's core trading activities, i.e., buying and selling goods. It matches the sales revenue against the cost of goods sold.

Gross Profit arises when sales exceed the cost of goods sold and is transferred to the credit side of the Profit & Loss Account.
Gross Loss occurs when the cost of goods sold is more than the sales revenue and is transferred to the debit side of the Profit & Loss Account.

5. How are 'Carriage Inwards' and 'Carriage Outwards' treated differently in financial statements?

This is a common point of confusion tested in exams. Carriage Inwards refers to the transportation costs incurred to bring goods to the factory or place of business. Since it is a direct expense related to purchases, it is debited to the Trading Account. On the other hand, Carriage Outwards refers to the costs incurred to deliver goods to customers. As a selling and distribution expense, it is considered an indirect expense and is debited to the Profit and Loss Account.

6. Why is a Balance Sheet considered a 'statement' and not an 'account'?

A Balance Sheet is called a statement because it does not have debit and credit columns like a ledger account. Instead, it presents a summary of a company's financial position at a specific point in time by listing Assets on one side and Liabilities and Capital on the other. Its purpose is to verify the fundamental accounting equation (Assets = Liabilities + Capital) and provide a snapshot of the company's solvency and financial health, which is a key objective as per the CBSE 2025-26 syllabus.

7. What are some common errors students must avoid when solving questions on Financial Statements 1?

To score full marks, students should avoid these common pitfalls:

Misclassification: Confusing revenue expenses (like 'repairs') with capital expenses (like 'purchase of machinery').
Incorrect Placement: Placing a direct expense like 'Wages' in the Profit & Loss Account instead of the Trading Account.
Omission of Closing Stock: Forgetting to record Closing Stock on the credit side of the Trading Account and the asset side of the Balance Sheet.
Calculation Errors: Incorrectly calculating or carrying forward the Gross Profit/Loss or Net Profit/Loss.

8. How can a student identify and prepare for Higher Order Thinking Skills (HOTS) questions from this chapter?

HOTS questions from Financial Statements 1 test the application of concepts rather than direct recall. For the 2025-26 exams, expect questions where you might need to:

Analyse a pre-made, incorrect financial statement and identify and correct the errors.
Explain the impact on net profit if a capital expenditure is incorrectly treated as a revenue expenditure.
From a jumbled list of items, classify them into the correct financial statement and head.
Justify the treatment of specific items like 'Outstanding Expenses' or 'Prepaid Insurance' based on accounting principles.

9. Why are 'Outstanding Expenses' shown as a liability on the Balance Sheet?

This is a frequently asked conceptual question. According to the accrual basis of accounting, expenses are recorded when they are incurred, not when they are paid. An outstanding expense represents a cost for a service or benefit that the business has already received during the accounting period, but for which payment has not yet been made. This creates a financial obligation to pay in the future, which is the definition of a liability. Therefore, it is shown on the liabilities side of the Balance Sheet.

10. What is the best strategy to master the preparation of financial statements for the Class 11 exam?

A systematic approach is key to scoring high marks. Students should:

Thoroughly learn the specific formats for the Trading Account, P&L Account, and Balance Sheet as per the CBSE syllabus.
Create a checklist of direct vs. indirect expenses to avoid placement errors.
Practice numerous problems to improve both speed and accuracy in classifying items and performing calculations.
Pay special attention to the treatment of Opening Stock and Closing Stock.
Always ensure the Balance Sheet totals match, as this confirms the arithmetical accuracy of your work.