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CBSE

Class 11 Important Question

Accountancy

Chapter 10: Financial Statements 2

Important Questions for CBSE Class 11 Accountancy Chapter 9 - Financial Statements 2

Q: 2. Why is it crucial to make adjustments for items like outstanding expenses and prepaid expenses before preparing the final accounts?

Adjustments are crucial to comply with the accrual basis of accounting and the matching principle. According to these principles, all expenses and incomes related to the current accounting period must be recorded, irrespective of whether cash has been paid or received. Not making these adjustments would lead to an incorrect calculation of profit or loss and would not present a true and fair view of the business's financial position.

Q: 5. Why is a 'Provision for Doubtful Debts' created, and how does it impact the final accounts in a typical 3-mark question?

A Provision for Doubtful Debts is created based on the principle of prudence (or conservatism), which advises anticipating all possible losses but not potential profits. This provision sets aside an estimated amount for potential losses from debtors who may not pay their dues. Its treatment is as follows:It is debited to the Profit & Loss Account as an anticipated business loss.It is shown as a deduction from Sundry Debtors on the asset side of the Balance Sheet.

CBSE Class 11 Accountancy Important Questions Chapter 9 - Financial Statements 2 - Free PDF Download

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

Study Important Question for class 11 Accountancy Chapter 9 – Financial Statements II

Very short answer questions – 1 Mark

1. What are prepaid expenses?

Ans: The cash received in advance of meeting the obligations is referred to as the advance. They're classified as short-term liabilities. Future expenditures that have been paid in advance are known as prepaid expenses. To put it another way, prepaid expenses are charges that have been paid but have not yet been used or expired.

2. Pass the journal entry of interest on capital

Ans: Journal entry of interest on capital:

Particular

Amount

Interest in capital A/c Dr.

To Capital A/c

3. Why is provision for discount on debtors allowed?

Ans: Provision for discount on debtors is an accounting phrase that refers to the amount set aside to compensate for losses incurred as a result of debtor discounts. In order to obtain payment from their clients faster, businessmen provide a discount to consumers who pay before the debt's maturity date.

4. On what basis company pay’s commission to the manager?

Ans: The net profit of the company is used to calculate the manager commission.

5. What do you understand by term closing stocks?

Ans: The amount of items that remain unsold at the conclusion of the accounting year is referred to as closing stock.

Short Answer Questions – 2 Marks

1. What do you understand by advance received?

Ans: The cash received in advance of meeting the obligations is referred to as the advance. They're classified as short-term liabilities.

2. Why do we need adjustments in financial statements?

Ans: Adjusting entries are used to bring accounts into compliance with the accrual principle. Some revenue and costs may not have been recorded or updated at the end of the accounting period, necessitating the adjustment of account balances.

Some revenue, cost, asset, and liability accounts may not represent their real values as presented in the financial statements if correcting entries are not created. As a result, altering entries is required.

3. What are outstanding expenses?

Ans: Outstanding expenses are those that have not been paid at the conclusion of the fiscal year. They're essentially in relation to income earned during the current financial year. This expenditure becomes due to the firm when the benefit has been received but the associated payment has not been made at the same time.

4. Pass the following journal entries;

a. Closing stock

b. Outstanding expenses

Ans: Journal entries are as follows:

a. Closing stock

Particular

Amount

Closing stock A/c Dr.

To Trading A/c

b. Outstanding expenses

Particular

Amount

Expenses A/c (Required) Dr.

To Outstanding expenses A/c

5. What do you mean by accrued income?

Ans: Money that has been earned but not yet received is referred to as accrued income. By definition, mutual funds or other pooled assets that accrue revenue over time but only payout to owners once a year are accumulating income.

Earned income is divided into two categories:

(1) items of income earned during the year, and

(2) items of However, it is not received at the end of the accounting year.

the same year's end.

Short answer questions – 3 Marks

1. Why adjustments are necessary for financial accounting?

Ans: A single transaction might have an impact on the cost and income of multiple financial periods. As a result, accounting adjustments are used to comply with the accrual concept.

It can also be utilized if a transaction occurred during the period but was not recorded. Only a few incomes and costs from the current year need to be recorded in the company's books of accounts.

2. Give details of few items which need adjustments.

Ans: The following are the things in the books of accounts that need to be adjusted:

Defaulted debts
Depreciation is the second type of depreciation.
Earnings that have been accumulated
Capital interest
Earnings of the manager
Closing the stock market

3. Pass the adjustment entry of the following items:

a. Closing stock

b. Outstanding expenses

c. Prepaid expenses

d. Accrued income

e. Income received in advance

Ans: Adjustment entries for the following items are as follows:

a. Closing stock :

Particular

Amount

Closing Stock A/c Dr.

To Trading A/c

b. Outstanding expenses:

Particular

Amount

Concerned Expenses A/c Dr.

To Outstanding expenses A/c

c. Prepaid expenses:

Particular

Amount

Prepaid expenses A/c Dr.

To Concerned Expenses A/c

d. Accrued income:

Particular

Amount

Accrued income A/c Dr.

To Concerned income A/c

e. Income received in advance :

Particular

Amount

Concerned income A/c Dr.

To Income received in advance A/c

4. Give an example of Provision for bad and doubtful debts.

Ans: Provision for doubtful debts is shown on the balance sheet and deducted from the company's debtors on the asset side. Rishi, for example, believes that 6% of his creditors from March will default on their payments in the coming year. The current year's bad debts total Rs 13,000. This indicates that bad debts total Rs. 780 (13,000 * 6%).

5. What will be the adjustment entry of rent received in advance of Rs. 5,000?

a. Credit the rent account and debit the rent received in the advance account.

b. Debit rent account and credit rent received in the advance

account.

c. Debit profit and loss account and credit rent account.

d. All of the above.

Ans: The correct answer is b, which debits the rent account and credits the rent received in the advance account.

Long Answer Questions - 5 Marks

1. Explain the following items with adjustments entry:

a. Closing Stock

b. Outstanding expenses

c. Income earned but not received

d. Income received in advance

e. Depreciation

f. Manager’s commission

Adjustment Entry Treatment in

Ans:

Adjustment	Adjustment Entry	Treatment in the balance sheet
Closing stock	Closing stock A/c Dr. To trading A/c	Shown on the asset side
Outstanding expenses	Expenses A/c Dr. To outstanding A/c Expenses	Shown on the liabilities side
Income earned but not received	Accrued Income A/c Dr. To Income A/c	Shown on the asset side
Income received in advance	Income A/c Dr. To Income received in Advance A/c	Shown on the liabilities side
Depreciation	Depreciation A/c Dr. To Assets A/c	Deduction from the value of assets
Managers commission	Manager commission A/c To o/s commission A/c	Shown on the liabilities side

2. From the following balances prepare a Profit and loss account.

Debit Balance

Amount

Credit balance

Amount

Purchase

Wages

Fuel and

power

Opening

stock

Salaries

General

expenses

Insurance

2,584

2,354

21,488

24,200

12,412

4,124

12,900

Sales

Rent

65,000

70,000

Ans:

Expenses/ losses

Amount

Profit/gain

Amount

Opening

stock

Purchase

Wages

Fuel and

power

Gross profit

c/d

Salaries

General

expenses

Insurance

Net profit

24,200

2,584

2,354

21,488

14,374

65,000

12,412

4,124

12,900

54938

Sales

Gross profit

b/d

Rent

84,374

3. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance

Amount

Credit Balance

Amount

Purchase

Wages

Opening stock

Salaries

Postage

Printing and

stationery

Bills receivables

90,000

7,880

21,600

12,412

6,354

12,900

5,640

Sales

Closing stock

Office expenses

Sundry debtors

Sundry creditors

Cash at Bank

165,000

70,000

1,247

14,500

21,020

13,487

Ans:

Trading Profit and loss A/c

Expenses/profit

Amount

Profit /gain

Amount

Opening stock

Purchase

Wages

Gross profit c/d

Salaries

Office expenses

Postage

Printing and

stationery

Net profit

21,600

90,000

7,880

1,15,520

2,35,000

12,412

1,247

6,354

12,900

82,607

Sales

Closing stock

Gross profit b/d

165,000

70,000

2,35,000

1,15,520

Balance sheet as of March 31

liabilities

Amount

Asset

Amount

Sundry creditors

Add: Net profit

21,020

82,607

Cash at bank

Bills receivables

Sundry debtors

Closing stock

13,487

5,640

14,500

70,000

1,03,627

4. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance

Amount

Credit Balance

Amount

Purchase

Wages

Opening stock

Salaries

Postage

Bad debts

Printing and

stationery

Building

Bills receivables

Rate and insurance

70,000

5,980

11,200

21,100

8,799

1,990

15,500

30,000

15,000

2,900

Sales

Office expenses

Sundry debtors

Sundry creditors

Cash at Bank

Rent (Cr.)

198,000

6,214

15,857

15,210

15,200

6,530

Prepare profit and loss account and Balance sheet keeping in regards the following adjustment:

a. Write off further bad debts with Rs. 780.

b. Rent receivables of Rs. 650.

c. Unexpired insurance Rs. 390.

Ans: Trading Profit and loss A/c

Expense/profit

Amount

Profit/gain

Amount

Opening stock

Purchase

Wages

Gross profit c/d

Salaries

Office expenses

Postage

Printing and

stationery

Rate and insurance

2,900 Less: unexpired insurance 390 Bad debts 1,990 Add: Further bad debts 780 Net profit

11,200

70,000

5,980

1,10,820

1,98,000

21,100

6,214

8,799

15,500

2,510

2,770

61,107

Sales

Gross profit b/d

Rent 6,530

Add: Accrued

rent 650

198,000

1,98,000

1,10,820

7,180

1,18,000

Balance sheet as of March 31

Liabilities

Amount

Assets

Amount

Sundry creditors Add: Net profit

15,210

61,107

Cash at bank Bills receivables Building Sundry debtors
15,857 Less: Bad debts 780 Accrued rent Unexpired insurance

15,200

15,000

30,000

15,077

650

390

76,317

5. Define following terms with adjustment entries :

Ans: Following terms are defined with their adjustment entries:

A. Provisions for bad and doubtful debts.

Provision for bad and doubtful debts occurs when there is a possible reason for debtors who are doubtful that they will not pay the debts on time.

Particular	Amount
Profit and loss A/c Dr	-
To provision for doubtful debts A/c	-

B. Depreciation:

Depreciation means the value of an asset is declined due to its usage in the passage of time +9*or wear and tear. It is usually treated as business expenses and is debited in profit and loss account.

Particular

Amount

Depreciation A/c Dr.

To Concerned Asset A/c

C. Accrued income: The items of income that are earned during the accounting year but actually it is not received at the end of the same year.

Particular

Amount

Accrued income A/c Dr.

To Concerned Income A/c

D. Prepaid expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular

Amount

Prepaid expenses A/c Dr.

To Concerned Expenses A/c

E. Outstanding expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular

Amount

Expenses A/c (Required) Dr.

To Outstanding expenses A/c

Related Study Materials for Class 11 Accountancy Chapter 9 Financial Statements- II

S. No	Study Materials for Class 11 Accountancy Chapter 9 Financial Statements- II
1.	CBSE Class 11 Accountancy Chapter 9 Financial Statements- II Solutions
2.	CBSE Class 11 Accountancy Chapter 9 Financial Statements- II 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 8 - Financial Statements- 1 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 Revision Notes
4.	CBSE Class 11 Accountancy Sample Papers
5.	CBSE Class 11 Accountancy Syllabus

FAQs on Important Questions for CBSE Class 11 Accountancy Chapter 9 - Financial Statements 2

1. What types of questions on adjustments are most frequently asked in the Class 11 Accountancy exam for Financial Statements-II?

For the CBSE 2025-26 exam, questions from this chapter typically fall into these categories:

Comprehensive 5 or 8-mark numerical questions requiring the preparation of a Trading and Profit & Loss Account and a Balance Sheet with 4-6 adjustments.
Short 3-mark questions asking for the adjustment entry and final accounts treatment of specific items like depreciation or provision for doubtful debts.
Theory questions (1-3 marks) explaining the meaning and need for adjustments like closing stock, outstanding expenses, or accrued income.
HOTS questions involving calculations like manager's commission on net profit after charging such commission.

2. Why is it crucial to make adjustments for items like outstanding expenses and prepaid expenses before preparing the final accounts?

Adjustments are crucial to comply with the accrual basis of accounting and the matching principle. According to these principles, all expenses and incomes related to the current accounting period must be recorded, irrespective of whether cash has been paid or received. Not making these adjustments would lead to an incorrect calculation of profit or loss and would not present a true and fair view of the business's financial position.

3. How is 'Closing Stock' treated in the financial statements, and what is the required adjustment entry?

Closing stock represents the value of unsold goods at the end of the accounting period. It has a dual effect in the final accounts:

It is shown on the credit side of the Trading Account to calculate the gross profit or gross loss correctly.
It is shown on the asset side of the Balance Sheet as a current asset.

The adjustment journal entry passed is: Closing Stock A/c Dr. To Trading A/c.

4. What is the difference in accounting treatment between 'accrued income' and 'income received in advance' in the Balance Sheet?

The key difference lies in their nature and placement in the Balance Sheet:

Accrued Income is income that has been earned during the accounting period but not yet received. It is an asset for the business and is shown as a Current Asset on the asset side of the Balance Sheet.
Income Received in Advance (or Unearned Income) is income that has been received but not yet earned. It represents a liability for the business and is shown as a Current Liability on the liability side of the Balance Sheet.

5. Why is a 'Provision for Doubtful Debts' created, and how does it impact the final accounts in a typical 3-mark question?

A Provision for Doubtful Debts is created based on the principle of prudence (or conservatism), which advises anticipating all possible losses but not potential profits. This provision sets aside an estimated amount for potential losses from debtors who may not pay their dues. Its treatment is as follows:

It is debited to the Profit & Loss Account as an anticipated business loss.
It is shown as a deduction from Sundry Debtors on the asset side of the Balance Sheet.

6. How should depreciation be adjusted in the final accounts, and what is its dual effect?

Depreciation is the decrease in the value of a fixed asset due to wear and tear or obsolescence. As a non-cash expense, it must be adjusted in the final accounts. Its dual effect is:

It is debited to the Profit & Loss Account as a business expense.
It is deducted from the value of the concerned Fixed Asset on the asset side of the Balance Sheet.

This ensures the asset is shown at its correct value and the profit is not overstated.

7. What are the common mistakes students should avoid when solving 5-mark numerical problems on Financial Statements with Adjustments?

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

Forgetting the dual effect: Every adjustment impacts two places (e.g., Trading/P&L Account and the Balance Sheet). A common error is posting it only once.
Calculation errors: Mistakes in calculating depreciation, provisions, or manager's commission are frequent.
Misplacing items: Incorrectly placing an item in the Trading Account instead of the Profit & Loss Account (e.g., wages vs. salaries).
Ignoring hidden adjustments: Overlooking adjustments given within the Trial Balance, such as '10% loan' which implies interest needs to be calculated.

8. How is the manager's commission calculated when it's based on 'net profit before' versus 'net profit after' charging such commission?

This is a frequent point of confusion in exam questions. The calculation differs as follows:

Commission on net profit before charging: This is a straightforward calculation. The formula is:
Commission = (Net Profit before commission) × (Rate / 100)
Commission on net profit after charging: Here, the commission is part of the total expense. The formula is adjusted to:
Commission = (Net Profit before commission) × (Rate / (100 + Rate))

Carefully reading the question is key to applying the correct formula.

9. Besides the usual adjustments, what are some challenging adjustments like interest on capital that could appear in exam questions?

Some higher-order thinking (HOTS) adjustments that can appear in exams include:

Interest on Capital: Treated as an expense (debited to P&L A/c) and added to the Capital on the liability side of the Balance Sheet.
Interest on Drawings: Treated as an income (credited to P&L A/c) and deducted from the Capital on the liability side of the Balance Sheet.
Goods taken for personal use: Deducted from Purchases in the Trading Account and also deducted from Capital in the Balance Sheet.