Dear students, SSC CGL Tier-2 will be conducted in the month of November (10,11) 2017 tentatively. SSC Adda and Adda247 has started CGL Tier-2 campaign for all the CGL Aspirants. There are total four papers in CGL tier-II Exam. Paper-1 (Quantitative Abilities) and Paper-2 (English Language and Comprehension) are compulsory for all candidates, but Paper-3 (Statistics), Paper-4 (General Studies Finance & Economics) are optional. Paper IV is only for those candidates who apply for the post of Assistant Audit Officer (AAO). We will provide Finance & Economics study notes and quizzes on all important topics. These study notes will prepare you completely for the CGL Tier-2 Exam.
Assistant Audit Officer (AAO) in CAG through SSC CGL Exam is one of the most sought after posts advertised from 2016 onward. This is the only gazetted post so it is in demand very much. Since this is a gazetted post, it requires some specialized knowledge and skill of Accounts & Finance. So, Paper 4 General Studies (Finance and Economics) has been added to test the important knowledge required for the job. Here are a few tips which one can follow- We will provide material at SSC ADDA, apart from these notes, NCERT books for Accountancy and Economics will be very beneficial. For Accountancy, follow Class 11th NCERT book for the subject. It has covered 90–95 % of the syllabus of accounts part. For Microeconomics, one can refer class 12th NCERT book on the subject where all the concepts have been explained in a lucid manner.Today in this post, we will be discussing Accounting (Part-1) of Paper-4 of CGL Tier-2 2017.
WHAT IS ACCOUNTING (Part-1)?
In accounting literature, the two terms, namely: Accounting and Financial Accounting are used interchangeably. But accounting is a tree while financial accounting is one of its branches. All accounting work, in the beginning, was in the nature of financial accounting which was used to record business transactions for a certain period usually called accounting period. Then, these transactions were classified and summarized in the form of profit and loss account to calculate or find out profit or loss for the accounting period which is generally of one year. Financial Accounting also helps to know the financial position of the business enterprise as on the last date of the accounting period in the form of assets possessed or owned by it (the enterprise) and the liabilities owed to others. The statement showing the Financial Position is technically called the Balance Sheet.
NATURE AND SCOPE OF ACCOUNTING
In the present context, the term ‘nature’ means quality or feature of a subject. And the term ‘scope’ means the things that a particular subject covers or deals with. Thus the nature and scope of accounting simply mean the essential features of accounting and what the accounting covers or deals with.
Essential Features of Accounting: From the above definitions, it is clear that accounting or financial accounting has many essential features which are briefly stated below:
(i) Identifying: It means selecting transactions and events of a specific organisation. In other words, identifying means determining or deciding the business transactions to be recorded in the books of account.
(ii) Measuring: It means expressing the value of business transactions in terms of money. Such transactions are known as financial transactions e.g., the sale of cars by Maruti Suzuki Ltd. or providing of telephone services by Airtel or payment of wages or salaries by Wipro Ltd or collection of money for advertisement by Star TV. channel etc. are examples of financial transactions. On the other hand, the transactions that cannot be measured or expressed in terms of money like the strike by the employees, the efficiency of a sales person or recruitment policy of the management cannot be recorded in the books of account.
(iii) Recording: Once the financial transactions and events are identified that is, recognized, and measured in terms of money, the same are recorded in the books of account. The recording is done on the basis of such documents as purchases and sales bills, (or invoices), bank pass book or bank statements, salary slips and so on.
(iv) Classifying: After the transactions have been properly recorded in general journal or subsidiary books (or journals), these are properly classified. Classification refers to the grouping of transactions (or entries) of the same type (or of like nature) at one place into appropriate headings (called account titles) or in separate accounts. For example, expenses may be grouped into separate accounts such as salaries account, rent account, stationery account etc.
(v) Summarising: Summarising means to bring together a number of classified accounts into one single account. For example, the accounts of various customers are grouped under a single account title as “Debtors’ Account” and similarly the accounts of suppliers are grouped under a single account title as “Creditors’ Account”. All the incomes accounts and expenses accounts are recorded in the profit and loss account to get one figure of either net profit or net loss. Summarising thus involves the presentation of the information found in the ledger accounts in the form of profit and loss account and balance sheet at the end of the accounting period.
(vi) Significant: Accounting information is said to be presented in a significant manner only if the accounting records are useful for making decisions or for judging the performance of some firm or person.
(vii) Interpretation: In fact, interpretation is the main function of the accountants. It means that accountants must be able to explain not only what happened in the past but also why it happened and most important what is likely to happen in future on the basis of certain conditions. Interpretation requires analysis of information available in the financial statements, namely: profit and loss account and the balance sheet.
(viii) Communicating: It simply means communicating the results of the interpretation of financial statements to the ultimate or end-users of the accounting information for making decisions in respect of investments in various enterprises, the supply of goods on credit by sellers or grant of loans to business firms especially by the bankers and so on.
ACCOUNTING AS AN INFORMATION SYSTEM
As noted above, communicating is one of the important features of accounting. It has made accounting as an information system.
Accounting is often referred to as the language of business. The primary aim or purpose of a language is to serve as a means of communication. Accounting is used to communicate financial and other information to people, organisations, Governments etc., about various aspects of business and non-business enterprises. Accounting information is used when Mr A applies for a loan at a bank or when A submits his income-tax returns.
REAL NATURE OF ACCOUNTING
In the foregoing pages, nature of accounting has been explained with the help of traditional definition of accounting along with the recent definitions. While accounting is many things to many people, the real nature of accounting is essentially described as :
(i) An intellectual discipline
(ii) A profession
(iii) A social force
(iv) A tool of social welfare
(v) An aid or help to resource management
Let us explain these points briefly as follows:
(i) An intellectual discipline: The commonly recognised intellectual disciplines are physics, chemistry, mathematics, economics, engineering, electronics, biology, space research, political science and so on. These are concerned with measurements and communication of information. We have noted that accounting information is also based on measurements, (e.g., determination of income and financial position) and it is also an information system. Thus the boundaries of accounting merge readily with the boundaries of economics, engineering, statistics and other physical sciences. When accounting is related to and combined with other disciplines or subjects, it tends to become an intellectual discipline because it becomes more useful than when it stands alone.
(ii) A profession: The development of accounting as a profession is relatively new. The introduction of joint stock company form of business organisation as a result of industrial revolution created the need for an independent audit to ensure that the financial records prepared by the management were reliable.
If fact this audit function is also known as ‘attest function’ was mainly responsible for the development of accounting as a profession. Other functions are management consultancy, cost consultancy and tax services. So we have professional accountants in the form of chartered accountants, cost and works accountants, financial analysts, tax consultants etc., to make accounting as a profession.
(iii) A social force: The expansion of large scale modern business has been possible only with the help of adequate financial information system. The separation of ownership and management in joint stock company form of business organization is possible only if the reliable financial information is supplied to owners from time to time. In fact, accounting facilitates ownership by remote control. Accounting information is also useful in the price determination of products, regulation of stock markets, fixation of rates in public utilities like railways etc.
(iv) A tool of social welfare: The social welfare concept of accounting is related to the effect of financial information on all individuals making the society. Accounting information is used by various groups of individuals like investors, creditors, trade unions, government etc. It must be ensured that various users of accounting information are not treated differently in the supply of financial information.
(v) Aid in resources management: The accounting is generally related to commercial or profit making activities. However, we find in practice that individuals or persons, both in private business and in public sector enterprises engage in transactions, which may be recorded, classified and summarized and yet may have no profit motive. The accountant may serve any social unit large or small; private or public; profit making or not. He serves it by recording the resources at its disposal, who owns these resources, any change that occurs in a number of resources from time to time. Thus accountancy provides an important aid in resource management.