Introduction To Financial Accounting | JKSSB Finance Account Assistant Exam

The J&K Services Selection Board invites online applications from eligible candidates for participating in the selection process for Finance Account Assistant to be recruited in District / Divisional / UT Cadre. Now with the release of notification, it’s time for preparations. To help you with your preparations we have brought you an article on Introduction To financial accounting for JK Finance  Account Assistant Exam.

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1. Introduction To Financial Accounting For JK Finance Account Assistant Exam

1.1 Meaning & Scope of Accounting

Financial accounting (or financial accountancy) is the field of accounting concerned with the summary, analysis, and reporting of financial transactions related to business. This involves the preparation of financial statements available for public use.

Everyone performs some economic activity i.e there are some receipts and there are some payments. Receipts are the income that one earns on a periodical/ daily basis. Expenditure is the expenses that one incurs on a daily basis. The net amount after adjusting the income & Expenses is called surplus or deficit. Economic activity is performed through a transaction or series of transactions or events. Such activity performed is recorded. Accounting measures economic activity through various means & methods which are useful in the decision-making process.

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1.2 Detailed Accounting Definition

Hence from the above, we can conclude that Accounting involves:

a) Systematic Reading of Transactions.
b) Ascertainment of the results of the above-recorded transactions.
c) Ascertainment of the financial position of the business and
d) Providing informant to the users for rational decision making.

1.3 Functions of Accounting

• Measurement of past information to depict its current position.
• Forecasting of future performance & financial position.
• Decision making.
• Comparison and evaluation.
• Control.

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1.4 Types/ Fields of Accounting

1.5 Accounting Concepts

Basic Concepts

1. Entity Concept
2. Money Measurement Concept

Valuation Criteria

1. Going Concern Concept
2. Cost Concept
3. Realization Concept

Time-Related Concepts

1. Periodicity concept
2. Accrual Concept.

Core Concepts

1. Matching Concept
2. Dual Aspect Concept

Other Concepts

1. Conservatism Concept
2. Consistency
3. Materiality

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1.6 Accounting Terms

To understand the subject, it is important to know the meaning of some basic accounting terms, which are briefly explained below:

Transactions

Transactions are those activities of the business, which involve the transfer of money or goods or services between two persons or two accounts. Transactions are of two types:

a) Cash Transaction is one where cash receipt or payment is involved in the transaction.
b) Credit Transaction is one where cash is not involved immediately but will be paid or received later.

Proprietor

A person who owns a business is called its proprietor. He contributes capital to the business with the intention of earning profit.

Capital

It is the amount invested by the proprietor in the business. This amount is increased by the amount of profits earned and the amount of additional capital introduced. It is decreased by the amount of losses incurred and the amounts withdrawn.

An asset is a source with the economic value that a business owns or controls with the expectation that it will provide a future benefit.

Liabilities

A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

Drawings

It is the amount of cash or value of goods withdrawn from the business by the proprietor for his personal use. It is deducted from the capital.

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Debtors

A person (individual/ firm) who receives a benefit without giving money or money is worth immediately, but liable to pay in the future in due course of time is a debtor.   The debtors are shown as an asset in the balance sheet.

Creditors

A person who gives a benefit without receiving money or money is worth it immediately but to claim in the future, is a creditor.

Purchases

Purchases refer to the amount of goods bought by a business for resale or for use in production. Goods purchased for cash are called cash purchases. If it is purchased on credit, it is called credit purchases. Total purchases include both cash and credit purchases.

Purchases Return or Return Onwards

When goods are returned to the suppliers due to defective quality or not as per the terms of purchase, it is called a purchase return.

 

1.7 Capital & Revenue Expenditure

As discussed that the Accounting involves recording, classifying, and summarizing and interpreting the results thereof. Hence to record the transactions one must know whether the transaction is of revenue or capital in nature.

Revenue Expenditure

Revenue Expenditure refers to those expenditures which are incurred during normal business operation by the business.

Benefits of which will be received in the same accounting period. For example, rent, utility, expenses, salary, insurance, commission, manufacturing expenses, etc.

Capital Expenditure

Capital expenditure generates enduring benefits and helps in revenue generation over more than one accounting period.

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1.7.1 How To Identify whether revenue or capital expenditure?

1. Nature of business.
2. Recurring Nature.
3. Purpose of Expense.
4. Revenue generating capacity.

1.8 Capital Receipts & Revenue Receipts

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