Kerala Financial Corporation Assistant Expected Questions Accounting Basics Notes
Kerala Financial Corporation Assistant exam is conducted by Kerala PSC on 19 October 2019.Some Expected Questions on Accountancy are given below:
You can get the MCQ Questions set 1 HERE
What is Organization?
Why we need Accounting? Who are the users of Accounting?
What is Organization?
Why we need Accounting? Who are the users of Accounting?
What is Accounting?
Accounting can be defined as the process of identifying, measuring, recording and communicating the required information relating to the economic events of an organization to the interested users of such information.
In order to appreciate the exact nature of accounting, we must
understand the following relevant aspects of the definition:
• Economic Events
• Identification, Measurement, Recording, and Communication
• Organization
• Interested Users of Information
What is an Economic Event; External Event and Internal Events?
Economic Events
Business organizations involve economic events.
An economic event is known as a happening of consequence to a business organization that consists of transactions and which are measurable in monetary terms.
For example, the purchase of machinery, installing and keeping it ready for manufacturing is an event that comprises a number of financial transactions such as buying a machine, transportation of machine, site preparation for installation of a machine, expenditure incurred on its installation and trial runs.
Thus, accounting identifies a bunch of transactions relating to an economic event.
If an event involves transactions between an outsider and an organization, these are known as external events.
The following are examples of such transactions:
• Sale of Reebok shoes to the customers.
• Rendering services to the customers by Videocon Limited.
• Purchase of materials from suppliers.
• Payment of monthly rent to the landlord.
Internal event
An internal event is an economic event that occurs entirely between the internal wings of an enterprise.
e.g., the supply of raw material or components by the store department to the manufacturing department, payment of wages to the employees, etc.
Identification, Measurement, Recording and Communication
Identification :
It means determining what transactions to record, i.e., to identity
events which are to be recorded.
It involves observing activities and selecting those events that are of a considered financial character and relate to the organization.
The business transactions and other economic events, therefore, are evaluated for deciding whether it has to be recorded in books of account.
For example, the value of human resources, changes in managerial policies or appointment of personnel are important but none of these are recorded in books of account.
However, when a company makes a sale or purchase, whether on cash or credit or pays salary it is recorded in the books of account.
Measurement :
It means quantification (including estimates) of business transactions into financial terms by using monetary unit, viz. rupees and paise as a measuring unit.
If an event cannot be quantified in monetary terms, it is not considered for recording in financial accounts.
That is why important items like the appointment of a new managing director, signing of contracts or changes in personnel are not shown in the books of accounts.
Recording :
Once the economic events are identified and measured in financial
terms, these are recorded in books of account in monetary terms and in chronological order.
The recording is done in a manner that the necessary financial information is summarised as per well-established practice and is made available as and when required.
Communication :
The economic events are identified, measured and recorded in order that the pertinent information is generated and communicated in a certain form to management and other internal and external users.
The information is regularly communicated through accounting reports. These reports provide information that is useful to a variety of users who have an interest in assessing the financial performance and the position of an enterprise, planning and controlling business activities and making necessary decisions from time to time.
The accounting information system should be designed in such a way that the right information is communicated to the right person at the right time.
Reports can be daily, weekly, monthly, or quarterly, depending upon the needs of the users.
An important element in the communication process is the accountant’s ability and efficiency in presenting the relevant information.
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