SSC Finance and Economics Notes: Complete Study Material for CGL Tier 2 (AAO)
Finance and Economics is a specialised paper of the SSC CGL examination. It is a part of Tier 2 and is meant for the candidates who are applying for the posts of Assistant Audit Officer (AAO) and Assistant Accounts Officer in the central government. The paper is officially called General Studies (Finance and Economics). It checks how well a candidate understands accounting, economics and the working of public finance in India.
Many students think that this paper is only for commerce graduates. In reality, the questions are based on basic ideas, and a student from any stream can score well with a regular study of the concepts and a good number of numerical practice questions. These SSC Finance and Economics notes explain the syllabus chapter by chapter in simple language, with the important definitions, formulas and facts.
What You Get in These Finance and Economics Notes
- A clear map of the two parts of the paper: Finance and Accounts, and Economics and Governance.
- Short explanations of accounting terms, the golden rules of accounting and the format of the main financial statements.
- The important economic concepts with examples from the Indian economy.
- The topics of public finance such as the budget, the types of deficit, taxes and GST, and the bodies like the Finance Commission and the CAG.
- A preparation plan and the links to related subjects such as Indian Economy and Statistics.
Exam Pattern and Syllabus Overview
| Point | Detail |
|---|---|
| Exam and tier | SSC CGL Tier 2 |
| Paper | Paper III: General Studies (Finance and Economics) |
| Posts | Assistant Audit Officer and Assistant Accounts Officer |
| Mode | Computer-based test with objective questions |
| Usual size | About 100 questions of 2 marks each (200 marks) in 2 hours, with negative marking |
| Parts | Part A: Finance and Accounts; Part B: Economics and Governance |
The number of questions and the marking scheme may change with a new notification, so check the latest official SSC notice.
Part A: Finance and Accounts
Basic Concepts of Accounting
- Accounting is the process of recording, classifying, summarising and interpreting the financial transactions of a business.
- The accounting equation is Assets = Liabilities + Capital (owner's equity).
- Assets are the things that the business owns (cash, building, stock); liabilities are what it owes to outsiders; capital is the money invested by the owner.
- Revenue is the income from the business; expenses are the costs of running it; drawings are the money taken by the owner for personal use.
- Important principles and concepts: business entity, going concern, accounting period, money measurement, cost concept, dual aspect, matching, accrual, conservatism, consistency and materiality.
- The double entry system records every transaction in two accounts: one is debited and the other is credited with the same amount.
Golden Rules of Accounting
| Type of account | Rule |
|---|---|
| Personal account | Debit the receiver, credit the giver |
| Real account | Debit what comes in, credit what goes out |
| Nominal account | Debit all expenses and losses, credit all incomes and gains |
Books and Statements
- Journal is the book of original entry, in which the transactions are recorded date-wise. Ledger is the book of final entry, in which the transactions are grouped account-wise.
- Subsidiary books: cash book, purchase book, sales book and the returns books.
- Trial balance is a list of all ledger balances to check that the total debits equal the total credits.
- Final accounts include the trading account (gross profit or loss), the profit and loss account (net profit or loss) and the balance sheet (the financial position on a date).
- Gross profit = Net sales - Cost of goods sold. Net profit = Gross profit + other incomes - indirect expenses.
- Depreciation is the fall in the value of a fixed asset. In the straight line method, depreciation each year = (Cost - Scrap value) / Life of the asset.
- Bank reconciliation statement explains the difference between the cash book balance and the pass book balance.
- Bills of exchange, promissory notes, partnership accounts and company accounts (shares and debentures) are also in the syllabus.
Financial Statement Analysis and Costing
- Ratio analysis: the current ratio = current assets / current liabilities (the ideal is about 2:1); the quick ratio = (current assets - stock) / current liabilities (about 1:1); the debt-equity ratio = debt / equity; the gross profit ratio = gross profit / sales x 100.
- Cash flow statement shows the inflow and outflow of cash from operating, investing and financing activities.
- Cost accounting records and controls the cost of production. The main terms are fixed cost, variable cost, marginal cost and break-even point (the sales at which there is no profit and no loss).
- Budgeting and standard costing compare the planned figures with the actual ones.
- Auditing is the independent examination of the accounts to check that they give a true and fair view.
Part B: Economics
Micro Economics
- Demand is the quantity that consumers are ready to buy at a price. The law of demand says that when the price rises, the demand falls, other things remaining the same.
- Supply rises when the price rises. The market price is fixed where demand equals supply (equilibrium).
- Elasticity of demand = percentage change in quantity demanded / percentage change in price.
- Utility is the satisfaction from a good; the law of diminishing marginal utility says that each extra unit gives less satisfaction.
- Market forms: perfect competition, monopoly, monopolistic competition and oligopoly.
- Costs and revenue: total cost, average cost, marginal cost and the break-even analysis.
Macro Economics
- GDP is the market value of all the final goods and services produced in a country in a year. GNP = GDP + net factor income from abroad. NNP = GNP - depreciation.
- Inflation is a continuous rise in the general price level. It is measured by the CPI and the WPI.
- Money performs the functions of a medium of exchange, a unit of account, a store of value and a standard of deferred payment.
- Banking: the RBI is the central bank (set up in 1935). Its tools are the repo rate, reverse repo rate, CRR, SLR and open market operations.
- Economic growth and development: the Human Development Index (HDI), poverty, unemployment and inclusive growth.
- International trade: balance of trade, balance of payments, exchange rates, the IMF, the World Bank and the WTO.
Read the existing notes on national income and economic planning in India to build the base for this part.
Governance and Public Finance
- The Union Budget is the annual financial statement of the government under Article 112 of the Constitution. It has the receipts (revenue and capital) and the expenditure.
- Fiscal deficit = total expenditure - total receipts excluding borrowings. Revenue deficit = revenue expenditure - revenue receipts. Primary deficit = fiscal deficit - interest payments.
- Taxes: direct taxes (income tax, corporate tax) and indirect taxes (GST, customs duty). GST was introduced on 1 July 2017.
- The Finance Commission (Article 280) recommends how the tax revenue is shared between the Centre and the states and is set up every five years.
- The Comptroller and Auditor General of India (CAG) (Article 148) audits the accounts of the Union and the states and submits the reports to the President and the Governors.
- The Public Accounts Committee of the Parliament examines the CAG reports.
- Consolidated Fund, Contingency Fund and Public Account are the three funds of the government.
- FRBM Act, 2003 aims to bring fiscal discipline by limiting the deficits.
How to Prepare SSC Finance and Economics
- Start with the accounting basics and solve the journal, ledger and trial balance questions until you can do them quickly.
- Practise the final accounts and ratio questions, because they are the most numerical part.
- Read the economic concepts with examples, and make short notes of the definitions and the formulas.
- Follow the Union Budget, the Economic Survey and the RBI policy news every year.
- Learn the articles and the bodies of governance in a table and revise them every week.
- Solve the previous year questions and attempt full mock tests in the last month.
Tips for the Exam
- In accounting questions, write the entry in your mind first: which account is debited and which is credited.
- Keep the formulas of ratios and deficits on one revision sheet.
- Do not leave the theory questions unanswered; eliminate the wrong options and choose the best one.
Practice and Next Steps
Test your understanding with the SSC practice papers and the previous year papers, and take the free SSC quizzes. Revise the basic maths with the Quantitative Aptitude notes, especially percentage, simple interest and compound interest.
Explore Other SSC Subjects
SSC exams test many subjects, so a good study plan connects them. Move to the next subject once you finish this one:
- Quantitative Aptitude Notes: Maths formulas, tricks and solved examples
- Reasoning Notes: Verbal and non-verbal reasoning topics
- English Notes: Grammar, vocabulary and comprehension
- General Awareness Notes: History, polity, geography, economy and static GK
- Computer Knowledge Notes: Computer basics, MS Office, internet and security
- General Science Notes: Physics, chemistry and biology for SSC
- Statistics Notes: Statistics for CGL Tier 2 (JSO)
- General Hindi Notes: Hindi grammar and vocabulary
- Current Affairs Notes: Latest national and international events
- Indian History Notes: Ancient, medieval and modern India
- Indian Geography Notes: Physical, economic and world geography
- Indian Polity Notes: Constitution, parliament and governance
- Indian Economy Notes: Economy, budget, banking and schemes
- Civil Engineering (SSC JE) Notes: Civil engineering topics for SSC JE
- Mechanical Engineering (SSC JE) Notes: Mechanical engineering topics for SSC JE
- Electrical Engineering (SSC JE) Notes: Electrical engineering topics for SSC JE
- Stenography Notes: Shorthand, typing and transcription for Stenographer
You can also practise with the SSC practice papers, solve the previous year papers and attempt the free SSC quizzes.
Frequently Asked Questions About SSC Finance and Economics Notes
Which SSC exam has the Finance and Economics paper?
Finance and Economics (General Studies) is Paper III of SSC CGL Tier 2, for the posts of Assistant Audit Officer and Assistant Accounts Officer.
Is it necessary to be a commerce student for this paper?
No. A student from any stream can prepare it, because the questions are based on basic accounting and economics concepts.
What are the two parts of the Finance and Economics paper?
The two parts are Finance and Accounts, and Economics and Governance.
What is the accounting equation?
The accounting equation is Assets = Liabilities + Capital.
What is the difference between a journal and a ledger?
The journal is the book of original entry in which the transactions are recorded date-wise, while the ledger groups the transactions account-wise.
What is fiscal deficit?
Fiscal deficit is the total expenditure of the government minus its total receipts excluding borrowings. It shows the amount that the government has to borrow.
Which Article provides for the Finance Commission and the CAG?
The Finance Commission is provided in Article 280 and the Comptroller and Auditor General in Article 148 of the Constitution.
How should I prepare Finance and Economics for SSC?
Practise accounting entries and ratios daily, learn the economic concepts with examples, follow the budget and the economy news and solve previous year papers.
What is the difference between GDP and GNP?
GDP is the value of all goods and services produced inside a country. GNP is GDP plus the income earned by the citizens of the country from abroad, minus the income earned by foreigners inside the country.
What is inflation and how is it measured in India?
Inflation is a continuous rise in the general price level. In India it is mainly measured by the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).
Which Economics topics are asked most in SSC?
National income, money and banking, inflation, the budget, public finance, international trade and Indian economic planning are important topics. Prepare them with the Indian Economy notes too.
How many hours should I study Finance and Economics daily?
Give about 2 hours daily. Spend one hour on accounting and finance numericals and one hour on economics concepts and revision.