Bookkeeping

 

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Bookkeeping

 

Introduction

 

Bookkeeping is related with recording of business transactions. Business enterprise and other organizations deal in activities which involve exchange of money or money’s worth. All these activities are recorded for the purpose of taking important decisions as to whether the activities are feasible, profitable and are to be continued or not. Information about the business and other organizations is required not only by the proprietors and managers of business and other organisations but also to various other stakeholders such as the government, investors, customers, employees and researchers.

 

Bookkeeping is the process of keeping track of every financial transaction made by a business firm from the opening of the firm to the closing of the firm. Depending on the type of accounting system used by the business, each financial transaction is recorded based on supporting documentation. That documentation may be a receipt, an invoice, a purchase order, or some similar type of financial record showing that the transaction took place.

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Meaning and Definition

 

In simple words, the ‘Bookkeeping’ means recording of the business transactions in the books of accounts in a systematic way. All the monetary transactions are recorded datewise for accurate business results from such records at the end of accounting year.

 

Definition of BookKeeping

 

Richard E. Strahelm: “The art of analyzing and recording business transactions, reporting results of business operations through periodic statements and interpreting such results for purposes of effective control of future operations.”

 

J. R. Batliboi: “Bookkeeping is an art of recording business dealings in a set of books.”

 

Nocth Cott: “Bookkeeping is an art of recording in the books of accounts the monetary aspects of commercial or financial transactions.”

 

Features of Bookkeeping

It is the method of recording day to day business transactions.

Only financial transactions are recorded.

All records are prepared for a specific period which are useful for future references.

Records of transactions are based on rules and regulations.

It is an art of recording business transactions scientifically.

Objectives of Bookkeeping

The main objective of bookkeeping is to keep a complete and accurate record of all the financial transactions in a systematic, orderly and logical manner.

All the business transactions are to be recorded date wise and account wise

Bookkeeping serves as a permanent record of the monetary transactions of an enterprise business and it can be produced as an evidence, whenever and wherever required.

To know the profit or loss of the business during the financial year.

To know the total assets and liabilities of the enterprise.

To know what the businessman owes to others and what others owe to him.

Businessman comes to know the current year’s progress over previous year and compares its financial results with other business enterprise in similar line.

Importance of Bookkeeping

The importance of Bookkeeping is as follows:

 

Record: It is not possible for anyone to remember all transactions. But Bookkeeping maintains records of all the transactions permanently and systematically in the books of accounts.

 

Financial Information: Bookkeeping is useful to get information related to Profit, Loss, Assets, Liabilities, Investments and Stock, etc, at any given time.

 

Decision Making: Bookkeeping provides financial information to the businessman for decision making.

 

Controlling: Bookkeeping enables the executives of the business to control the activities of the business.

 

Evidence: Businessman needs financial evidence to be produced in the Court of law in case of any disputes.

 

Tax Liability: Bookkeeping is useful to find out the tax liabilities e.g. : Income Tax, Property Tax, GST, etc.

 

Utility of Bookkeeping

 

Owner: The businessman can find out Profit, Losses, Assets and Liabilities of an enterprise at any time.

 

Management: Management of an enterprise can plan, take decisions and control overall business activities.

 

Investors: Investors can take proper decisions whether to invest or not.

 

Customer: Customer can easily understand financial position of the business. He can be assured about supply of goods.

 

Government: Government can easily find out different types of taxes due from various sources.

 

Lenders: Money Lenders can find financial standing of the enterprise for decision to lend money or not.

 

Development: Business enterprise can achieve the business growth with the help of accounting.

 

 

Difference between BookKeeping and Accountancy

 

Meaning

 

Bookkeeping is concerned with recording and classifying the business transactions.

 

Accounting is related with recording, classifying, summarising, analyzing and interpreting the financial data.

 

Stage

 

Bookkeeping is the primary stage in accounting.

 

Accounting is the base for accounting Apart from the primary stage; it includes secondary stage of analysis and interpretation.

 

Objectives

 

The objective of BookKeeping is to keep the records of all financial transactions in proper and systematic manner.

 

The objective of accounting is to prepare the financial statement and further communicate the information to the relevant authorities.

 

Responsibility

 

Junior staff is responsible for keeping records.

 

Senior staff is responsible for keeping accounts.

 

Outcomes

 

Bookkeeping basically results in Journal and Ledger.

 

The results of Accountancy are Profit and Loss A/c and Balance sheet.

 

Period

 

Bookkeeping gives day to day details.

 

Accountancy gives details of entire year.

 

Analysis

 

The process of BookKeeping does not require any analysis

 

Accountant uses BookKeeping information to analyse and interpret the data and then compiles it into reports.

 

Decision Making

 

Management cannot take a decision based on the data provided by bookkeeping.

 

Depending on the data provided by the accountants, the management can take

Critical business decisions.

 

Skill required

 

Analytical skill is not required for bookkeeping.

 

Accounting requires analytical skill.

How Does Bookkeeping Differ From Accounting

Bookkeeping in a business firm is an important, but preliminary, function to the actual accounting fuction. A bookkeeper collects the documentation for each financial transaction, records the transactions in the accounting journal, classifies each transaction as one or more debits and one or more credits, and organizes the transactions according to the firm's chart of account.

The financial transactions are all recorded, but they have to be summarized at the end of specific time periods. Some firms require quarterly reports. Other smaller firms may require reports only at the end of the year in preparation for doing taxes.

At the end of the appropriate time period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm. The year-end reports prepared by the accountant have to adhere to the standards established by the Financial Accounting Standards Board (FASB). These rules are called Generally Accepted Accounting Principles (GAAP).