PRINCIPLES OF BOOK KEEPING.

Kompal BhandariShreya Ingle

Apurva ShrimalMBA 1st sem

Section C

Book Keeping

• Book keeping is combination of two wordsi.e.,book+keeping which means maintaining the books of accounts in a proper and systematic way.

Definitions • “Bookkeeping is an art of recording in books of

accounts the moetary aspects of financial transactions.”

-North Cort

In brief ,bookkeeping is an art and science of correctly recording the transactions of an organization in a systematic manner.

Bookkeeping enables the following information • Exact profitability of the business• The amount of capital employed in the business• Amount of debtors and creditors• Total assets and liabilities

Characteristics and Nature of Bookkeeping

• Bookkeeping is a science as well as a art.• It records business transactions.• Such records are quite systematic.• The transactions which are recorded,relate to

transaction of money or maney’s worth.• The monetary effect of the transactions is

shown in the record of bookkeeping.

Process of Bookkeeping• Step 1- IDENTIFYING TRANSACTIONS All business transactions which are financial in nature

and have documentary proof,are accounting transactions

• Step 2- RECORDING OF ACCOUNTING TRANSACTIONS The identified accountingtransactions are passed

through susidiary books• Step 3-PREPARATION OF LEDGER ACCOUNTS All

the transactions relating to a particular person, party or item are put together at

one place under one head,which is known as its ledger account.

• Step 4- BALANCING OF ACCOUNTS Ledger accounts are balanced i.e.,the difference

between the debit and credit side of the ledger accounts are ascertained.

• Step 5-PREPARATION OF TRIAL BALANCE Trial balance is prepared with the balances shown by

the ledger accounts.it is prepared to check arithmetical accuracy.

IMPORTANCE OF BOOK KEEPING

1. INFORMATION OF CASH AND BANK BALANCE A trader can find out easily from the records at any

time as to what amount is in the bank and how much he has in hand

2. DETAILS OF PURCHASE AND SALES A trader can get information about total purchase

and sales made bu him during a certain period.3. KNOWLEDGE OF RETURN OF GOODS In bookkeeping records of P/R and S/R are

maintained.

4. INFORMATION OF INCOME AND EXPENDITURE

All incomes and expenditures are recorded in the books under the different heads.

5. TO KNOW PROFIT OR LOSSA business man can easily judge whether the business has earned a profit or suffered a loss during during a particular accounting period from the records of business transactions

6. TO DETERMINE THE FINANCIAL POSITION The main objective of bookkeeping is to

record the transactions so that trial balance

can easily be made at any time and a businessman can also make a balance sheet of his business to judge the position of his business.

7. KNOWLEDGE OF CAPITAL How much capital has been invested in cash or

other assets as stock, furniture etc., can be known by keeping the written records in the business.

8. INFORMATION OF DEBTORS AND CREDITORS A businessman can easily find out at any time as

to what amount he has to receive and how much he has to pay.

ADVANTAGES OF BOOKKEEPING

• Proper recording of transactions.• Documentary proof.• Comparative study.• To know the position of collection from debtors

and payment to creditors.• Helpful in future planning.• To ascertain the financial position of business.• Poof of insolvency.

Accountancy

• Previously the terms bookkeeping and accountancy were regarded as one thing.

• Accountancy is a broad concept and it includes bookkeeping also.

• Transactions are recorded not only as a documentary proof but they are also analyzed for getting more valuable information's.Accountancy is concerned with the analysis of records.

DEFINITION OF ACCOUNTANCY• “An accounting system is a means of collecting,

summarizing and reporting in monetary terms information about the business.”

-R.N Anthony• “Accounting may be defined as the identifying,

measuring, recording and communicating of financial information.”

-Horold Bierman

FEATURES OF ACCOUNTING

• RECORDING – art of recording business transactions in systematic manner.

• CLASSIFYING – It involves the grouping of transactions of same categories under one head.

• SUMMARIZING- It is the art of presenting business transactions in a manner which is understandable and useful to management .

• DEALING WITH FINANCIAL TRANSACTIONS- It deals with transactions which are concerned with cash only while non-financial transactions mean which are not cash.

• INTERPRETING THE ACCOUNTING TRANSACTIONS PERIODICALLY- Interpretation of accouts is final function of accounting.

PURPOSE OF ACCOUNTANCY

• TO KEEP A SYSTAMATIC RECORD• TO ASCERTAIN THE RESULTS OF

OPERATIONS(profit/loss)• TO ASCERTAIN FINANCIAL POSITION OF BUSINESS.• TO FACILITATE RATIONAL DECISION MAKING• TO SATISFY REQUIREMENT OF LAW AND USEFUL IN

MANY RESPECTS.• PROVIDING EFFECTIVE CONTROL OVER THE BUSINESS• MAKING INFORMATION AVAILABLE TO VARIOUS

GROUPS

ACCOUNTANCY- SCIENCE AND ART

SCIENCE• A Systematic and organised body of

knowledge• It is based on certain principles• The principles are universally applicable• Based on experiments and observations• Established cause and effect relationship• Results are definite and accurate

AN ART• An Art is an technique which helps us

achieving our desired goals in the best possible manner

• An art is the application of practical knowledge

THE ACCOUNTING CYCLE1. IDENTIFY THE TRANSACTION- identify the event as

a transaction and generate the source document2. ANALYSE THE TRANSACTION- determine the

transaction amount and which accounts are affected

3. JOURNAL ENTRIES- the transaction is recorded in the journal as a debit and a credit

4. POST TO LEDGER- the journal entries are transferred to the appropriate accounts

5. TRIAL BALANCE- a trial bal is prepared to verify that the sum of debit s equals to creduts

6. ADJUSTING ENTRIES- these entries are made for accrued and deferred items

7. ADJUSTED TRIAL BALANCE- a new tb is prepared after making the adjusting entries

8. FINANCIAL STATEMENTS9. CLOSING ENTRIES

SCOPE OF ACCOUNTANCY

• DATA COLLECTION• DATA EVALUATION• DATA REPORTING

USERS OF ACCOUNTING INFORMATION

• Shareholders and investors• Creditors• Employees• Government• Management• Consumers and others

RELATIONSHIP OF ACCOUNTING WITH OTHER DISCIPLINES

• ACCOUNTING AND ECONOMICS- both help management in improving decision making process

• ACCOUNTING AND STATISTICS- statistical methods are used to calculate average relationships in accounting data

• ACCOUNTING AND MATHEMETICS- mathematical techniques are frequently used in finding out installments and calculating interest in hire purchase transactions

• ACCOUNTING AND LAW- all transactions between suppliers and customers are governed by the contract act, the sales of goods act, negotiable instruments act etc.

• ACCOUNTANCY AND MANAGEMENT- accounting helps in functioning. It is a basic source of document

IMPORTANCE AND OBJECTIVES OF ACCOUNTANCY

• MAINTAINING PROPER RECORD OF BUSINESS-it identify business transactions of financial nature and enter them into appropriate books of accounts.

• CALCULATION OF PROFIT OR LOSS- it is the source to evaluate the performance of business in terms of profit or loss

• DEPICTION OF FINANCIAL POSITION- position statement is prepared which depicts the value of assets and liabilities

• PROVIDING EFFECTIVE CONTROL OVER THE BUSINESS- accounting reveals the actual performance , compared with the planed or desired performance, reveals deviations and causes of poor performance if any.

• MAKING INFORMATION AVAILABLE TO VARIOUS GROUPS- apart from owner various groups such as creditors, lenders, investors, researchers, government, workers, and consumers are interested in performance of business.

• KNOWLEDGE OF SOLVENCY PROBLEM- with the help of balance sheet information regarding concern’s ability to meet its liabilities is depicted.

LIMITATIONS OF ACCOUNTANCY

• INCOMPLETE INFORMATION• INEXACTNESS• SHOWING VALUE LESS ASSETS• MANIPULATION• IGNORANCE ABOUT THE PRESENT VALUE OF

BUSINESS• WINDOW DRESSING

DIFFERENCE BETWEEN BOOKKEEPING & ACCOUNTANCY

BOOKKEEPING• Bookkeeping is the record of

transactions in the books of original entry.

• Bookkeeping is routine and clerical work which does not require any specific knowledge or skill.

• Transactions are recorded immediately when they take place.

ACCOUNTANCY• Accountancy means

classification analysis of business transactions.

• Accountancy is analytical and needs specific knowledge and skill.

• Preparation of final statements and balance sheet is generally done at the end of year

• The work of bookkeeping is done by junior employees.

• Bookkeeping is independent work.

• Bookkeeping is not liable for accounting work.

• The scope of bookkeeping is limited to recording the transactions.

• It is concerned with senior officers who are qualified and experienced accountants .

• Accountancy depends on bookkeeping.

• Accountancy is liable for the work of book keeper.

• The scope of accountancy is wider. it includes finalization of accounts also

ACCOUNTING PRINCIPLES

BOOK-KEEPING AND ACCOUNTANCY – At a Glance

• Bookkeeping is the art of recording the transactions in the primary books of accounts.

• Accountancy is concerned with analyzing and reporting the business records.

• Accountancy is a broad concept. It includes bookkeeping.

• Where the bookkeeping ends, accountancy begins.

• Accountancy depends on bookkeeping. Without bookkeeping accountancy cannot be done.

THANK YOU.