Topic: 1. Introduction of Book-Keeping and Accountancy

By Mr. Srinivas Methuku

Objectives of the chapter:After completion of this chapter student should

be conversant with:Meaning and definition of book-keepingFeatures of book-keepingMeaning and definition of accountingFeatures and advantages of accountingDifference b/w book-keeping and accountingBasis of accounting and branches of

accounting Limitations of accounting

Introduction: IntroductionNeed for accountingChitragupta Kautilya’s ArthashashtraLuca De Bergo Pacilio from Italy developed

double entry system in the year 1494.

Meaning and definition of book-keepingDefinition:

“The art keeping permanent record of business transactions is book keeping.”

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

R. N. Carter: “Book-keeping is the science and art of correctly recording in the books of accounts, all those business transactions that results in transfer of money’s worth”.

Features of book-keepingIt is the process of recording business

transactions.Monetary transactions are only recorded.Recording is made in given set of books of

accounts.Record is prepared for a specific period but

presented for future references.It is an art of recording business transactions

scientifically.

Meaning and definition of accounting:Accounting definitions:As per AICPA Financial accounting is “the art

of recording classifying and summarizing in a significant manner in terms of money transactions and events which are in part, at least of a financial character and interpreting the results thereof”.

Meaning and definition of accounting:As per AAA accounting is “the process of

identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information”.

Relevant aspects of the definition of accountingEconomic eventsIdentification MeasurementRecordingCommunicationOrganisationInterested users of information

Features of accounting:Identifying the transactions and eventsIt is the art of recording business transactionsIt is the art of classifying business transactionsThe transactions are events of a business must be

recoded in monetary termsIt is the art of summarizing financial transactionsIt is an art of analysis and interpretation of these

transactionsThe result of such analysis must be communicated

to the persons who are to make decisions

Difference b/w book-keeping and accounting:Point of

distinctionBook-keeping Accounting

1. Objective The object of book-keeping is to prepare original books of accounts, trial balance and to maintain systematic record of financial results.

The object of accounting is to record, classify, summarize, analyze, and interpret the business transactions and ascertain financial results and to communicate to various parties.

2. Scope It has a limited scope It has a wider scope3. Level of work

It is restricted to clerical work It is concerned with all levels of Mgnt.

4. Mutual dependence

It has to depend on accounting principles

It has to depend on book-keeping

5. Results of the business

It shows the net result and financial position.

It analyses the operating and financial position of the business

6. Stages Book-keeping is a primary stage Accounting is secondary stage7. Nature of job

The job of book keeper is routine

The job of accountant is analytical in nature

8. Knowledge required

Book keeper not required to have higher level of knowledge

The accountant must have higher level of knowledge

9. Staff for performing work

Book keeping work performed by junior staff

Accounting work is performed by senior staff

Accounting cycle:Identificati

on of transaction

s

Recording of

transactions in journal

Posting into ledger

Preparation of trail balance

Passing of adjustment

entries

Preparation of final accounts

Objectives of accounting:

Permanent Record

Measurement of Outcome

Creditworthiness

Efficient Use of Resources

Projections

Users of accounting:

Shareholders

Investors

Creditors

Workers/Employees

Government

Researchers

Branches of accounting:

Financial accounting

Cost accounting

Management accounting

Human resource accounting

Responsibility accounting

Inflation accounting

Forensic accounting

Basis of accounting:Cash basisAccrual basisMixed

Advantages of accounting:Replacement of memory

Evidence court

Settlement of taxation liability

Comparative study

Sale of business

Assistance to the insolvent person

Assistance to various parties

Facilities in raising loans

Assistance to the government

Facilitate control over assets

Limitations of Accounting:Records only monetary transactionsEffects of price level changes not considerNo realistic informationPersonal bias of the accountant affects the

accounting statementsPermits alternative treatmentsProfit no real test of managerial performanceHistorical in natureWindow dressing in balance sheet

Thank you for listening !!!