PRINCIPLES OF BOOK KEEPING.Kompal BhandariShreya IngleApurva ShrimalMBA 1stsemSection C
Book Keeping• Book keeping is combination of twowordsi.e.,book+keeping which meansmaintaining the books of accounts in a properand systematic way.Definitions• “Bookkeeping is an art of recording in booksof accounts the moetary aspects of financialtransactions.”-North Cort
In brief ,bookkeeping is an art and science ofcorrectly recording the transactions of anorganization in a systematic manner.Bookkeeping enables the following information• Exact profitability of the business• The amount of capital employed in thebusiness• Amount of debtors and creditors• Total assets and liabilities
Characteristics and Nature ofBookkeeping• Bookkeeping is a science as well as a art.• It records business transactions.• Such records are quite systematic.• The transactions which are recorded,relate totransaction of money or maney’s worth.• The monetary effect of the transactions isshown in the record of bookkeeping.
Process of Bookkeeping• Step 1- IDENTIFYING TRANSACTIONSAll business transactions which are financial in natureand have documentary proof,are accountingtransactions• Step 2- RECORDING OF ACCOUNTINGTRANSACTIONSThe identified accountingtransactions are passedthrough susidiary books• Step 3-PREPARATION OF LEDGER ACCOUNTSAll the transactions relating to a particular person,party or item are put together at
one place under one head,which is known asits ledger account.• Step 4- BALANCING OF ACCOUNTSLedger accounts are balanced i.e.,thedifference between the debit and credit sideof the ledger accounts are ascertained.• Step 5-PREPARATION OF TRIAL BALANCETrial balance is prepared with the balancesshown by the ledger accounts.it is prepared tocheck arithmetical accuracy.
IMPORTANCE OF BOOK KEEPING1. INFORMATION OF CASH AND BANK BALANCEA trader can find out easily from the records atany time as to what amount is in the bank andhow much he has in hand2. DETAILS OF PURCHASE AND SALESA trader can get information about totalpurchase and sales made bu him during a certainperiod.3. KNOWLEDGE OF RETURN OF GOODSIn bookkeeping records of P/R and S/R aremaintained.
4. INFORMATION OF INCOME ANDEXPENDITUREAll incomes and expenditures are recorded inthe books under the different heads.5. TO KNOW PROFIT OR LOSSA business man can easily judge whether thebusiness has earned a profit or suffered a lossduring during a particular accounting periodfrom the records of business transactions6. TO DETERMINE THE FINANCIAL POSITIONThe main objective of bookkeeping is torecord the transactions so that trial balance
can easily be made at any time and abusinessman can also make a balance sheet ofhis business to judge the position of his business.7. KNOWLEDGE OF CAPITALHow much capital has been invested in cash orother assets as stock, furniture etc., can beknown by keeping the written records in thebusiness.8. INFORMATION OF DEBTORS AND CREDITORSA businessman can easily find out at any time asto what amount he has to receive and how muchhe has to pay.
ADVANTAGES OF BOOKKEEPING• Proper recording of transactions.• Documentary proof.• Comparative study.• To know the position of collection from debtorsand payment to creditors.• Helpful in future planning.• To ascertain the financial position of business.• Poof of insolvency.
Accountancy• Previously the terms bookkeeping andaccountancy were regarded as one thing.• Accountancy is a broad concept and itincludes bookkeeping also.• Transactions are recorded not only as adocumentary proof but they are also analyzedfor getting more valuableinformations.Accountancy is concerned withthe analysis of records.
DEFINITION OF ACCOUNTANCY• “An accounting system is a means of collecting,summarizing and reporting in monetary termsinformation about the business.”-R.N Anthony• “Accounting may be defined as the identifying,measuring, recording and communicating offinancial information.”-Horold Bierman
FEATURES OF ACCOUNTING• RECORDING – art of recording businesstransactions in systematic manner.• CLASSIFYING – It involves the grouping oftransactions of same categories under onehead.• SUMMARIZING- It is the art of presentingbusiness transactions in a manner which isunderstandable and useful to management .
• DEALING WITH FINANCIAL TRANSACTIONS- Itdeals with transactions which are concerned withcash only while non-financial transactions meanwhich are not cash.• INTERPRETING THE ACCOUNTING TRANSACTIONSPERIODICALLY- Interpretation of accouts is finalfunction of accounting.
PURPOSE OF ACCOUNTANCY• TO KEEP A SYSTAMATIC RECORD• TO ASCERTAIN THE RESULTS OFOPERATIONS(profit/loss)• TO ASCERTAIN FINANCIAL POSITION OF BUSINESS.• TO FACILITATE RATIONAL DECISION MAKING• TO SATISFY REQUIREMENT OF LAW AND USEFUL INMANY RESPECTS.• PROVIDING EFFECTIVE CONTROL OVER THE BUSINESS• MAKING INFORMATION AVAILABLE TO VARIOUSGROUPS
ACCOUNTANCY- SCIENCE AND ARTSCIENCE• A Systematic and organised body ofknowledge• 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 usachieving our desired goals in the bestpossible manner• An art is the application of practicalknowledge
THE ACCOUNTING CYCLE1. IDENTIFY THE TRANSACTION- identify the eventas a transaction and generate the sourcedocument2. ANALYSE THE TRANSACTION- determine thetransaction amount and which accounts areaffected3. JOURNAL ENTRIES- the transaction is recorded inthe journal as a debit and a credit4. POST TO LEDGER- the journal entries aretransferred to the appropriate accounts
5. TRIAL BALANCE- a trial bal is prepared toverify that the sum of debit s equals tocreduts6. ADJUSTING ENTRIES- these entries are madefor accrued and deferred items7. ADJUSTED TRIAL BALANCE- a new tb isprepared after making the adjusting entries8. FINANCIAL STATEMENTS9. CLOSING ENTRIES
SCOPE OF ACCOUNTANCY• DATA COLLECTION• DATA EVALUATION• DATA REPORTING
USERS OF ACCOUNTINGINFORMATION• Shareholders and investors• Creditors• Employees• Government• Management• Consumers and others
RELATIONSHIP OF ACCOUNTINGWITH OTHER DISCIPLINES• ACCOUNTING AND ECONOMICS- both helpmanagement in improving decision makingprocess• ACCOUNTING AND STATISTICS- statisticalmethods are used to calculate averagerelationships in accounting data• ACCOUNTING AND MATHEMETICS-mathematical techniques are frequently used infinding out installments and calculating interestin hire purchase transactions
• ACCOUNTING AND LAW- all transactionsbetween suppliers and customers are governedby the contract act, the sales of goods act,negotiable instruments act etc.• ACCOUNTANCY AND MANAGEMENT-accounting helps in functioning. It is a basicsource of document
IMPORTANCE AND OBJECTIVES OFACCOUNTANCY• MAINTAINING PROPER RECORD OF BUSINESS-it identify business transactions of financialnature and enter them into appropriate booksof accounts.• CALCULATION OF PROFIT OR LOSS- it is thesource to evaluate the performance ofbusiness in terms of profit or loss• DEPICTION OF FINANCIAL POSITION- positionstatement is prepared which depicts the valueof assets and liabilities
• PROVIDING EFFECTIVE CONTROL OVER THEBUSINESS- accounting reveals the actualperformance , compared with the planed ordesired performance, reveals deviations andcauses of poor performance if any.• MAKING INFORMATION AVAILABLE TO VARIOUSGROUPS- apart from owner various groups suchas creditors, lenders, investors, researchers,government, workers, and consumers areinterested in performance of business.• KNOWLEDGE OF SOLVENCY PROBLEM- with thehelp of balance sheet information regardingconcern’s ability to meet its liabilities is depicted.
LIMITATIONS OF ACCOUNTANCY• INCOMPLETE INFORMATION• INEXACTNESS• SHOWING VALUE LESS ASSETS• MANIPULATION• IGNORANCE ABOUT THE PRESENT VALUE OFBUSINESS• WINDOW DRESSING
DIFFERENCE BETWEENBOOKKEEPING & ACCOUNTANCYBOOKKEEPING• Bookkeeping is the record oftransactions in the books oforiginal entry.• Bookkeeping is routine andclerical work which does notrequire any specificknowledge or skill.• Transactions are recordedimmediately when they takeplace.ACCOUNTANCY• Accountancy meansclassification analysis ofbusiness transactions.• Accountancy is analytical andneeds specific knowledgeand skill.• Preparation of finalstatements and balancesheet is generally done at theend of year
• The work of bookkeeping isdone by junior employees.• Bookkeeping isindependent work.• Bookkeeping is not liablefor accounting work.• The scope of bookkeeping islimited to recording thetransactions.• It is concerned with seniorofficers who are qualifiedand experiencedaccountants .• Accountancy depends onbookkeeping.• Accountancy is liable for thework of book keeper.• The scope of accountancy iswider. it includes finalizationof accounts also
BOOK-KEEPING ANDACCOUNTANCY – At a Glance• Bookkeeping is the art of recording thetransactions in the primary books of accounts.• Accountancy is concerned with analyzing andreporting the business records.• Accountancy is a broad concept. It includesbookkeeping.• Where the bookkeeping ends, accountancybegins.• Accountancy depends on bookkeeping. Withoutbookkeeping accountancy cannot be done.