PRINCIPLES OF 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.
• “Bookkeeping is an art of recording in books
of accounts the moetary aspects of financial
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
• Amount of debtors and creditors
• Total assets and liabilities
Characteristics and Nature of
• 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
• Step 2- RECORDING OF ACCOUNTING
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
3. KNOWLEDGE OF RETURN OF GOODS
In bookkeeping records of P/R and S/R are
4. INFORMATION OF INCOME AND
All incomes and expenditures are recorded in
the books under the different heads.
5. TO KNOW PROFIT OR LOSS
A 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
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.
• 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.”
• “Accounting may be defined as the identifying,
measuring, recording and communicating of
FEATURES OF ACCOUNTING
• RECORDING – art of recording business
transactions in systematic manner.
• CLASSIFYING – It involves the grouping of
transactions of same categories under one
• 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
• TO ASCERTAIN FINANCIAL POSITION OF BUSINESS.
• TO FACILITATE RATIONAL DECISION MAKING
• TO SATISFY REQUIREMENT OF LAW AND USEFUL IN
• PROVIDING EFFECTIVE CONTROL OVER THE BUSINESS
• MAKING INFORMATION AVAILABLE TO VARIOUS
ACCOUNTANCY- SCIENCE AND ART
• A Systematic and organised body of
• 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 is an technique which helps us
achieving our desired goals in the best
• An art is the application of practical
THE ACCOUNTING CYCLE
1. IDENTIFY THE TRANSACTION- identify the event
as a transaction and generate the source
2. ANALYSE THE TRANSACTION- determine the
transaction amount and which accounts are
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
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 STATEMENTS
9. CLOSING ENTRIES
SCOPE OF ACCOUNTANCY
• DATA COLLECTION
• DATA EVALUATION
• DATA REPORTING
USERS OF ACCOUNTING
• Shareholders and investors
• Consumers and others
RELATIONSHIP OF ACCOUNTING
WITH OTHER DISCIPLINES
• ACCOUNTING AND ECONOMICS- both help
management in improving decision making
• 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
• MAINTAINING PROPER RECORD OF BUSINESS-
it identify business transactions of financial
nature and enter them into appropriate books
• 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
• SHOWING VALUE LESS ASSETS
• IGNORANCE ABOUT THE PRESENT VALUE OF
• WINDOW DRESSING
BOOKKEEPING & ACCOUNTANCY
• Bookkeeping is the record of
transactions in the books of
• Bookkeeping is routine and
clerical work which does not
require any specific
knowledge or skill.
• Transactions are recorded
immediately when they take
• Accountancy means
classification analysis of
• Accountancy is analytical and
needs specific knowledge
• 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
• Bookkeeping is not liable
for accounting work.
• The scope of bookkeeping is
limited to recording the
• It is concerned with senior
officers who are qualified
• Accountancy depends on
• Accountancy is liable for the
work of book keeper.
• The scope of accountancy is
wider. it includes finalization
of accounts also
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
• Where the bookkeeping ends, accountancy
• Accountancy depends on bookkeeping. Without
bookkeeping accountancy cannot be done.