Bookkeeping:
Introduction:
The need for a system by which
man might keep a record of his business transactions with his fellowmen was
felt early in the history of civilization. Many and varied methods were used
to record the transactions. But bookkeeping had its beginning at a
comparatively recent date and it has passed through many phases since its
institution. With the development of commerce it has attained a position of
great importance and today the whole fabric of modern commerce rests on
bookkeeping.
Objects of Bookkeeping:
The main objects of
bookkeeping can be said to be the following:
-
It must provide a permanent
and systematic record of all business transaction
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The periodical results as to
profit or loss should be readily and accurately ascertainable.
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To enable financial data to be
supplied for management of the business
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The entries and narrations
should clearly show the nature and effect of each transaction and the
combined result of all taken together
Definition and Explanation of Bookkeeping:
The work book or books mean
books of accounts and keeping implies maintaining in proper form and order.
Thus bookkeeping may be defined as the art of recording business
transactions in books in a regular and systematic manner.
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Important
Bookkeeping Terms:
Before attempting to learn the
art or science of bookkeeping it will be better to clarify some of the terms
that will have to be used again and again.
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Double Entry System of Bookkeeping:
The double entry system of
bookkeeping owes its origin to an Italian merchant named Lucas Pacioli
who wrote the first book on double entry bookkeeping entitled
"Decomputis et Scripturis".
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Single Entry Vs Double Entry System of Bookkeeping:
Single entry system of
bookkeeping which does not follow double entry system and as such, does not
record or give effect to the two fold aspect of each and every transaction.
Under this system of book keeping, generally a cash book and books to record
personal accounts are only maintained.
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Definition and Explanation of Accounting:
Accounting is defined as "the
art of recording, classifying and summarizing in terms of money transactions
and events of a financial character and interpreting the results thereof."
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Branches
of Accounting:
Accounting has three main
forms of branches, viz, financial accounting, cost accounting, and
management accounting. These forms of accounting have been developed to
serve different types of objectives.
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Functions of Accounting:
The primary function of
accounting is to keep a systematic record of financial transaction -
journalisation, posting and preparation of final statements.
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Parties Interested in Accounting Information:
There are a number of parties
who are interested in the accounting information relating to business.
Accounting is the language employed to communicate financial information of
a concern to such parties.
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Systems of
Accounting - Cash System of Accounting and Accrual System of Accounting:
There are basically two systems of
accounting Cash System of Accounting and Accrual System of Accounting
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Bookkeeping Vs. Accounting / Difference Between Bookkeeping and Accounting:
There is some confusion over the
difference between bookkeeping and accounting. This is due to the
fact that two are related and there is no universal accepted line of
demarcation between them.
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Accounting
Cycle: Accounting cycle
refers to a complete sequence of accounting procedures which are required to
be repeated in same order during each accounting period.
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