Chapter 1- Book keeping and Accounting
1.What is book keeping? Explain it objectives and importance.
Business is a profit making concern which makes financial transaction daily. Therefore, at the end of the period,it needs to know it's financial position,profit or loss.So, all these day to day transaction are recorded in a book called book keeping. thus Book keeping may be defined as an act of recording day to day financial transaction of business in a set of book systematically in chronological order for the purpose of making various statement in future. It provides the meaningful financial information of business to interested stakeholder.
The objectives of Book keeping are :
1. To identify the financial transaction- Book keeping identifies the financial transaction from a large number of business transaction for recording purpose. Where as non financial transaction are ignored.
2. To keep the systematic record of financial transaction: It keeps the record and identifies the financial transaction of business in a systematic way. so that it help to detect errors.
3.To classify the financial transaction: It means to keep the record of all transaction, classify them into three different types: real,nominal and personal.
4. To determine if there is profit or loss: As book keeping records all day to day transaction, at the end of the time period it shows weather how much profit we earned or how much loss we suffered and other financial position to the inserted stakeholders
5. To prepare statements: It helps to make or prepare different statement summarize them, present them and explain them which helps in decision making.
The importance of book keeping are :
1. It helps to identify the financial transaction: There are many financial and non financial transaction in business and it identifies the financial transaction and record them while it ignores the non-financial transaction.
2. It helps to keep the systematic and permanent record of the financial transaction which help to detect errors and frauds. It also help to take steps and prevent them.
3. It helps to determine profit and loss. As book keeping records all the day to day monetary transaction. Thus, profit and loss can be easily determined.
4.It help in determining tax burden. A business is concerned in paying taxes to the government . Such tax burden can be easily determined with the help of book keeping.
2.What is accounting? Explain it's characters, objectives and importance.
Accounting is the process of identifying ,recording,classifying,summarizing,analyzing,interpreting the financial transaction of a business and communicating the result to the interested users.
The characters of accounting are:
Only transaction of financial nature or monetary transaction are recorded.
It is a continuous process,once started it doesn't stop.
It make different statement , analysis the summary and create the conclusion.
It have historical nature as it record past events.
It is based in certain principles and rules.
The objectives of accounting are :
1.To keep the systematic record of financial transaction. It keeps all the complete and systematic record of financial transaction as per rules and principles.
2. To determine profit and loss: As it keeps all the record of financial transaction. Profit and loss can be easily calculated.
3. To show the financial position through balance sheet: It prepares a balance sheet at he end of every year which shows all assets, liabilities,capital and other financial objects. It help to show how strong the assets it and how much value does it have and others which help to show the economic strength and weakness of business.
To communicate the financial information: Another important objectives is that it shows the financial information which determine how much tax or liabilities business needs to pay.
5. Analysis the financial data and make decision.
3. What do you mean by scope of accounting?
The scope of accounting indicates field or area where accounting is used. It's scope is very wide and used not only in business organization but also non business organization,government,non-government organization along with various professional and individuals in their monetary affairs.
- Business Accounting: to find out profit or loss
- Non business organization: To know the financial position,Assets and expenses
- Government: To see financial resources,provide services
- Individuals/professional: Maintenance of life, decision making
4. Difference between book keeping and Accounting.
| Bookkeeping | Accounting |
|---|---|
| 1. It simply means act of recording day to day financial transaction of business in set of book systematically for future purpose. | 1.It is the process of identifying,recording,classifying,summarizing,analyzing and interpreting the financial transaction and communicating the information to the interested user. |
| 2. It has limited scope. | 2.It has wider scope and used widely in various places. |
| 3.It is the first and primary scope of accounting. | 3.It is the secondary stage, where bookkeeping ends accounting begins. |
| 4.It dosen't need high and special knowledge,minimun is sufficient. | 4.It need specialize knowledge and skill to operate. |
| 5.It is maintained by clerk or book keeper. |
5. It is maintained by accountant. |
