Book-keeping meaning definitions and objectives
Book-keeping meaning definition and objectives-
MEANING OF BOOK-KEEPING –
Recording of business transactions and event in a systematic manner in the books of account is called book-keeping.
Book Keeping is the process of recording the financial transactions and events of a business in the books of account (Journal or Subsidiary Books). It is a part of accounting . The main aim of book-keeping is to maintain systematic records of financial transactions.
“The art of keeping a permanent record of business transactions is called book-keeping”.
DEFINITIONS OF BOOK-KEEPING –
According to R.N. Carter-
“Book-keeping is the science and art of correctly recording in the books of account all those business transactions that result in the transfer of money or money’s worth”.
According to J.R. Batliboi –
“Book-keeping is an art of recording business dealing in a set of books”.
According to Northcott –
“Book Keeping is an art of recording in the books of account the monetary aspect of commercial and financial transactions.”
Thus we can say that…
“Book Keeping is concerned with identifying financial transactions and events; measuring them in money terms; recording them in the books of account(Journal or Subsidiary Books) in systematic manner and classifying them in ledger”.
OBJECTIVES OF BOOK-KEEPING-
The objectives of book-keeping are-
- i. To have permanent record of all the business transactions.
- To keep records of income and expenses in such a way that the net profit or net loss may be calculated.
- To keep records of assets and liabilities in such a way that the financial position of the business may be ascertained.
- To keep control on expenses with a view to minimise the same in order to maximise profit.
- To know the names of the customers and the amount due from them.
- To know the names of suppliers and the amount due to them.
vii. To have important information for legal and tax purposes
ADVANTAGES OF BOOK-KEEPING-
The advantages book-keeping are-
- i. Permanent and Reliable Record: Book-keeping provides permanent record for all business transactions, replacing the memory which fails to remember everything.
- Arithmetical Accuracy of the Accounts: With the help of book keeping trial balance can be easily prepared. This is used to check the arithmetical accuracy of accounts.
- Net Result of Business Operations: The result (Profit or Loss) of business can be correctly calculated.
- Ascertainment of Financial Position: It is not enough to know the profit or loss; the proprietor should have a full picture of his financial position in business. Once the full picture (say for a year) is known, this helps him to plan for the next year’s business.
- Ascertainment of the Progress of Business: When a proprietor prepares financial statements evey year, he will be in a position to compare the statements. This will enable him to ascertain the growth of his business. Thus book keeping enables a long range planning of business activities besides satisfying the short term objective of calculation of annual profits or losses.
- Calculation of Dues : For certain transactions payments may be made later. Therefore, the businessman has to know how much he has to pay others.
- Control over Assets: In the course of business, the proprietor acquires various assets like building, machines, furnitures,etc. He has to keep a check over them and find out their values year after year.
- Control over Borrowings: Many businessmen borrow from banks and other sources. These loans are repayable. Just as he must have a control over assets, he should have control over liabilities.
- Identifying Do’s and Don’ts : Book keeping enables the proprietor to make an intelligent and periodic analysis of various aspects of the business such as purchases, sales, expenditures and incomes. From such analysis, it will be possible to focus his attention on what should be done and what should not be done to enhance his profit earning capacity.
- Fixing the Selling Price : In fixing the selling price, the businessmen have to consider many aspects of accounting information such as cost of production, cost of purchases and other expenses. Accounting information is essential in determining selling prices.
- Taxation: Businessmen pay sales tax, income tax, etc. The tax authorities require them to submit their accounts. For this purpose, they have to maintain a record of all their business transactions.
- Management Decision-making: Planning, reviewing, revising, controlling and decision-making functions of the management are well aided by book-keeping records and reports.
- Legal Requirements: Claims against and for the firm in relation to outsiders can be confirmed and established by producing the records as evidence in the court.