BOOKKEEPING
INTRODUCTION
Different methods for maintaining the records of business transactions in one way or the other were in vogue at different stages of the history of civilization. In the present business world with the development of trade, commerce, and industry the number and volume of business transactions of any business concern has increased to such an extent and at the same time has assumed much complexity that it has become impossible to remember them. This fact makes it necessary to devise methods of keeping a record of all business dealing to show the necessary facts.
In short, it can safely and without any fear of contradiction be claimed that Book-Keeping has become the very foundation on which the whole edifice of modern business and commerce rests.
Definition
It is the art of maintaining permanent written records of all businesses dealing in money, goods, and services so may not forget them. Business dealings should be correctly recorded in the books of accounts systematically to ascertain the result of a business after a given period. The term “transaction” refers to business activity, for the exchange of money.
It is the basic step in the accounting process, which accumulate the preliminary information, in which required to prepare and maintain accounts. Hence, accounting is based on the proper system of bookkeeping. It involves gathering primary financial data.
Identifying the transactions and events with the financial aspect, i.e. only monetary transactions are to be entered in the books of accounts.
Measuring the transactions in monetary terms.
Keeping a record of the financial effect of the transactions, in the order in which they arise.
Classifying the effect of transactions
Preparing statement, i.e. trial balance.
Methods of Bookkeeping
Manual Bookkeeping
It is the conventional method of bookkeeping that involves manual writing. All the transactions are recorded in the books of accounts. It is mainly used for the small businessman. Manual bookkeeping has minimum transactions, as it is cheaper and easier to maintain.
Computerized Bookkeeping
With the introduction of computers, these days all the bookkeeping work is carried out through computers & laptops. It is the best method of keeping a record of financial transactions, whereas bookkeeping software packages are used for businesses.
This method of bookkeeping is common away from business houses because of the quality of being useful and convenience.
The task of bookkeeping is performed by a bookkeeper, bookkeeper are responsible for providing accurate up-to-date financial information about the business. It records all the financial data and organized it.
The work is bookkeeping offered to junior employees, in the accounts department. The work includes entering the transactions in the daybooks, i.e. cash book, purchase book, purchase return book, sales book, sale return book, journal, etc., same posting into the ledger, and finally preparing a trial balance.
OBJECTS OF BOOKKEEPING
The main objects of bookkeeping are as under.
- Maintenance of written record
- Protection of assets
- Ascertain the financial position of the business
- Helpful in decision making
- Helpful in making show short-term and long-term policies
- Detection and prevention of fraud
- Basic income tax and sales tax
- Position of debtors and creditors
- Helpful in future planning
- Provide information to interested parties
Maintenance of written record
To keep written records of the business transaction instead of relying on memory and thus to avoid disputes with customers or suppliers and employees or debtors/Account receivables & creditors/Accounts payable.
Protection of Assets
To protect the assets of the firm as goods, cash, etc.
Ascertain the financial position of the business
To ascertain the working result from the written records of transaction i.e. whether the profit made or loss incurred for a particular period to determine the financial position of the business on the last date of a specific time in terms of assets and liabilities.
Helpful in decision making
To help the management of the business enterprise to decide the accounting data.
Helpful in making short-term and long-term policies
To help the management to determine both short-term and long-term policies.
Detection and prevention of fraud
Bookkeeping enables the trader to detect and prevent fraud in his business. He can watch the activities of his paid staff more effectively if accounts are maintained.
Basic income tax and sales tax
The government has made it compulsory for registered companies to maintain proper and accurate records so that income tax and sales tax can be imposed on term with full justice. There is no compulsion for any ordinary trader to receive a fair statement at the hands of taxing authorities.
Position of debtors and creditors
It is necessary to know how much the business is to receive from others or to pay to them. Records of properties are also maintained to determine their value or worth.
Helpful in future planning
Moreover, the working of the past serves as a basis for future planning and the trader or producer can adopt new methods to earn more profit.
Provide information to interested parties
To provide the information to interested parties like owners of businesses/shareholders, managers, creditors, debtors, employees, govt. etc.
