MEANING
Book-Keeping is an art and science of recording business transactions in a systematic and chronological order. It is a combination of two words: Book + Keeping which means to keep the books of accounts to record all the financial transactions. It is concerned with identification of transactions and events, expressing them in the monetary form and then recording the transactions in the books of accounts to make it available for future reference also.
ACCORDING TO JR BATLIBOI
“Book-keeping is the art of recording business dealings in a set of books.”
ACCORDING TO R.N. CARTER
“It is the science and art of recording correctly in the books of accounts, all those business transactions that result in the transfer of money or money’s worth.”
ACCORDING TO NORTHCOTT
“Book-Keeping is an art of recording in the books of accounts the monetary aspect of commercial and financial transactions.”
ACCORDING TO A.N. ROSENKAMPFF
“Book-Keeping is the art of recording business transactions in a systematic manner.”
ACCORDING TO A J FAVELL
“Book-Keeping is the recording of financial transactions of a business in a methodical manner so that information on any point in the relation to them may be quickly obtained.”
ACCORDING TO L C CROPPER
“Book-keeping is the science of recording transactions in money or money’s worth in such a manner that at any subsequent day the nature and effect of each transaction, and the combined effect of all the transactions, may be clearly understood so that the accounts prepared at any time from the records thus kept may show the owner of the book his true financial position.”
FEATURES OF BOOK-KEEPING
RECORDS BUSINESS TRANSACTIONS ONLY
Book-keeping is associated with recording only those transactions which belongs to the business. It means any personal transaction of owner and employees of the business will not be recorded in the books of accounts.
RECORDS ONLY MONETARY TRANSACTIONS
Book-keeping maintains the record of those transactions which can be expressed in terms of money or money’s worth. Any qualitative item like honesty, loyalty of employees etc are not recorded in the books of accounts of the firm.
RECORDING IN CHRONOLOGICAL ORDER
In Book-keeping the transactions the recorded in chronological order, i.e. in the order of their happening. Journal is the book where the transaction is firstly recorded as they occur.
ANNUAL RECORD OF BOOKS
The business firms generally prepare the accounts for one year starting from 1st April ending 31st March. Book-keeping thus records the transactions for a year only.
SYSTEMATIC AND SCIENTIFIC MANNER OF RECORD KEEPING
It is the systematic and scientific way of recording the transactions. The rules of Debit and Credit are followed properly to record the entries.
BOTH SCIENCE AS WELL AS AN ART
Book-Keeping is both science as well as an art. It is not a pure science as it does not establish cause and effect relationship. It is an art as recording the transactions in books of accounts require some knowledge and skills. It is science as it has some guiding rules and principles.
PROCESS OF BOOK-KEEPING
The process of book-keeping starts by identifying the transactions and events and continues till the preparation of Trial Balance. The brief description of the process is as follows:
IDENTIFICATION OF MONETORY TRANSACTIONS
The first step is identification of monetary or financial transaction. Only the quantitative information is recorded in the books of accounts. Non- financial or qualitative information is ignored while maintaining the books of accounts.
RECORDING THE TRANSACTIONS
The second step is the recording of transactions. The transactions are recorded in the books of Journal for the first time. Journal is the primary book of recording transactions in chronological order and usually preferred by small business houses. The large business houses keep their records in subsidiary books like Cash Book, Sales Book, Purchase Book, Sales Return Book, Purchase Return Book, Bills Receivable Book, Bills Payable Book, Journal Proper etc.
POSTING IN LEDGER
The third step is posting the transactions from journal to ledger. This process is also known as classification. In this step, the transactions of same nature are recorded under one head known as Account. Ledger provides the latest information related to the any item of income and expenditure, assets or liabilities.
BALANCING OF LEDGER ACCOUNTS
The next step is to balance the ledger accounts. At periodic intervals, the accounts maintained in ledger are balanced. Accounts are balanced by finding out the difference between the totals of ‘debit’ and ‘credit’ of the account. Difference is entered on shorter side and the same is shown as balance brought down on the opposite side.
PREPARATION OF TRIAL BALANCE
The last step is preparation of trial balance. Trial balance is a statement which shows all the balances of the ledger accounts in to columns i.e. Debit or Credit. The trial balance records all the accounts of income, expenditure, capital, assets and liabilities. It is prepared just to check the arithmetical accuracy of the accounts. If the both sides of trial balance do not agree, then it indicates the chances of errors in the records maintained.
IMPORTANCE OF BOOK- KEEPING
The following point indicates the importance of book-keeping:
REPLACEMENT OF HUMAN MEMORY
Human Memory is limited. It is impossible to memorize all the transactions in the mind. Proper maintenance of records serves the purpose of replacement of human memory. All the transactions are recorded in the books of accounts which are available for future reference also.
FINANCIAL INFORMATION
The book-keeping is associated with recording of transactions and maintenance of the accounts. So it provides all the financial information regarding assets, liabilities, capital, income or expenditure, profit or loss. The accountants and managers need this information for budgeting, planning, and controlling purposes.
REQUIREMENT OF EXERCISING CONTROL
These days, the business houses are operating at large scale. To control the business operations effectively, business houses requires periodic reports. These periodic reports are prepared on the basis of accounting records. Thus, book-keeping helps in providing data for controlling purposes.
PROOF IN A COURT
Book-keeping records maintained as per double entry system can be used as a legal evidence in the court of the law. As all the transactions recorded in the books of accounts are supported by some evidence like memos, bills, vouchers etc.
COMPARISON POSSIBLE
Book- keeping aims at maintaining the records of transactions on uniform basis. It is easy to make the inter-firm and intra-firm comparison of financial reports or information available.
BASIS OF PREPARATION OF FINAL ACCOUNTS
Final Accounts comprises Trading and Profit and Loss Account and Balance Sheet. The final accounts reflect all the data of book-keeping records. The trial balance prepared serves as the base for preparation of final accounts.
CHECK ON ARITHMETICAL ACCURACY
The process consists of preparation of Trial Balance. Trial Balance is a statement that shows all the balances of income, expenditure, assets, capital and liabilities account. If the total of both sides of trial balance agree, then there are no chances of errors or frauds. In this way, trial balance helps in checking the arithmetical accuracy of accounts.
DETERMINES TAX LIABILITY
Book-keeping helps the businessmen and tax authorities to determine the income tax, sales tax, property tax and other liabilities accurately.