Class 11 Account important question
Book Keeping and Accounting
Bookkeeping is the recording of financial transactions like sales, purchase, income, receipts and payment by an individual or organization. Bookkeeping is usually performed by a book-keeper. The accountant creates reports from the financial transactions recorded by the book-keeper and files from the government agencies. Single entry book-keeping system and the double-entry book- keeping system are the methods of book-keeping.
A book-keeper, also known as an accounting clerk or accounting technician, is a person who records day to day financial transaction of an organization. A book-keeper usually records the transaction in daybooks. The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions recorded in the correct day books, suppliers ledger, customer ledger and general ledger.
According to R.N Carter, “Book-keeping is the science and art of correctly recording in books of all those business transactions that result in a transfer of money or money`s worth.”
Origin & Evolution of Book Keeping
The origin of book-keeping cannot be exactly traced out. However, it can be said that the book-keeping history is as old as of money. It has been practiced from the ancient period. In ancient period, business are in small scale and book-keeping was not essential to that extent. The increasing demand and needs of human beings, as well as the practice of currency gradually, began to influence the business activities. Scientific book-keeping system was commenced in Italy some 500 years ago. Luca pacific published a book entitled “Sum Made Arithmetical” for the first time which deal with the modern principal of book-keeping . Venetian monk “Luca Pacioli” is known as “The father of modern book-keeping”. In that bookkeeping, he included the following provision about the book-keeping.
1. Memorial that is memorandum book.
2. Gestational that is journals book.
3. Quadrant that is ledger account.
Objective function of book-keeping
1. To have a permanent record of each transaction of the business. 2. To show the financial effect on the entity of each transaction recorded. 3. To ascertain the combined effect of all transactions on the financial position on a particular period. 4. To disclose the factors responsible for earning a profit or suffering a loss in a given period. 5. Determine tax liability of the business. 6. Prevention of errors and frauds.
Importance or Functions of Book Keeping
The importances of bookkeeping are as follows:
1. Manage Disputes Between Owners and Managers
http://www.youtube.com/binodrijal1Owners and managers are different person in an organization. They both have their own different interest. So, there may occur different disputes between them due to the difference in their interest. So, written records supported by documentary evidence are essential to avoid any mistrust or doubt among the owners and managers.
2. Preparations of financial statements
Business wants to know the profit earned or loss suffered during the year and its financial position at the end of the year. This is disclosed by income statement i.e. trading account, profit and loss account and balance sheet respectively. Book-Keeping records all the necessary data for preparing these statement.
3. Limitation of human memory
The capacity of human beings is limited as how much one can remember and that too for how long? Proper recording of records helps the business with the need of remembering.
4. Need of financial information
Book keeping is very important for the financial information and data are needed for cost ascertainment, planning, budgeting, and forecasting because it is the main source of such information.
5. Need of taxation authorization
Book – keeping records are regarded by the tax authorities as authentic and reliable for determination of tax liability.
Meaning and Concept of Accounting
Accounting is the process of recording, analyzing, controlling, summarizing, interpreting and communicating the financial transactions. It is also the systematic and comprehensive recording of financial transactions related to an organization. Accounting provides information on the resources available to a firm, the means employed to finance those resources and the results achieved through their use.
The person who handles the accounting is known as an accountant. Accounting allows a company to analyze the financial performance of the business.
According to R.N Anthony, ” An accounting system is a means of collecting, summarizing, analyzing and reporting in monetary terms to the information of the business.”
From the above definition:
A reporting system that communicates relevant financial information to interested persons which allow them to assess performance, make decisions and control the economic resources in the organization.
Accounting covers the act of recording transactions in the journal and other related books of accounts and analyzing it.
Objectives or Functions of Accounting
To keep systematic records
Main objective of accounting is to keep the systematic record of financial transactions. In the absence of accounting, there would have been traffic burden on the human memory which makes the business organization impossible to bear.
To ascertain the operational profit or loss
Accounting helps in ascertaining the net profit earned or loss suffered by an account while carrying the business. This is done by keeping a proper record of revenues and expenses during a particular period. While preparing profit and loss account, if the amount of revenue is more than the expenditure incurred in earning, then there is said to be a profit. In case if expenditure exceeds the revenue, there is said to be a loss.
To ascertain the financial position of a business
The profit and loss account gives the amount of profit or loss made by the business during a particular period. However, it is not enough. The businessman must know about his financial position that is where he stands or what he owes and what he owns. This objective is served by the balance sheet or position statement.
To facilitate rational decision-making
Accounting these days has taken upon itself the task of collection, analysis, and reporting of information at a particular time to the required levels of authority in order to facilitate a rational decision.
Accounting functions as an information system for collecting and communicating economic information about the business enterprise. This information helps the management in taking appropriate decisions.
Scope of accounting
The scope of accounting means the areas or field system. In other words, it may be defined as all those sectors where the accounting is applied.
The major scope of accounting can be given below:
1. Government: Government should keep vouchers, forms and book as journal, budget sheet, cash book, statement of
expenditure, etc. 2. Non-trading organization: Non-trading organization prepares a financial statement as well as balance sheet to ascertain the
financial position and other efficiencies.
3. Trading concerns: Trading concerns are established to generate profit and also ascertain the profit or loss of the firm.
4. Professionals and individual: Professionals can be doctor, engineers, contractors, lawyers, etc. Thus, such different professionals and individuals should keep different books of accounts to find out the profit or loss account.
Importance of accounting
Helps in Assistance management