Unit-1 Meaning of Bookkeeping-Business Accounting | BBA 1st Year

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 Meaning of Bookkeeping

• Bookkeeping is the activities related to systematic recording and classification of financial data of an organization. It is essentially a record-keeping function performed to assist in the process of accounting. It is a major component in preparing the financial statements of the organization at the end of the financial year.
• Bookkeeping is also concerned with the classification of financial transactions and events. Such classification of transactions is necessary for maintaining proper financial accounts. It also involves preparing source documents for financial transactions and other business operations being carried out.
• There are many methods of book keeping. The most common are double-entry systems and single-entry systems. But other methods, including the process of recording financial transactions in any way, are acceptable bookkeeping systems or procedures.

Objectives of bookkeeping

• The main objective of bookkeeping is to keep complete and accurate records of all financial transactions in a systematic, logical manner. It ensures that the financial effects of these transactions are reflected in the books of accounts.
• Then the second main objective is to find out the overall effect of all the recorded transactions on the final statements of the company. Bookkeeping will ultimately ascertain the final accounts of the company, namely the profit and loss account and the balance sheet.

Bookkeeping Requirements

• One of the main reasons for bookkeeping is that records can be maintained to show the financial position of each item/account of income and expenditure. Through ledger, detailed information about each expenditure or income can be obtained immediately.
• For example, suppose a company sells both in cash and on credit. Each of these sales transactions will be recorded. When a credit sale is made, the creditor’s account will be recorded. So at any point of time, the management of the company can determine how much money they owe to which creditor just by looking at the records/accounts.
• Also, maintenance of accounts and financial statements is a legal requirement in many cases. In case of companies or banks or insurance companies, there are acts which require such firms to keep and maintain financial records. In such a situation, maintaining book-accounts becomes mandatory.

Bookkeeping Activities

• Bookkeeping involves a lot of tasks and activities simultaneously. Some such activities are
• Recording all financial transactions
• Posting debits and credits in the respective books
• Producing and organizing all source documents such as invoices
• Payroll accounting and maintenance can also be integrated with bookkeeping

Bookkeeping and Accounting Process

• Bookkeeping and accounting are different from each other. Bookkeeping is an important part of accounting. Accounting is broader than bookkeeping. Accounting involves a design of accounting systems that bookkeepers use to prepare financial statements, audits, cost studies, income tax statements, etc.
• It also facilitates the interpretation of accounting information for both internal and external users for making business decisions. This requires the skills and experience of an accountant.
• There is a difference between both the terms bookkeeping and accounting, let us understand what bookkeeping and accounting are, their processes and what is the difference between the two.
• While doing bookkeeping we have to follow this Basic accounting concepts and accounting conventions.
• Bookkeeping is clerical in nature.  Nowadays most organizations use computers instead of recording bookkeeping manually. The accounting of an entity depends on its bookkeeping system.
• Bookkeeping is the basis of accounting. This is because it is responsible for the proper recording of financial transactions. Whereas, accounting involves classifying, summarizing and reporting financial transactions. It involves preparing source documents for all financial transactions of the entity.
  

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Bookkeeping Process

1. Identifying financial transactions
2. Recording of financial transactions
3. Preparation of books of accounts
4. Preparing trial balance

Accounting

• Accounting involves recording, classifying, summarizing financial transactions in a proper manner. It is related to general monetary measurement. Thus it is a broader concept than bookkeeping. Bookkeeping is a part of accounting.
•  Thus, accounting enables stakeholders to know the financial position of an entity for a period. It refers to the summary of recorded financial transactions. Also, it enables various types of report management. prepare

Accounting Process

1. Identifying financial transactions
2. Recording of financial transactions
3. Preparing books of accounts
4. Preparing trial balance
5. Preparing Financial Statements
6. Analysis of Financial Statements

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