literature book keeping

8/3/2019 Literature Book Keeping

http://slidepdf.com/reader/full/literature-book-keeping 1/7

BOOK-KEEPING

Presented by:

Rahul Mahadik

What is Book-keeping?

Book keeping and Accountancy is a science which has attracted the attention of people from all walks of life. Bookkeeping is the process of recording and classifying business financial transactions,. TheEconomic aspects are undoubtedly important in all such human activities. Accounting enables person toassess the risk, measure the performance, know the economic consequences, and take appropriate steps.Accounting therefore has evoked interest among all sorts of people such as housewives, businessman,managers, investors, government employees etc. It is no more a discipline to be studied only by book-

keepers and accountants.

• OBJECT OF BOOK KEEPING:

TO know profit /loss.

To know financial position.



To have a systematic record.

Types of Bookkeeping Systems

There are various methods of maintaining accounts . Businessman adopts any one of the following

methods for their accounts suited for business. Following are different systems of accounting which are

discussed below:

1. Indian System

2 Cash System

3. English System

• Single Entry System

• Double Entry System

1. Indian System:

• The businessman writes their accounts in vernacular of Indian language like Hindi, Marathi etc.

• The accounts are written in the long accounts book called ‘Bahis’ and the system is known as

‘Bhaikhata’.

• It is based on the principle of double entry system as this system also adopts principle of debit

and credit.

2. Cash System:

• Importance is given to cash receipts and cash payments and non-cash transactions are not at all

recorded in the books.

• Cash accounting is a method of bookkeeping that delays recording the revenues and expenses of a business until the cash is actually exchanged (i.e. when cash is actually received or paid out).

Advantages:

It is simpler to maintain. Data can be taken from minimal sources - i.e. bank statements, check butts,

deposit book.

It is less time consuming in preparing financial reports because minimal adjustment need to be done tothe cash records.

It is easier to understand and operate for people with limited accounting knowledge and skills.

Taxes are only paid after cash is received so it doesn't cause the cash flow problems that the accrualaccounting method can create.



Finalized financial reports can be prepared on demand without the need for adjusting entries.

Disadvantages:

Financial reports do not represent the true financial position and performance of the business.

This method does not comply with the accounting concept of the matching principle.

Financial institutions may not accept this accounting method when making loan applications.

.

Performance comparisons are difficult to make with previous period results and industry benchmarks.

3. English System:

The system is further classified

• Single Entry

• Double Entry

1. Single Entry

‚A system of book-keeping in which as a rule only records of cash and of personal accounts are

maintained – Kohler.Really speaking this is not a system at all. This is system in which double entry system is adopted in anincomplete way. Only cash accounts and personnel accounts are maintained in this system andimpersonal accounts are ignored. In this system,you record each transaction only once, as either adeposit or as an expense.This system is generally used to determine the profit/loss of a business. This isnot a reliable system.

Advantages:

1. It is the most simple method of recording business transactions.

2. Maintenance of accounting records does not require adequate knowledge of principles of book-

keeping

.3. It is less costlier than double entry book-keeping.

4. Determination of profit or loss is much easier.

5. It is quite suitable to small concerns having limited number of transactions and a few assets andliabilities.



Disadvantages:

1. Arithmetical accuracy of the accounts cannot be checked, because trial balance cannot be preparedas both the aspects of the transactions being not recorded.

2. Trading account cannot be prepared as goods accounts are not maintained, hence the gross profitand gross loss cannot be ascertained.

3. Balance sheet cannot be prepared as real accounts and other accounts are not maintained. P and Laccount also cannot be prepared as the accounts of income and expenses is not opened.

4. Theft and other losses are less likely to be detected.

5. Single-entry records seldom make provision for recording all transactions. In addition, many

internal transactions, such as adjusting entries are often not recorded.

6. Because no accounts are provided for many of the items appearing in both the Income Statement

and Balance Sheet, omission of important data is possible.

7. This system gives scope for misappropriations and frauds as there is no proper checking and

control.

2. Double entry system

The double entry system of book-keeping is the most satisfactory and a scientific system of maintaining

the accounts of the business. Really speaking it is a complete accurate and perfect system of accounting

which records both the aspects of each transaction. Every transaction has two aspects. Just as there are

two parties to every contract or agreement.

Meaning of Double Entry Book-Keeping

Book keeping involves writing up of accounts in a set of books. Accounts are records of facts relating to

business transactions. Double entry System of book-keeping denotes that every business transaction has

two-fold effect. There cannot be a business transaction unless it has effect at least on two accounts or

two parties. Whenever, a businessman give something he gets something else in return of that. In

other words, one account receives the benefit and the other accounts give the benefit. In short the

following are the main principles of DOUBLE ENTRY BOOK KEEPING SYSTEM



1. Every account has two sides

2. One account is the receiver of the benefit

3. Other account is the giver of the benefit.

It must be noted that the account of benefit received by one account is equal to the amount of benefit

given by the other party. This enables us to record the two effects of any business transaction.

Advantages of double entry:

1. It is complete , scientific and satisfactory system.2. It records both the aspects of each transactions.3. It is possible to prepare Trial Balance.4. It is possible to prepare Trading and Profit and Loss Account and Balance Sheet easily.5.

Arithmetical accuracy of books of accounts can be verified.6. In a balance sheet the values of assets and liabilities are taken from the ledger.7. It can be adopted by all concerns.

Disadvantages of Double Entry System:

The following are the main disadvantages of this system:

1. This system requires the maintenance of a number of books of accounts which is not practicalin small concerns.

2. The system is costly because a number of records are to be maintained.3. There is no guarantee of absolute accuracy of the books of accounts inspite of agreement of the

trial balance.

There are three steps in recording any financial transactions

1. Deciding as to what accounts are effected.

2. Deciding whether to debit or to Credit the account

3. Deciding on the amount to be debited or credited.



Example: Assume that Rs.500/- are paid to Mr.Rajan.

Here the accounts affected are cash account and Mr.Rajans account.

Mr.Rajan is the receiver of the benefit and Cash Account is the giver of the benefit.

Thus this transaction has two fold effects, and a complete record of both these effects can be kept onlyby recording the transaction in two accounts. Let take some few examples which are some of the

transactions.

The following are the transaction in Book keeping Accountancy

1. Purchase goods & paid cash Rs.500/-

Purchase A/c Dr. 500

To Cash A/c 500

(Being goods purchase)

2. Sold Goods & received cash Rs.1000/-

Cash A/c Dr. 1000

To Sales A/c 1000

(Being good sold towards cash)

3. Received Rs.500 from Mr. Ram

Cash A/c Dr. 500

To Ram A/c 500

(Being cash received from Mr. Ram)

4.Paid Rs.400/- to Anita

Anita A/c Dr. 400

To Cash A/c 400

(Being cash paid to Anita)

5. Purchased goods from XYZ & Co for Rs.6000/- on credit.

Purchase A/c Dr. 6000

To XYZ & CO 6000



6. Sold goods to Anand for Rs.3000/- on credit

Anand A/c Dr. 3000

To Sales A/c 3000

(Being goods sold to anand on credit.)

In order to record the above transactions, record must be made in two accounts of each transactions.

This method of writing every financial transaction in two accounts is called as Double Entry System of

Book keeping.

Under this method of book keeping for each financial transaction one account is debited and other

account is credited for the same amount. This means for every debit accorded to any account there is a

corresponding credit to any other account.

Obviously, the total of all debits must agree with the total of all the credits. Therefore this method of

book keeping enables us to check the arithmetical accuracy of accounts.

literature book keeping

Documents