Introduction of Accounting & Book Keeping: Advantages, Objectives, and Differences (For CBSE, ICSE, IAS, NET, NRA 2022)

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Introduction of Accounting and Book Keeping

Accounting is the language of the business. Every business transaction has to be recorded in the books of accounts, which provides meaningful information to the users of the information in the later date to trace out the expenditure/income incurred in the past. To record the past transactions, the trader maintains the books of accounts which are called Book-keeping. In which the transactions have been recorded by the traders in a systematic and up-to-date manner.

  • Accounting is mainly concerned with the recording of the financial transactions of the organisations for classifying, summarising, analysing and interpreting the transactions for several parties, such as internal and external users. The former one is called the primary record of the business transactions, i.e.. book-keeping and the later one is called as accounting.
  • As per the accounting policy all the transactions have not been recorded in the book of accounts for the calculation purpose. To qualify the nature of transactions, these following criteria has to be fulfilled to be recorded in the book of accounts, are as follows:
    • The transaction has to be of monetary in nature.
    • It involves the exchange of goods and services.
    • The transactions are to be meant for the business activities in nature.
    • All the business transactions have to record in the books of accounts.
    • Both cash and credit transactions are to be recorded in the books of accounts, whether the
    • Cash received or deemed to be received in the future date.

Note: The ownerีšs personal transactions where the money of the business is not affected are not to be recorded in the books of accounts.

Objectives of Accounting

  • To ascertain of the financial position of the business.
  • To store the systematic record of the transactions.
  • To provide a rational financial decision for the owner.
  • To ascertain the profit or loss of the concern.

Advantages of Accounting

  • Accounting assists the management of the concern in the time of decision making.
  • It acts as reliable evidence in future.
  • It helps in ascertaining the value of the business.
  • Helps in the tax assessment matters for the concern.
  • Facilitates to compare the present performance of the business with past performance.
  • Maintenance of business records.
  • Providing information to interest parties.

Objectives of Book-Keeping

  • To know the financial position of the business.
  • To know the profit or loss of the organisation
  • To access the permanent record of the business.
  • To provide information to the several users of the business; such as creditors and debtors.
  • To evaluate the quantity and the value of stock of the business.

Advantages of Book-Keeping

  • Helps in making the crucial business decisions.
  • Analysing the financial position of the business.
  • Helps in preparing the budget for the future course of operation.
  • Evaluating the income tax assessment of the concern.

Difference between Book-Keeping and Accounting

Difference between Book-Keeping and Accounting
Book-keepingAccounting
The primary objective is to record the business transactions.It is concerned with summarizing of the recorded transactions of the concern.
Book-keeping constitutes the base for accounting.Accounting starts where book keeping ends.
Book-keeping has a limited scope.It has a wider scope.
Book-keeping is the primary stage of recording of the transactionsIt is the final stage.
It is mainly routine and clerical in nature.It requires accountant having higher knowledge and understanding of accounting skill.
It is to be conducted in accordance with basic accounting concepts.The methods and procedures for accounting for analysis may vary from firm to firm.

Note: Users of Accounting Information:

Internal Users

  • Employees
  • Management
  • Proprietors
  • Researchers

External Users

  • Creditors
  • Investors
  • Customers
  • Government

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