Book Keeping

Meaning: -
Book keeping two words,
Book – register or books of account
Keeping – the art of recording or maintaining
Thus, book keeping is an art of recording transaction in such a way that an manager can
attain necessary information at any time whenever required.

Transaction may be on cash or credit: -

- Purchase of goods
- Sales of goods
- Payment of loan
- Payment of various expenditures
- Receipt of misc. incomes

According to R.N. Carter: -

“Book keeping is the science and art of correctly recording in books of account all these
business transaction that result in the transfer of money or moneys’ worth.”

Objectives of Book keeping:

i. To help a systematic, scientific and permanent record of all financial
transactions.
ii. To help to ascertain the profit or loss made by a firm over any given period.
iii. To help to disclose the financial position of the organization on any given
date.

Importance of Book Keeping: -

i. Provides necessary information for future references.
ii. Helps to determine profit or loss of a firm made during a year.
iii. It helps to prepare balance sheet which shows the assets and liabilities of a
concerned during the year.
iv. Provides evidence to settle the disputes between creditors and debtors.

Types of Account: -
1. Personal Account: -
It is the account related to any person or organization e.g. Hari A/c, Kumari Bank
Limited A/c, Himalayan Hydro power Ltds A/c etc.
Here debit the receiver
Credit the giver.
E.g. Goods sold to Sashi on credit for Rs 3000
Journal
Date Particular C/F Dr Amount Cr Amount
Sashi A/c Dr 3000
 To sale A/c
(Being goods 3000
Sold to sashi
On credit)
2. Real Account: -
It relates to assets or properties of the business machinery A/C, Bank and cash A/C,
Goods A/C etc are same real accounts
Rules: - Debit what comes
Credit what goes

3. Nominal Account: -
It is related with loss, profit expenses and income e.g. wage A/C, Discount A/C,
Commission A/C, etc are e.g. .of nominal account.
Rules: - Debit all exp. And loss
Credit all gains
4. Suspense Account:
A suspense account is an account in the general ledger in which amounts are
temporarily recorded. The suspense account is used because the proper account
could not be determined at the time that the transaction was recorded.

When the proper account is determined, the amount will be moved from the
suspense account to the proper account.

System of Book Keeping: -

2 types: -
1. Single entry system of book keeping
2. Double entry system of book keeping

1. Single Entry System of Book Keeping: -

There are 2 aspects of each transaction i.e. debit and credit under double entry system
but single system records only one aspect of every transaction, therefore it is often
called as an incomplete system of recording transactions.
In single entry system, accounts relating debtors, it ignores and cash are prepared
however, it ignores all impersonal accounts like salaries, wages, sale, purchases etc.
In other words, it maintains a cash book and personal accounts but does not record
nominal and real accounts.
For e.g. if goods are purchased from a supplies on credit, his personal accounts is
credited but no entry is made on debit side of the goods accounts.
According to Kohler – “Single entry system of book keeping as a rule only records
cash and of personal accounts are maintained. From this, we can say that it is not
complete system of recording transaction; however, small scale organizations are still
following this system to record their business transaction.

Advantages: -
i. Simple method of recording transaction as it does not need only expert
knowledge of book keeping.
ii. Only personal accounts and cash books are maintained so that it is economical
in comparison to double entry system
iii. Simple method, less costly, suitable for recording small scale organization.
iv. Due to less number of transaction and accounts, the time can be saved in
maintaining the books of accounts.

Disadvantages: -
i. Fails to record both aspect of each transaction, so it is an incomplete
unscientific and unsystematic system of book keeping.
ii. As it records only one aspects of each transaction, the trail balances can not be
prepared. Thus arithmetic accuracy of accounts cannot be checked.
iii. Nominal accounts are not maintained under this system and P/L taken under it
is not true.
iv. In the absence of real accounts, balance sheet cannot be prepared. The true
financial position of the organization cannot be shown.
v. Due to its incompleteness of record keeping the tax authorities do not accept
this system for the determination of tax.

2. Double Entry System of Book Keeping:

Under this both aspect of transaction i.e. debit and credit must be recorded. This rule
of double entry system is that for every debit there is a credit of the same amounts.
In other words, there are two parties in every transaction, one is giver and another is
receiver. One party is debited and another is credit. Generally the account of receiver
is debited and the account of giver is credit.
The double entry book keeping system is based on the concept what come and what
went where one account receives a benefit in form of cash, goods or services and
another bears the loss. It signifies that the same amount of a transaction is shown in
two books on opposite sides. For e.g. Ram sold goods to Sita of Rs 5000 in cash. In
this case, Ram is a giver and Sita is a receiver of goods. On the other hand, Ram
receives the cash from Sita.