CONCEPT OF BOOKKEEPING

Man is born with wants. These wants are satisfied by the exchange of goods and services that are
provided by economic organizations. Every organization requires written records as guides to daily
operations, to make economic decisions to keep relationship with other organizations or individuals. Of
all these important records, the records that involve money or money’s worth are the scope of
accounting.

DEFINITION OF BOOK KEEPING

Book keeping is analysis, classification and recording of financial transactions in the books of accounts. It
is a component of accounting which involves collecting and recording of business transactions into
various accounting books.

According to Serwanga (2012), financial accounting is the art and science of recording and classifying
financial transactions in the books, summarizing and communicating financial information through
production of financial statements/ reports, and interpretation of the operating results portrayed in the
financial statements /reports to facilitate decision making.

The term ‘Accounting’ has been defined by the American Institute of Certified Public Accountants
(AICPA) as the art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least, of financial character, and interpreting the
results therefore.

DIFFERENCES BETWEEN BOOK KEEPING AND FINANCIAL

ACCOUNTING
i. Book keeping only involves the recording of financial transactions into various books of accounts
therefore does not aid decision making while financial accounting aids decision making.
ii. In book keeping there is no preparation of financial statements unlike in financial accounting
where financial statements are prepared and presented to various users.
iii. Book keeping is done by a book keeper whereas financial accounting is done by a trained
accountant.
iv. Book keeping is a sub set of financial accounting.

1.1 Why Financial Accounting? / The Need for Financial Accounting

Ascertainment of profit and loss

One of the main purposes of any business is make profit. For this reason, accurate and complete
recording of all business transactions is essential because this information will be helpful to determine
whether there was a profit or loss.
Assessment of tax
Governments in all countries impose taxes. For the accurate assessment of tax, accurate records must
be maintained properly; otherwise, a business enterprise may be required to pay high taxes to the
government. Accounting information therefore forms an objective and reliable basis of computing taxes.

To facilitate the credit transactions

most business transactions are made on credit basis. in this case, goods are purchased or sold without
cash payment. These transactions are made on the basis of promise to make payments in future.
Accounting records facilitate such credit transactions because these records facilitate such credit
transactions because these records will determine the amounts due to creditors and due from debtors.
For easy monitoring of debtors and creditors, proper accounting records must be maintained

A tool for control

A business enterprise can maximize its profits by increasing the gap between income and expenses.
Proper control of unnecessary

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