Department of Economics, Business and Management / University Batna 1

Speciality: Accounting and Auditing/ Level Master 1

Teacher: A. BOUZIDI

Academic year: 2023/2024

Course 1: Introduction to Accounting and Book keeping

Definition of Accounting
The definition given by the American Institute of Certified Public Accountants (‘AICPA’)
clearly brings out the meaning of accounting. According to it, accounting is “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 a financial character and interpreting
the results thereof”.

Accounting is used by business entities for keeping records of their monetary or financial
transactions. A businessman who has invested money in his business would like to know
whether his business is making a profit or incurring a loss, the position of his assets and
liabilities and whether his capital in the business has increased or decreased during a
particular period.

Functions of Accounting
The following are the main functions of accounting:
(i) Keeping Systematic Records: Accounting is done to keep a systematic record of financial
transactions.
(ii) Protecting and Controlling Business Properties: Accounting helps to see that there is no
unauthorized use or disposal of any assets or property belonging to the firm, because proper
records are maintained. Accounting will furnish information about money due from various
persons and money due to various parties. The firm can see that all amounts due to it are
recovered in due time and that no amount is paid unnecessarily.
(iii) Ascertaining the Operational Profit/Loss: Accounting helps to determine the results of
the activities in a given period, usually a year, i.e. to show how much profit has been earned
or how much loss has been incurred. This is done by keeping a proper record of revenues and
expenses of a particular period and then matching the revenues with the corresponding costs.
(iv) Ascertaining the Financial Position of the Business: Balance sheet is prepared to ascertain
the financial position of the firm at the end of a particular period. It shows the values of the
assets and the liabilities of the business entity.
(v) Facilitating Rational Decision Making: Accounting facilitates collection, analysis and
reporting of information at the required point of time to the required levels of authority in
order to facilitate rational decision making.
BOOK-KEEPING
Book-keeping is mainly concerned with recording of financial data relating to the business
operations in a significant and orderly manner. It is concerned with the permanent record of
all transactions in a systematic manner to show its financial effect on the business. It covers
procedural aspects of accounting work and includes record keeping function. It is the science
and art of correctly recording in books of account all those business transactions that result in
the transfer of money or money’s worth.

This work of book–keeping is of clerical nature and usually entrusted to junior employees of
accounts section of a business house. Now-a-days, most of the book-keeping work is done
through computers and other electronic devices. In fact, accounting is based on a systematic
and efficient book-keeping system. The main purpose behind book-keeping is to show correct
position regarding each head of income and expenditure as well as assets and liabilities.
Further, book-keeping is meant to show the effect of all the transactions made during the
accounting period on the financial position of the business.
Differnce Between Book-keeping and Accounting

Book-keeping Accounting

 It is concerned with the recording of  It is concerned with the summarizing

transactions.
 The work of book-keeping is mainly
routine and clerical in nature and is
increasingly being done by computers.
 Book-keeping constitutes the base for
accounting.
 Book-keeping is done in accordance
with basic accounting concepts and
conventions.
 Financial statements do not form part
of bookkeeping.
 Financial position of the business
cannot be ascertained through book-
keeping records.
of the recorded transactions.
 The work of accountant requires
higher level of knowledge, conceptual
understanding and analytical skill.
 Accounting starts where book keeping
ends.
 The methods and procedures for
accounting for analysis and
interpretations for financial reports
may vary from firm to firm.
 Financial statements are prepared in
accounting process from the book-
keeping records.
 Financial position of the business is
ascertained on the basis of accounting
reports.