INTRODUCTION OF BOOK-KEEPING

&ACCOUNTANCY
DR. RAJINDER S AURORA
PROFESSOR IN FINANCE, IBS - MUMBAI
Objectives of the chapter:

After completion of this chapter student should be

conversant with:
 Meaning and definition of book-keeping

 Features of book-keeping

 Meaning and definition of accounting

 Features and advantages of accounting

 Difference b/w book-keeping and accounting

 Basis of accounting and branches of accounting

 Limitations of accounting
Introduction:
 Introduction
 Need for accounting

 Chitragupta

 Kautilya’s Arthashashtra

 Luca De Bergo Pacilio from Italy developed double entry

system in the year 1494.

Meaning and definition of book-keeping

 Definition:
 “The art keeping permanent record of business transactions
is book keeping.”
 J. R. Batliboi: “Book-keeping is an art of recording
business dealings in a set of books”.
 R. N. Carter: “Book-keeping is the science and art of
correctly recording in the books of accounts, all those
business transactions that results in transfer of money’s
worth”.
Features of Book keeping

 It is the process of recording business transactions.

 Monetary transactions are only recorded.
 Recording is made in given set of books of
accounts.
 Record is prepared for a specific period but
presented for future references.
 It is an art of recording business transactions
scientifically.
Meaning and Definition of Accounting:

 Accounting definitions:
As per AICPA - Financial accounting is “the art
of recording classifying and summarizing in a
significant manner in terms of money
transactions and events which are in part, at
least of a financial character and interpreting
the results thereof”.
 Meaning and definition of accounting:

 Accounting is “the process of identifying, measuring, and

communicating economic information to permit informed
judgments and decisions by users of the information”.
Relevant aspects of the definition of accounting

 Economic events
 Identification

 Measurement

 Recording

 Communication

 Organisation

 Interested users of information

Features of Accounting:

 Identifying the transactions and events

 It is the art of recording business transactions
 It is the art of classifying business transactions
 The transactions are events of a business must be recoded in
monetary terms
 It is the art of summarizing financial transactions
 It is an art of analysis and interpretation of these transactions
 The result of such analysis must be communicated to the persons
who are to make decisions
 OBJECTIVES OF ACCOUNTING

10

o Providing suitable information with an aim of safeguarding

the interest of the business and its proprietors and others
connected with it.
o To emphasis on the ascertainment and exhibition of profits
earned or losses incurred in the business.
o To ascertain the financial position of the business as a
whole.
o To ensure accounts are prepared according to some
accepted accounting concepts and conventions.
o To comply with the requirements of the Companies Act,
Income Tax Act, etc.
Dr.Rajinder S.Aurora, Professor in Finance, IBS
 LIMITATIONS OF FINANCIAL REPORTING

11

o Financial statements are based on estimates and

judgments.

o Financial statements are based on historical information

o Financial statements largely record only the financial

effects of transactions and events.

Dr.Rajinder S.Aurora, Professor in Finance, IBS

 Difference between Book-keeping and Accounting:
Point of Book-keeping Accounting
distinction
1. Objective The object of book-keeping is to The object of accounting is to record,
prepare original books of classify, summarize, analyze, and
accounts, trial balance and to interpret the business transactions and
maintain systematic record of ascertain financial results and to
financial results. communicate to various parties.
2. Scope It has a limited scope It has a wider scope
3. Level of It is restricted to clerical work It is concerned with all levels of Mgnt.
work
4. Mutual It has to depend on accounting It has to depend on book-keeping
dependence principles
5. Results of It shows the net result and It analyses the operating and financial
the business financial position. position of the business
6. Stages Book-keeping is a primary stage Accounting is secondary stage
 Accounting Cycle:

Identification of
transactions
Recording of
Preparation of
transactions in
final accounts journal

Passing of adjustment
Posting into ledger
entries

Preparation of trail
balance
Objectives of Accounting:

Permanent Record

Measurement of Outcome

Creditworthiness

Efficient Use of Resources

Projections
Users of Accounting:

Shareholders

Investors

Creditors

Workers/Employees

Government

Researchers
Branches of Accounting:

Financial accounting
Cost accounting
Management accounting
Human resource accounting
Responsibility accounting
Inflation accounting
Forensic accounting
Basis of Accounting:

 Cash basis of Accounting: The cash basis is a method of recording

accounting transactions for revenue and expenses only when the
corresponding cash is received or payments are made. Thus, you record
revenue only when a customer pays for a billed product or service, and you
record a payable only when it is paid by the company.
 Accrual basis of Accounting: Under the accrual basis of accounting,
expenses are matched with the related revenues and/or are reported when the
expense occurs, not when the cash is paid. The result of accrual accounting
is an income statement that better measures the profitability of a company
during a specific time period.
Advantages of accounting:
Replacement of memory
Evidence court
Settlement of taxation liability
Comparative study
Sale of business
Assistance to the insolvent person
Assistance to various parties
Facilities in raising loans
Assistance to the government
Facilitate control over assets
Limitations of Accounting:

 Records only monetary transactions

 Effects of price level changes not consider
 No realistic information
 Personal bias of the accountant affects the accounting statements
 Permits alternative treatments
 Profit no real test of managerial performance
 Historical in nature
 Window dressing in balance sheet
 ANY
QUESTIONS
PLEASE???