Bookkeeping is the process of recording all financial transactions of a business unit in a systematic way on a day-to-day basis. Most common examples of records are:
- Receipts from customers
- Payments to suppliers
- Billing for products supplied
- Recording invoices from suppliers
- Recording depreciation and other adjustments etc.
Bookkeeping acts as a basis for the accounting process. A bookkeepers’ duty is to record each transaction in the corresponding day-book or journals. A competent bookkeeper records the financial transactions such a way that it gives a clear picture of activities performed inside a business unit.
The last stage of bookkeeping is to prepare the trial balance, find and correct errors. Based on this, an accountant prepares the financial statement of the company.
Features of book-keeping
Following are the features of book-keeping:
1) It is the process of recording transactions in the books of accounts.
2) Monetary transactions only are recorded in the accounts.
3)Book-keeping is the primary stage in the accounting process.
4)Book-keeping includes journalising and ledger processing.
Objectives of book-keeping
Following are the objectives of book-keeping:
1)To have a complete and permanent record of all business transactions in chronological order and under appropriate headings.
2)To facilitate ascertainment of the profit or loss of the business during a specific period.
3) To facilitate ascertainment of financial position.
4) To know the progress of the business.
5)To find out the tax liabilities.
6) To fulfil the legal requirements.
Advantages of Book-keeping
Book-keeping has the following advantages:
1) Transactions are recorded systematically in chronological order in the book of accounts. Thus, book-keeping provides a permanent and reliable record for all business transactions.
2) Book-keeping is useful to get the financial information.
3)It helps to have control over various business activities.
4)Records provided by business serve as a legal evidence in case of any dispute.
5)Comparison of financial information over the years is possible. Also comparison of financial information of different business units is facilitated.
6)Book-keeping is useful to find out the tax liability.
Limitations of book-keeping
Book-keeping has the following limitations:
1)Only monetary transactions are recorded in the books of accounts.
2)Effects of price level changes are not considered.
3)Financial data recorded are historical in nature, i.e., only past data are recorded.