What is book keeping? features, process and objects of book keeping

Book keeping

Book keeping is that branch of knowledge which tells us how to keep a record of financial transaction. Book keeping denotes as an art and science of recording business transactions in a systematic and chronological order.

Definitions

R.N. Carter - "Book-keeping is the science and art of recording correctly in the books accounts all those business transactions that results in the transfer of money or money's worth".

Characteristics or Features of Book-keeping

1. Book keeping is the fundamental accounting activity for recording businesses transactions in the prescribed books.
2. Every transaction is properly analysed before recording.
3. The transaction recorded relate to transfer of money or money's worth (also referred as pecuniary transaction). Thus, events which are non-pecuniary, like giving a gift to a friend on his appointment as  a new director of a company will not be recorded irrespective of their importance to the company.
4. Book keeping is a systematic method of recording. Haphazard recording depending on the whims and fancies of individuals does not constitute Book-keeping.
5. The system of recording is universal in character.
6. It is both a science as well as art.
7. It provides enough information about the position of various accounts.

Process of Book-keeping

The process of book keeping contain the following steps:-

(1) Identification of transactions/event : All transaction and events which are financial in nature, relate to the entity and have documentary evidence are to be identified for recording  Non financial activities are to be ignored.

(2)  Measuring the identified transaction and events: A business enterprise may have five machines and two buildings. It is not the number of machines and building but their value in monetary terms is measured. In India, as the monetary unit is rupees, we measure their values in term of rupees.

(3)  Recording at first stage: Financial transaction and events identified are recorded in the book of original entry i.e. journal or sub-journal. Journal or sub-journal is a book where all transactions are first recorded.

(4) Posting in the ledger :All transaction recorded in the book of original entry relating to person, property, expense, income, loss or gain are posted in the respective accounts maintaining in the ledger (book of principal record). Ledger account provide latest information at a glance.

(5) Balancing of ledger accounts : At periodic interval, accounts maintained in the ledger are balanced. Accounts is balanced by finding out the differences between the total of debit (left hand side) and credit (right hand side) of the account. Difference is entered on the lesser side as balance carried down and the same is shown as balance brought down on the opposite side.

(6) Preparation of schedule of sundry debtors and sundry creditors: The balance of the accounts of debtor are pooled at one place to find out the total amount due from the debtors at the end of the year. A statement (also called as schedule) of debtors is prepared for this under which the names of the debtors and the amount due from them is written. It is then totalled and called as Total Debtors. Similarly, a Statement  (or schedule) of creditors is prepared to find out the total creditors. These total debtors and total creditors are written in Trial Balance instead of writing the individuals debtors and individual creditors.

(7) Preparation of trial balance : The balance of ledger accounts are placed on a separate list with debit and credit columns. This list of balance is known as Trial Balance. It is prepared to check the arithmetical accuracy of the books. If trial balance does not tally , it indicates existence of errors which are located and rectified.

Object of book keeping

Various object of book keeping may be stated as follows:-

1. To have a permanent record of each transaction of the business.
2. To show financial effect of each recorded transaction of the entity.
3. To ascertain the combined effect of all the transaction (during an accounting period) on the financial position of the business on a particular date.
4. To disclose factors responsible for earning profit or suffering loss in a given period.
5. To know the amount receivable by the business from others (sundry debtors) and payable to others (sundry creditors).
6. To determine the tax liability of the business.
7. To prevent errors and frauds.
8. To provide protection of assets of the entity.
9. To exercise a system of control.