Book Keeping

It is the art of recording the business transactions in a set of books systematically. The two systems in book-keeping are

1. #Single entry system of book-keeping and
2. #Double entry system of book-keeping

Art of Book Keeping

Advantages of Double-Entry System of Book Keeping

       i.          It is a complete systematic record

      ii.          In enables businessmen to find profit or loss at any time

     iii.          A trial balance can be prepared

    iv.          A balance sheet which indicates the current financial position can be prepared

      v.          It reveals the amount due to creditors and due from customers

    vi.          It discovers and prevents errors and frauds

   vii.          The tax authorities prefer double entry system only.

Single Entry System of Book Keeping

Single entry system of book keeping is the method of maintaining accounts which does not exactly follow the principles of double-entry system. Only the cash book and personal ledgers are maintained, i.e., the real and nominal accounts are not maintained under this sytem.

No fixed assets, purchases, sales, expenses, income accounts etc., can be found under this system. As trial balance cannot be prepared, the accuracy of accounts can’t be ascertained. No final account and balance sheet preparation is possible. Therefore, this system is  said to be unscientific  and not generally followed for #accounting purposes.

The set of books are

1. Journal

2. Subsidiary books

3. Ledger

4. Trial Balance and

5. Final Accounts.

What are Business Transactions?

Dealings of the business with the customers, another business, Government, other third parties and with itself.

For example

• Investment of capital
• #Purchase of goods
• #Sale of goods
• #Purchase of assets
• Payment of #rent, #salary

A transaction may be a credit or #cash transaction. The cash transaction involves cash (incoming or outgoing) whereas #credit transaction does not involve cash (no cash comes in or goes out).

Main Accounting Concepts

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B u s i n e s s E n t i t y Co n c e p t

Let’s say an entrepreneur starts a business. Though he is the owner, the business is treated as a separate entity. It is treated as a distinct feature and therefore it becomes necessary to record the business transactions separately to distinguish from the owner’s personal transactions.

Going Concern Concept

People may come and go, but the business remains forever. Until and unless the business dies by itself.

Money Measurement Concept

Business transactions can only be recorded in terms of their monetary value. Depreciation, rent, use of clerical services etc., can be only added up if expressed in terms of money.

Financial accounting concepts from Shyama Shankar

Cost Concept

The transactions are recorded keeping in mind the actual cost involved and this concept does not consider the projected value or appreciation. Even if a firm knows that a land purchased for Rs. 2,00,000 will fetch double the amount in the near future or worth more than the actual cost, the transaction is recorded only at the actual cost.

Dual Aspect Concept

Each transaction has two aspects. When a business acquires an asset, it has to pay money. Acquiring an asset and paying money are two sides of the coin. Similarly, if the asset is acquired through credit, there arises a liability to that extent. Thus if there is an increase in asset, there will be increase in liability also. Assets = Liabilities+Capital or Capital = Assets-Liabilities

Realization Concept

Unless money has been realized, no transaction can said to have been taken place.

Accounting Period Concept

In order to ascertain the state of the business affairs at regular intervals, usually a period of 52 weeks or 365 days is considered as the accounting period.

Related Posts:

1. Functions of Accounting
2. Objectives of Accounting