What is bookkeeping?
Bookkeeping is the process of recording of financial transactions. Financial transactions include sales, purchases, income, expenses, receipts and payments.
What is accounting?
Accounting is the systematic recording, reporting and analysis of financial transactions of a business. Accounting allows a company to analyze the financial performance of its business, and look at statistics such as net profit or loss for a particular period
Are bookkeeping and accounting the same?
No. Many individuals mistakenly consider bookkeeping and accounting as the same. The accounting process includes the bookkeeping function.
What is the Double Entry Method of bookkeeping?
Business entities generally follow the Double Entry Method of book keeping. Under this method, every transaction will be recorded with double aspects, termed as Debit and Credit, depending on the nature of transactions.
For example, if 'A' buys a Computer from 'B' and pays Rs.20000.00 cash as its price, the double aspects of this transaction from A's point of view will be:
And From B's point of view:
What are the records to be maintained by the business for efficient book keeping?
It is advisable to keep vouchers for all receipts and payments. Generally, different colored voucher slips are maintained for receipts and payments of money. Considering the volume, these vouchers are segregated and recorded according to the nature of transactions such as income, expenditure, debtors, creditors, assets and liabilities.
Is book keeping mandatory for all business?
It is statutorily mandatory for an incorporated business to keep the records of books of accounts. However, it is essential for every business to keep the accounting records to analyse the financial status, to take timely decisions and to assess the profitability of business at the year end.