Book-keeping is a division of acquaintance which tells us how to maintain documentation or record of business transactions. It is regularly routine and clerical in nature. It is significant to note that only those dealings connected to business which can be articulated in terms of money are recorded. The behavior of book-keeping includes recording in the journal, posting to the ledger and balancing of accounts.
Bookkeeping is the methodical recording and organizing of financial transactions in a company. It ensures that records of the individual financial transactions are accurate, up-to-date and complete.
There are diverse objectives of bookkeeping to dissimilar parties i.e., the owners, managers, creditors, administration, clients etc. The objectives of book-keeping are
- to cover stable evidence of all business dealing or transactions.
- to maintain records of profits and operating cost in such a method that the net earnings or net loss might be calculated.
- to maintain records of property and liabilities in such a method that the economic situation of the company might be ascertained.
- to recognize the names of the clients and the total payable from them.
- to recognize the names of suppliers and the total payable to them.
- to comprise vital information for tax purposes.
Importance of Bookkeeping
Appropriate bookkeeping gives companies a consistent determination of their presentation. It also provides information on common planned decisions and a standard for its revenue and income goals. The most significant feature of bookkeeping is to maintain a correct description of all records and retain them up to date. The general important objectives of bookkeeping are:
- Ascertainment of a result of an operation
Bookkeeping is planned to the ascertainment of the result of operation i.e., the profit/loss of a company by recording all the profits income and gains and expenses and losses of a definite period and by comparing them.
- Determine the financial situation
It helps to determine the financial situation of a firm or company by recording the correct values of diverse types of assets, especially in its remaining cost, and the capital and liabilities up to the date.
- Preserving control over the assets and budget
It maintains organize on the assets, profits, and expenses of all types by making their absolute records.
- Forecast of the quantity of cash for a prospect
It helps the potential forecast of a cast by verifying the receipt and payments of an organization and the proposed development programs.
With appropriate bookkeeping, companies are capable to follow all information on their books to create key operating, investing, and financing decisions.
- Assembly Legal Obligation
One means the advantage of bookkeeping is that it ensures you’re gathering your legal obligations in preserving correct and up-to-date financial reports for your business.
- Creating Accountability and Transparency
Bookkeeping allows you to investigate up transactions to corroborate prices or payments formerly made which creates accountability. It allows for superior intelligibility as business owners can entrance their books to show probable investors who are concerned in the business’ financial situation.
- Correct Data
This Correct Data is all about information about the development or financial situation of the business that is correct and clear.
In this current world, automated computer software, collecting financial records, tracking errors and so on can take a few hours.
For smaller companies, it is quite expensive, but in large companies, it is very necessary to determine absolute data. And, also bookkeeping software which needs to be updated and replaced once newer versions come out.
Bookkeepers are individuals who control all economic data for companies. Without bookkeepers, companies would not be responsive to their existing financial situation, as well as the transactions that happen within the company. The remarkable demerits are mentioned below.
- It does not make available significant but non-economic information like government strategies, political circumstances, strike, and movements etc. which influence the financial accuracy of a firm.
- It cannot be consistently used by the all the business in an assessment of stock, charging depreciation and preserving provisions etc.
- It overlooks the value level changes because the prices of goods and services are regular changes but it records the income and expenses on a chronological basis.