The first step in the accounting process is identifying and recording of transactions in the books of accounts. This is necessary for any business as the transactions happening in a business entity must be recorded so that the information is available for further analysis.
Book-keeping forms the base for the preparation of financial statements and interpretation which are the important functions of accounting. In a broad sense, accounting includes book-keeping also. In a small business, the entire accounting work may be performed by a single accountant. In a large firm, there may be a separate person or department for book-keeping work.
Book-keeping is the process of recording financial transactions in the books of accounts. It is the primary stage in the accounting process. It includes recording the transactions and classifying the same under proper heads. Book-keeping work is of routine nature. Transactions may be recorded in the accounting note books and ledgers or may be recorded in a computer.
“Book-keeping is an art of recording business dealings in a set of books”. - J.R.Batliboi.
“Book-keeping is the science and art of recording correctly in the books of account all those business transactions of money or money’s worth”. -R.N.Carter.
Following are the features of book-keeping:
i. It is the process of recording transactions in the books of accounts.
ii. Monetary transactions only are recorded in the accounts.
iii. Book-keeping is the primary stage in the accounting process.
iv. Book-keeping includes journalising and ledger processing.
Following are the objectives of book-keeping:
i. To have a complete and permanent record of all business transactions in chronological order and under appropriate headings.
ii. To facilitate ascertainment of the profit or loss of the business during a specific period.
iii. To facilitate ascertainment of financial position.
iv. To know the progress of the business.
v. To find out the tax liabilities.
vi. To fulfil the legal requirements.
Book-keeping has the following advantages:
i. 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.
ii. Book-keeping is useful to get the financial information.
iii. It helps to have control over various business activities.
iv. Records provided by business serve as a legal evidence in case of any dispute.
v. Comparison of financial information over the years is possible. Also comparison of financial information of different business units is facilitated.
vi. Book-keeping is useful to find out the tax liability.
Book-keeping has the following limitations:
i. Only monetary transactions are recorded in the books of accounts.
ii. Effects of price level changes are not considered.
iii. Financial data recorded are historical in nature, i.e., only past data are recorded.