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2, , JntroductlO'n, , fl'F fle, , lU, , J''1 • w •- ·, , ·, , ., . first print ed work on, Monk, ,, pubh, shed hts, Accounting, in its, ., ., p, ·, ), a, Franc, iscan, In 1494, Luca Pactoh (or a~to1O ,, . g However,, ., E t Book-Keeptn., ·, eriod s of Egypnan,, mathematics, which included a secuon on Dou ble/, ~ 00 B.C., dunn g the ~lo with the growth, broad sense existed much before that D aroun Acco, unting bega n to dev p • e the time of, Babylonian, Greek and Roman civilisations. Modern, a during the 15 th centu ry 1· ·, of commerce in the Italian cities like Venice a nd Gene, v, h, Columbus and the discovery of the New World., t .n learning comm erce durindg t e 1ater, ., ., ., •, ased interes 1, Pac10h's work on accounting, shows mere, essity for merehants to a opt, . more, part of 15th century as a result of increased trade a~d, t:e,;. ~; Italian form of book -keep ing soon, precise methods of recording the business transactio, n·, ks in England and Holland attem pted, spread to other parts of Europe. During 17th c~ntury, th, e :~~ statements ; reportS, inde pend ent of, to design rules for Double Entry and production of finan, ledger accounts., . h them the grow th of business, The 19th century and the Industrial Revolution broug, h~ Wl~ of machines, spee ding up of, corporations and complexity in commerce and indus, try. Intr~ uctton, rial contr ol over material,, production, increased capital requirements, the need, for efficient man ;~ untin g Profession. The, Labour and other costs, had a great influence on the, deve lopm :nt O cco boom s rema rkab le, 20th century brought with it the two world, wars, world depressto~, poSt war ., Birth of giant, technological advances and the need to revise the form, of acco unnn g a nd repornn_g:, leadi ng to, and complex industrial organisations, the fading effe~, tiveness of personal supervts~on h field of, decentralisation of authority and responsibility etc., brought a remarkable chan ~e m t e t d, accounting which is now recognised as a 'tool for maste, ring' the various econ omic prob lems ace, by a business organisation., ·, In today's intensive environment of information techn, ology, wherein know ledge base d firms, are gaining in importance, we see that accounting, is getting increasingly adap ted to the new, situation and getting integrated into new software pack, ages., 1., , 2., , DEVELOPMENT IN ACCOUNTING, , ., , INTRODUCTION TO BOOK-KEEPING, , Book-keeping is the subject, which is to be studied by, the students of Com merc e and by book keepers and accountants. A study of this subject requi, res more practice and less of readi ng. A, student of Accountancy should know the theoretica, l as well as the practical aspects of the subje ct., In this chap ter you will study the concept, objectives,, importance and utility of Book-Keeping., Every business involves exchange of goods or servic, es. A trade r or ·a businessman purc hase s, and sells goods or services with a view to make profit, . A manufacturer buys raw-materials, conv erts, it into finished products and then sells them at a, profit. That means a businessman or busin ess, conc ern deals with other parties in exchange of good, s or services. Such dealings, in business, are, called business transactions. The business transactio, ns include purc hase of goods or services, sale of, goods or services, payments, receipts etc. In a busin, ess concern, the transactions are num erou s. All, the details of these varied transactions cann ot be, reme mber ed by the businessman. Furth er, the, business transactions take place daily throughou, t the accounting year. Therefore, it is very, necessary to keep a written recor d of all such trans, actions. A recor d of such transactions shou ld be, systematic so that it may rend er valuable informatio, n t~ the owne r of a business. Book-keeping is a, system by whic h the business transactions are recor, ded systematically in a set of books., 3. MEANING AND DEF INm ON OF BOOK-KEEPIN, G., Book-keeping IS defined as the process of analysing,, classifying and recording trans actio ns in a, systematic man ner to prov ide information abou, t the financial affairs of the business conc ern., Following are some of the impo rtant definitions given, by emin ent authorities on the subject :, , J.R. Batliboi: "Book-keeping is the art of recording business dealin, , gs in a set of books.", R.N. Carter : "The science and art of correctly recor, ding in the books of accounts all those, business transactions that result in the transfer of money or mone, y's worth"., Richard E. Stra hehn : "The art of analysing and, recording business transactions, reporting, results of business operations through periodic statements and, interpreting such results for purposes of, effectiue control of future operations"., Northcott : "Book-keeping is the art of recording in the, books of account the monetary aspect of, , commercial or financial transactions.", , Book\kee ping is the art of recording, classifying and, summarising the financial transactions and, ~ business. It is a systematic recording, in terms of money in a set of books., _.,,.?'...~~ .

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Meaning and Scope of'A . . . ,, ', , C(; (J Untm,:, , 3, , Features, , • An, :, , Do~umentary support., UnLver.val system, • Recordin, ·, • Ow, g monetary transaction.,., ·. n tran.'laction.v With other,;, • Proce..vs of recording, ., ., • Recording i, An, -- - n a gLven .vet of books, alysis of the above defini, -- ., 1 It ·, tions brings, ., ts an art of recording transact', . ~t the following features of Book-KPPnifla ., 2. There must be a do, ions SC1ent1fically., --r~ ., , ---==---=--~------_J, , cumemary support t, . or each and every transaction., 4. The recording is made of, e universal., involv, monetary transacti, e ?1oney or money's worth. Non-mone ons only: It means the transaction must, 5. The business house records i'ts o, . tary transactions cannot be recorded, 6 I ., wn transacuo, .th, ., . t ts the process of recordin d, . ns WI others., accounts., g ata relatmg to accounting transactions in the books of, 3, , 4., , ., , Th, , e system of recording should b, , 7. Recording of transactions is mad ., ., MEANING OF ACCOUNTANCY, em a given set 6f books only., , 1?e tenn 'Accountancy' is concerned with, ., recording of business transactions., ~e formulauon of principles to be followed in, The tenns .,Accountancy' and ,Accountin ,, ., ., can be differentiated., g ~re often considered inter changeable. But they, , The m~ differences in Accountancy Accounting and A, Accountancy is concerned with formul~tio, f, . . ccounts are as follows :, recording the business transactions. Whereas ,A n o ~e, principles . or rul~s to be observed in, , business transactions in accordance with the ~rin~';:':::cii:~!':C:.tself with actual recording of, Accountancy prof~sses whereas Accounting practices. Accountancy relates to the theoretical, study, whereas Accountmg relates to the practical work., Accountancy is a science whereas Accounting is an art., In respect of their relative importance in maintenance of records, accountancy can be, consiclerecl as the father, accounting as the mother and accounts as the children., 5. DEFINITION OF ACCOUNTING, Accounting is often celled as the language of business and the function of a language is to, facilitate communication among the individuals in a society. It is the language of communicating, financial information from one person to another in the world of business., Accounting provides information that is useful in making business and economic decisions. It is, a principal means of communicating financial information to various stakeholders., American Accounting Association states that essentially, ''accounting is an information system., It is a system which converts inputs into outp~ts. Accounting is the process of identifying, recording,, summarizing and reporting economic information to decision makers"., The most commonly accepted definition of Accounting is, the ~rt of recording, cla_ssifying, and summarising in a significant manner and in terms of money, transacnons and events which are,, in part atleast, of a financial character, and interpreting the results thereof.", 11, , ........

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., , ·a1 A 0 unts (F. YBJ.f.S. cc, , Introduction to Fmanc1, , 6., , Se,n. - / ·, , 'I, , ., FEATURES, of accounttng :, · th ~eatures, ·, ., 1, ·, ', e, As per the above definition, following are, , --------·----......., :-C!!!::!'s Bye Jltiw ) -.-·, ✓-, , . '".., , ---~--_/, , j, , l • Accounting is an art o,f recording., ', , Accounting is an art of classifying transactions., Accounting is an art of summaris ing., I • Accounting records transactions in terms of money., • Accounting records transactions offinancia l character., • Accounting interprets the financia l data., •, , 1, , •, , ., Accounting is an art, 1:1, An is that pan of knowledge which enables us to attain our objective and shows the way, which we may reach our objective in the best possible manner. Accounting is an art because It, helps us in attaining our objective of ascertaining the financial results by showing the best way of, recording, classifying and summarising the business transactions., 2. It is the art of recording, Accounting not merely records the transactions of financial nature but records them in an, orderly manner. The method of recording is adjusted according to the nature and size of bU5i?~, and type of transaction. Thus, (a) cash transactions like cash sales, cash purchases, expenses paid m, cash, incomes received in cash; (b) credit purchases, credit sales, (c) Infrequent transactions like, sale or purchase of Land, Building, Machinery, Vehicles etc. are all recorded in different ways., 3. It is the art of classifying business transactions, It refers to systematic analysis of recorded transactions with a view to group the transactions or, entries of one nature at one place. Such classification or grouping is done by opening different, accounts in a book called 'Ledger'. For example: an transactions relating to 'purchases' are brought, together at one place, though they are recorded in different subsidiaiy books like -cash Purchases, in Cash Book, Credit Purchases in Purchase Book. This will help in finding out the total amount of, ·, purchases during the period., 4. It is the art of summarising, It is the art of presenting the classified data in the ledger, in an understandab le and useful, manner, to the management or other interested parties. This involves preparation of:, ··, a) Trial Balance, b) Trading and Profit & Loss Account, and, c) Balance Sheet., s. It records transactions in terms of money, Ac~unring recor~ the transa~ons by e:'Pressing them in term of money. This makes the, tra~ct10n more meamngfu!. Thus .1f the b~s1_ness has ~ Machines, 1o tons of Raw-material, 2, Butldmg.5, so Tables and Cl)air$, 30 Fans, etc. it 1s not possible to add them together or know which, one is more valuable unless tl}ey are expressed in terms of money., 6. lt re.cords ~ of financial character, ·· l h, Ac&,unting records only those events and transactions which are of finan c1a, c aracter In, ., r ligh · I h transacnons, ds · b ·, he, w~ich have financial character; which in, t o~ y t Fose, r wo~ , , ltli 1:n~ to 1mf_, ., ., 1act a ~rwµs r.m~t1on o _accounnng. or example, the high efficiency of th M, ~irector, anagi:1g, e, ., Si, organisation, the, to, importance, great, of, is, executives, and othet, 1 1, • ventilation, clashes between the supervisors and workers etc ffi · mi ar Y,. poor li~nng and, .. organisation. But aU .these are not recorded because they have ~~ fleet t~e earning capacity of the, or exchange value. They cannot be expressed in tenns of m oney. nancial character, no economic, ., the, ,, 7. It interprets . _. finand,d data, .., Accounting creates .data by recording, classifyin and, the financial events and, sum~ansi~g, reta~, inte, The, it., fin?llY uses that data by interpreting, meaningful judgements, making, m, helps, ion, ., Th~s, etc., "' ~bout the .financial condition, profitability, of gross profit or net, rate, the, out, find, can, , one, . . ,-; . :· -·. . ., I., , fr, , '•, ·,, , ~}i..,. ··;., , .-ll °',, , e, , is

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,, . . . ., 11'/eanin,Q,- a11d Sco/Je. vt·, , ,'.IC( O llllf/1/g, , ra,.., . 1 employed, rate of return on c aptta, profit,, .,, . ., 5, ., adverti, of, effect, or, ,, ., ., fut, the, ine, determ, to, used, be, also, can, on sales etc The accounting data, 7. DIFFERENCE BETWEEN BOO Lll e trends and plans ace~ ,, ,___, tngly., r, - -~~ EEPIN G AND ACC, Point of, Differ ence, , l., , 2., , 3., 4., , Scope, , 6., 7., , Stage, Nature :, , 8., , Who does the job, , 1, , 8', , ', , OUNTANCY, , . ., It is to re ., of accou ~tJare on_ginal books, to journa l ncy. It ts restrict ed, , subsid iary books, d, an ledger ac, counts only., In b, 0 ok-kee p ', level of, work is 1 tng, the, ess. It • d, . ., is one by, Junior staff., , Level of Work, , 5., , 10., , Ook-keeping -, , Obj ect:, , Mutua l, dependence, Result, , 9., , B, , ., It is limited in, scope, ·, depend, It, s on accoun t.mg., , It require s, knowle dge., , lower, , level, , In, , accoun tanc h ., is high. It is d Y, t be leve~ of work, one y sen10r staJf, , ., It depend s on book -keepmg., , ., Junior staff does book-k eepmg, work., of, , It _does not require analytical, skill., , -, , It is to set the - : , ~, Pnnc1pJes for, recording bus·, t'10ns., Iness transac, ·, , It is wider in scope., , It does not show th, . . e result of, the financi al, position., ., It 1s. a primar y stage., It is routine and 1 ., c encal in, nature ., , Level, of, knowle dge, Analyt ical skill, , --~, Accountancy, , - ,, , -, , It shows net result, of the, business., t, It is a secondary sage., • nature., It is analyt'ic al m, Senior staff does accounting, work., It requires higher level of, knowledge., It requires analytical skill., , BRANCHES OF ACCOCJNTING, , Accounting, , Management Accountino0, , Social Accounting, , Enterprise Accounting, , Government Accounting, , Financial Accounting, Fig. I.I, , Government Accounting, of money. Indian, . The Govemm~nt departments ~nd agencies receive and pay huge sums, organizations, ment, govern, the, are, Railways, P & T, Police, Defence SefVlces and public sector units, Audit and, Indian, are run by, which are not established for profits . Government accounting systems, ts Service and Indian, Accounts Service, Indian Civil Accounts Service, The Indian Railways Accoun, the gove~ mem, audits, India, of, l, Defence Accou nts Service. The Comptroller and Auditor Genera, accounts., 2. Enterprise Accou nting, summarizing of past events., a) . Financial Accx,unting : It involves recording, classifying and, n making. The, The obj~ti ve is to gen~rate financial infonnation and use it for decisio, Statement, Income, i.e.,, proces-5 of accounting leads to preparation of financial statements,, and Bala.rice Sheet, accounting is, b) Manag~ment Acco.,.nting : It is an offshoot of cost accounting. C~st, analysis. Management, concerned with determination of cost, its classification and, can take a, accounting analyses costing infonnation in such a manner that the management, wise decision abou.t the managerial problems of the organization., I.

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:;~ ·_.,, , ., , YB.\.[S. _ .)e m. . nciol Accounts (F. ., Introduction to Fma, , ,,,,..,., , ,,, , • I haritable t11.1Sts a nd, p oflt Accounting), social Accounting (N~t F~ r R educational insti~?ons, h~sptta s,; e society. 0o:1a~ons, rpose of proVJdmg services_ro These orgaruzanons, V1J1flc,w1 sodu l org;inlzat1()ns such ~, rdl1,d<1w1 lns1itutlom.1 are cswhlished fort e pfu enue for such organiz.aoons. d ors, ·, · and the on, · r sources o rev, h Regulatory Authonty, :i nd endowmen ts arc t he ma1o ·, 1,r1vc tn prepare fin andol reporis to present tot e, 9. OBJECTIVES Of' ACCOUNTING, , ·' ·, -~, ., , Bitd's Eye View, ~, •, •, •, •, •, , Keeps .systematic record., Ascertain result of operations., Ascertain financial position., protect business properties., Facilitates rational decision making., , d, . · d, b t his busines.5 Accountmg IS one to recor, · Id be tremendous burden on, No businessman can remem~er everyt ng a ou, the business transactions promptly m the books of accounts. There wou, human memory in the absence of accounting., ., ., 2. To ucertain the result of operations, Accounting Helps in ascertaining the result i.e. profit earned or loss suffered m the busme~, during a particular period. For this purpose a Revenue statement called profit ~nd Loss Ac~ount 1s, prepared showing the revenues resulting from the transactions_ a~d. expenses incurred dunng the, period. If the revenues exceed the expenses, it is a profit, otherw1se lt IS a loss., Such statement is useful for the management, creditors, investors etc. to know whether the, business has proved to be profitable or not. If not, the results may be investigated and necessary, remedial steps taken., 3. To ascertain the financial position of the business, It is not enough to know whether there is a profit or loss. A businessman must know his, financial position also i.e. where he stands - what he owns and what he owes? This purpose is, achieved by preparing the Balance Sheet called 'Position Statement'. It is said to be a barometer of, ascertaining the financial health of the business. Just as a ·Doctor can know whether a person is, enjoying good health or not, by feeling his pulse; in the same way by looking at the Balance Sheet, one can know the financial health of the firm., 4. To protect business properties, Accounting provides ·information to the proprietor to protect his properties from unjustified, and unwarranted use. He can ensure that the funds of the business are not unnecessarily wasted,, under utilised or kept idle. This is achieved with the help of following information supplied by, accounting :, a) What is the amount of proprietors' funds invested in the busines.5?, b) How are the funds invested?, c) How much the business owes to others?, d) How much the business has to recover from others?, e) How much the business has in the form of:, (i) Cash in Hand, (ii) Cash at Bank, (iii) Stock of Raw-materials, work-in-process and, finished goods, and (iv) Fixed ~ts?, S. To facllitate rational declalon making, t.(} ·f a~untin~ collec~,. anal~ ·and reports on the information to the required leve~ of authority, or purc~~~~l decis,ion making.: Such as (a) Should a part or product be made m the factory, offered to.a · ft~ml outside? (b) What should be the selling price? (c) Should a concession be, . ·. Sl)eeta eustomer7 and-so on., 1, , ·, , To keep systematic record, , hi

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~, , 10, , ln rrndl(c fro n to Finan cial Acco unt,s (F., Y. BMS. - Sem. - I;, , f, , esearchers, , ~, , Managers, , ... .-- --,, , Suppliers, , Employees, , Banks &, Financial, Institutions, , a, , Government &, Regulatory, Agencies, , Investors, , Accounting lnfonnation, , s., , Fig. 1.3, , Banks and Fmancial Institutions : Banking, and financial institutions take decisions, about sanction of loans of, companies on the basis of accounting info, , rmation., 6. Employees : Fmploye es' financial, benefits dep end upo n financial health of, a company., Hence. the employe, , es also must have knowledge of accounting, information., 7. Supplier : Suppliers take decision rega, rding creditworthiness of customers on tbe, basis of, accmmting information., 8. Res emd lers : Researchers do rese, arch on the basis of information gene rate, d by financial, statements. Consultants guide investors ,, banks and brokers on the basis of accounting, information., 9. The Public : The members of the, public are interested in acco unti ng info, rmation in, num ber of \irays as the prosperity of the loca, lity depe nds on business prosperity. Members, of, the public can understand whe ther the, organizations ~e discharging their socia, l, respoilSlbilities., 13. EXEROSES, A. Long ABSwer Questions :, 1. Define Book-Keeping and e:iq>lain its featu, res., 2. What is accounting information system?, 3. What are the objectives of Book-Keeping, and Acco, , untancy?, 4. Explain the need of Book-Keeping and Acco, untancy., , B., , C., , (Nov., 201 7), , Sb.ort Answer Questions :, I . What is Accounting?, 2. Mention three objectives of Accounting., 3. Why is Accounting necessary, 4. Mention any three users of Accounting Infor, mation., 5. How is Book keeping an integral part of acco, unting?, , Write Short Note on:, I. Branches of Accounting, 2. Objec,tives of Accounting, 3. Need of Accounting, 4. Users of Accounting Infonnation, 5. Scope of Accounting, , (Nov., 2016), , (Ma .r., 201 7), (Mar., 201 7)