Introduction to Booking Keeping and Accounting
Accounting is the process of recording, classifying, selecting, measuring, interpreting, identifying, and communicating financial data of an organization to enable users to make decisions.
Book Keeping is the systematic recording of transactions on daily basis in the appropriate books of account. It is the process of recording data relating to accounting transactions in the accounting books.
Importance of Accounting
1. Accounting Information can be used for decision making.
2. It provides permanent records for all transaction.
3. It helps to determine the profitability Index of a business concern.
4. Accounting Information are used for tax assessment.
5. It helps to prevent fraudulent practices.
6. The record shows the income and expenditure.
7. Properly Kept records will assist management in business planning.
8. It shows the total assets and liabilities of business concern
Users of Accounting Information
There are two (2) users of Accounting Information:
1. Internal users
2. External users
1. Internal Users: Are those individuals or groups who are within the organization. They are:
(iv) Trade Union
2. External Users: Are those individuals or group who uses the accounting Information outside the organization. They are:
(i) The Public
(ii) Tax authorities
(iv) Creditors and other financial institutions
(vii) Potential Investors
Qualities of Accounting Information
A piece of good accounting information must have the following qualities in order to satisfy the user’s needs.
Limitations of Accounting
1. Transactions are recorded in monetary terms, so no information as to usefulness, size, or quantity of transactions
2. It is historical in nature i.e. the recording is after the event
3. It rigidly follows unrealistic concepts and convention.
Differences between Book Keeping and Accounting
1. Book Keeping refers to the systematic aspect of recording and classifying transactions whereas Accounting includes recording, classifying, summarizing, analyzing, and interpreting financial data.
2. Book Keeping involves the routine recording of transactions in the simplest aspect whereas Accounting is more complex.
3. Book Keeping is only a small part of the field of accounting and limited in scope whereas Accounting has a wider scope and goes beyond the recording of transactions.
4. In Book Keeping, one can be a proficient book keeper in a few weeks or months whereas to become a professional Accountant requires several years of study and experience.
5. Book keeping cannot help for decision making whereas accounting information helps for decision making.