Book Keeping and Accounting

1. Given the meaning of book keeping in three to four effective sentences.

Ans:-Book-keeping is the summation of two words: Book + Keeping. In accountancy, ‘Book’ means book of accounts in which business transaction are recorded. ‘Keeping’ means recording of such transaction in a proper manner in the books of account. Book-keeping is the art and science of recording the financial transactions of a business in the books of account in systematic manner.

2. Mention any four functions/objectives of Book-keeping.

Ans:-Following are the four functions of Book-keeping:- 

a. To identify financial transactions:-Book-Keeping identifies the financial transactions for recording purpose. Non-financial transactions are ignored.

b. To keep systematic record:-Book-Keeping records identified financial transaction of a business in a scientific and systematic manner.

c. To classify the recorded transaction:-Book keeping classifies all the transactions as per their nature and effect.

d. To find out operational result of the business:-The main function of book keeping is to find out the result (profit or loss of business).

3.  Write any five importance/advantages of book-keeping.

Ans:-Any three importance of book-keeping are as follows:-

a. Provides financial information:-Book-Keeping can provides financial information and data needed for planning, budgeting and forecasting.

b. Helpful in ascertaining profit or loss:-Book-Keeping keeps complete records of business transactions. Thus, profit or loss from business transactions can be easily ascertained.

c.  Knowledge of financial position:-With the help of recorded financial transactions under book-keeping, a true and correct financial position of a business concern can be known at only time.

d. Helpful in detecting and preventing of errors and frauds:-Under book-keeping, all the financial transactions are recorded systematically. Since, it helps to identify and prevent mistakes and frauds.

e. Helpful in determining tax burden:-A business concern is required to pay Value added tax (VAT) and Income tax etc. to the government. Such tax burden can be easily determined with the help of book-keeping.

4. Explain in brief the meaning of accounting.

Ans:-Accounting is a process of identifying, measuring, recording, classifying, summarizing, analyzing, interpreting the financial transactions and communicating them to interested persons or institutions. Accounting is also known as ‘Language of business’ and language is a means of communication.

According to Bierman & Derbin:-“Accounting may be defined as the identifying, measuring, recording, and communicating of financial information.”

5. Mention any six function/Objectives of accounting.

Ans:-The following are the three function of accounting:-

a. To keep complete and systematic record:-The first objective of accounting is to keep the systematic and completed record of financial transactions as per rules and principles in accounting.

b. To ascertain profit or loss:-The second objective of accounting is to ascertain Profit of loss of  the Business by preparing trading and profit and loss account of the business at the certain period of time.

c. To depict the financial position:-It prepares a balance sheet at the end of every year, which informs about its position of assets, liabilities and capital, when reflect economic strength and weakness of business.    

d. To provide information to various users:-It provides financial information such as profit or loss, financial position, cash flow position and other informations to managers, investors, government authorities etc. 

e. To analyses and interpret financial information:-With the help of accounting, the parties or users concerned in the business can have full information about its profitability and financial position to make the financial decision.

f. To help determining the tax liability:-Business has to pay different types of tax to the government. Accounting provides financial information to the tax authorities to determine tax liability.

6. State any five importance/advantages of accounting.

Ans:-Three importance of accounting are as follows:-

a. Complete record:-Accounting facilities to replace human memory by maintaining complete record of financial transactions.

b. Knowledge of profitability:-Accounting facilitates to ascertain net results (profit or loss) of business operation by preparing profit and loss account or income statement.

c. Knowledge of financial position:-Accounting facilitates to ascertain financial position of the organization by preparing balance sheet.

d. Reduction in errors:-Accounting facilitates to record all business transaction scientifically and systematically, Since, it helps to reduction in errors.

e. Helpful in decision-making:-Accounting communicates the financial informations to various users. With the help of financial information to making the various decisions by users.

7.  State the scope of accounting.

Ans:-Scope of accounting are as follows:-

a. Business organization:-Business organization has the largest field of accounting activity. Accounting is useful for determining profit or loss of business.

b. Non-trading concern:-Accounting is also used in non-trading organizations which are established to provide services to the general public. Non-profit organizations have to record their incomes and expenditures during the year.

c. Government:-Government has the biggest responsibility established for providing welfare, services, pace, security, justice etc. to the people. In order to provide all these government has to use several financial resources.

d. Professional and individuals:-It is also useful to the professionals and individuals to records their income and expenditure.

8. Mention any five limitations of accounting.

Ans:-The following are the three limitations of accounting:

a. Ignore non-monetary facts:-Accounting only records the transactions which have monetary value. It does not record those events of the business which do not have monetary value.

b. Ignores time value of money:-Accounting does not consider time value of money. It shows all its assets and other items at their cost price and does not consider their current market price.

c. Based on historical information:-Accounting records only the past transactions or already happened events. It does not record present as well as future transactions.

d. No individual results:-Accounting shows the aggregate results (Profits or losses) and financial position of the firm. It does not provide product-wise, process-wise, department-wise or area-wise results of the business.

e. No help in price fixation:-Accounting does not help in price fixation because it can not exhibit the total cost of the products.

9. Write in brief the essential of maintaining books of account in a business.

Ans:-Book keeping is very important phenomenon. Book keeping is that branch of knowledge which tells us about how to keep a record of financial transaction in scientific and systematic manner. The importance of recording such transaction arises because of limited human memory. It is a process of recording accounting information in scientific and systematic manner.

10. Mention the process/step/cycle of accounting.

Ans:-The following are the process of accounting:-

a.    Identification of financial transaction.

b. Recording of financial transactions in primary books.

c. Classification of financial transactions through trial balance.

d. Summarization of classified transactions though trial balance.

e.    Preparation of financial account.

f. Analysis and interpretation of financial statements and reports.

g. Communicating the financial information to various users.

11. Write the difference between Book-keeping and Accounting.

Ans:-The difference between Book-keeping and Accounting are as under:-