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Unit 1: Introduction to Accounting

“Book-keeping is the science and art of correctly recording in books of account all those business Notes
transactions that result in the transfer of money or money’s worth”.
—R.N. Carter

“Book-keeping is the recording of financial transactions in a methodological manner so that,
information of any point may be quickly obtained”.
—D.J. Favell

1.3.2 Importance of Book-keeping

1. Book-keeping provides a permanent record of each transaction. It provides combined
effect of all transaction on financial position.
2. Soundness of a firm can be accessed from the records of assets and abilities on a particular
date.
3. Entries related to incomes and expenditures of a concern facilitate to know the profit and
loss for a given period.

4. It enables to prepare a list of customers and suppliers to ascertain the amount to be
received or paid.
5. It is a method gives opportunities to review the business policies in the light of the past
records.
6. Amendment of business laws, provision of licenses, assessment of taxes etc., are based on
records.

1.3.3 Difference between Book-keeping and Accounting

The following table explains the key differences between book-keeping and accounting:

Table 1.1: Difference between Book-keeping and Accounting

Basic of difference Book-keeping Accounting
Transactions Recording of transactions in books of To examine these recorded
original entry. transactions in order to find out their
accuracy.
Posting To make posting in ledger To examine this posting in order to
ascertain its accuracy.
Total and Balance To make total of the amount in journal To prepare trail balance with the
and accounts of ledger. To ascertain help of balances of ledger accounts.
balance in all the accounts.
Income Statement Preparation of trading, Profit & loss Preparation of trading, profits and
and Balance Sheet account and balance sheet is not loss account and balance sheet is
book-keeping included in it.
Rectification of These are not included in book-keeping These are included in accounting.
errors
Special skill and It does not require any special skill and It requires special skill and
knowledge knowledge as in advanced countries knowledge.
this work is done by machines.
Liability A book-keeper is not liable for An accountant is liable for the work
accountancy work of book-keeper.

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