BASIC CONCEPTS OF BOOK- KEEPING PART-1

BOOKEEPING:- B.K is an art of systematic recording, classifying and summarizing the financial transaction of the business for a particular period of generally 1 year.

Explainantion: A person starts business, he invests some money into it which is known as "Capital". As we know that there are number of business transactions during the course of business. No person can be able to remember all transaction date wise and amount wise. There for it become necessary to record these business transaction in systematic way so that one person can easily know what is daily/weekly monthly sales/purchases/expenses/other incomes/losses/gains.

It is possible when records are in systematic, classified and in summary form.

Thus a business transaction recorded through BOOK - KEEPING.

Book-Keeping  Objectives: 1) To keep systematic record 2)  To protect business properties 3) To know the profit or loss 4) To know the financial position of the business. 5) To know one’s tax liability.

Some important terminologies used in accounting and book keeping.

Transaction: Exchange of goods and services for money or money’s worth between two or more persons or parties is known as transaction.

There are two types of transaction.

Cash transaction: When goods are exchanged for cash it is known as cash transaction. E.g. A purchased goods from B and paid cash.

Credit transaction: When cash is not paid or received for exchange of goods and service it is known as credit transaction.

E.g. A purchased goods from B on two months credit. 

Goods: All the commodities or articles in which a businessman deals are called goods. in other words, the products/things which trader buys and sells in business are called goods.

E.g. Cloth will be goods for cloth merchant. Gold will be goods for goldsmith.

Profit: When income of a business is more than its expenditures, then the excess amount left after paying all expenses is known as 
Profit. 

E.g. Mr. X’s total business income is 4, 00,000/- for the year ending on 31/3/2006. His total business expenses is Rs 3,50,000/- for the same year. Hence for the year 2006, Mr.  X’s profit is Rs 50,000/- i.e. Income-Expenses.

Loss: When expenses of a business is more than its incomes, then the difference between expense and income is known as Loss.

Mr. A Dealing in a business for the year ending 31/12/2005. His total business Income is   Rs 3, 00,000/- and total Expenses is Rs 4, 25,000/-. Hence he has a loss of Rs. 1, 25,000/- i.e. Expenses-Income.

Assets: All properties of businessman used in the business to produce/provide goods and services and which helps in trade of goods and services and there is not any intention of selling the properties at profit until its productive capacity become unsatisfactory are called Assets. Assets are shown at Right hand side of Balance sheet

E.g. Cash, land & Building, Plant & Machinery, furniture and fixture, Debtors, Bills receivable, goods(stock), Goodwill, Copyright, patents etc.

Assets are further classified into:

a) Fixed Assets - used in the business/stayed inn the business more than 1 year. E.g. Machinery, Land and Building, Furniture, Motor vehicle, etc

b) Current Assets - used in the business /stayed in the business less than 1 year. E.g. Goods, Cash in Hand, Cash at Bank, Bills receivable etc.

c) Tangible assets-  which has physical existence and can be seen and touched. E.g. Cash, land & Building, Plant & Machinery, Furniture and Fixture, Debtors, Bills receivable, Goods(stock) 

d) Intangible assets- which does not have physical existence and can not be seen and touched. E.g. Goodwill, Copyright, patents etc.

Liabilities: all amounts which is payable by business firm to outsiders are known as liabilities. E.g. Capital, Creditors, Outstanding Expenses, Bills payable, Bank Loan, Bank Overdraft etc. All liabilities are shown at left hand side of Balance Sheet.

They are further classified into: (Responsibility to Repay the Amounts) 

a) Fixed liabilities: Owings of business of permanent nature are called fixed liabilities. E.g. Capital, Debenture etc.

b) Current liabilities: Owing of business towards outsiders for short term duration is called current liabilities. E.g.Creditors, Outstanding Expenses, Bills payable, Bank Loan, Bank Overdraft etc. 

Contingent liabilities: These are liabilities which may arise on happening or non-happening of a specific event in future. These liabilities are not recorded in the books of accounts until they arise.

e.g. Pending suit of claim by customer for adverse affect of product of our company. if court ordered to claim the amount then business has to pay. so this liability is depend on future event.