BOOKKEEPING—MEANING, OBJECTIVES AND TYPES

Bookkeeping can be defined as the branch of accounting concerned with the systematic recording of financial transactions.

It involves the recording, storing and retrieval of financial transactions for a company, non-profit organisation, individual etc.

Bookkeeping is a subset and branch of accounting which is concerned with recording financial activities and transactions daily.

The main objective of bookkeeping is to record economic transactions systematically to ascertain the financial position and financial performance of a business.

One important feature of bookkeeping is that it provides permanent records for all financial transactions, which may be used in the preparation of financial statements.

Generally, bookkeeping is concerned with the following :

1. Recording receipts from customer

2. Recording payments to suppliers

3. Verifying and recording invoices from suppliers

4. Posting debits and credits

5. Maintaining and balancing current accounts, historical accounts and general ledgers.

6. Producing financial reports and 

7. Monitoring depreciation

Types of book-keeping systems

1. Double-entry system: This is the most popular book-keeping system and is based on the duality concept.

Under the bookkeeping system, every transaction is said to affect at least two accounts, with one account debited and the other credited.

Thus, in effect, the double-entry system implies that every debit entry must have a corresponding credit entry.

2. Single-entry system: As the name implies, this system only records one side of an account.

The single-entry system, also known as the pure entry system, is not widely accepted and is mostly used by small businesses.

This is owing to its obvious flaw of just recording one side of a transaction, making it incomplete and inaccurate.

Plus, the arithmetical accuracy of financial records cannot be verified in single-entry as it does not make use of trial balance

Objectives of Bookkeeping

The following are some of the objectives of bookkeeping:

1. To keep a permanent and systematic record of financial transactions: Bookkeeping is the systematic recording of all financial transactions of a firm.

Transactions are permanently recorded and can be retrieved at any time in the future.

2. To provide information about the position and performance of the business: The actual financial position of a business can be determined through various financial statements prepared based on bookkeeping.

The balance sheet and income statement, both obtained from bookkeeping records, can be used to determine the financial position and financial performance of a business 

3. To aid planning: Bookkeeping provides financial information about a company that can be used to make plans and policies.

4. To provide a record for the value of various items of transactions: Bookkeeping is the process of identifying and recording financial transactions in the books of account.

5. To ensure the arithmetical accuracy of financial records: Bookkeeping checks the arithmetic accuracy of business transactions and records through the trial balance.

If the trial balance does not balance, some mistakes were likely made when recording financial records.

However, it should be noted that mere agreement of the trial balance is not conclusive proof of the arithmetic accuracy of business transactions as some errors cannot be detected through the trial balance.

6.  To help detect fraud and other irregularities: Bookkeeping records are usually made systematically and scientifically.

This means that in the event of fraud or other financial irregularities, it may be relied on as a dependable source of information.

7. To provide a basis for taxation: Bookkeeping is also helpful for taxation purposes.

It provides essential records of business transactions which can be useful in determining the tax liability of a business

8. To ascertain the financial effect of business transactions: Bookkeeping records often show the consequences of financial transactions on the assets, liabilities and equities of a company.

A financial transaction usually affects the accounting equation

For example, when a company purchase goods worth N40,000 on credit. The effect of the accounting equation would be: Stocks (assets) rise by N40,000, while creditors (liabilities) rise by the same amount.

As a result, the bookkeeping record for this transaction will show an increase in assets and liabilities.

There you have it. To further solidify your knowledge, I recommend that you read the following posts:

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