A business organization performs a large number of financial transactions on a regular basis. These financial transactions relate to buying, paying expenses, receiving incomes, acquiring assets, meeting liabilities and collecting dues. The accountant or owner of the business cannot keep in memory all these transactions. So, such financial transactions are recorded systematically in a set of the book for future reference.
The following are some of the main definitions of book keeping:
According to J. R. Batliboi, "Book- keeping is the art of recording business dealings in a set of books."
According to Rosenkamp, "Book- keeping is the art of recording transactions in a systematic manner."
From the above definitions, it is clear that book-keeping is concerned with the act of keeping permanent records of day to day financial transactions in a set of book in chronological order.
The following are the main objectives of book-keeping:
- To keep permanent records
Book keeping is concerned with maintaining records of all financial transactions of a business. Such records are used for making different types of financial decisions.
- To classify transactions
Book-keeping is concerned with classifying the financial transactions into personal, real and nominal accounts. Such process of classifying the transactions help in obtaining required information easily and immediately.
- To help to determine true profit or loss
Book-keeping helps to determine correct profit or loss of the business during a year. For this, it supplies information relating to income and expenses.
- To help to disclose true financial position
Book-keeping helps to disclose true financial position of the business on a given date. For this, it supplies information relating assets, liabilities and capital.
- To supply information
Book-keeping supplies required data and information to the management and other concerned parties whenever required. Such information is required for preparing financial plans and making decisions.
- To help to access correct amount of tax
Book-keeping helps to make correct assessment of income tax. It supplies accurate and reliable information relating to incomes, expenses, profit or loss on the basis of which the correct amount of income tax is determined.
The following are the objectives of book-keeping:
- To keep permanent records of all the financial transaction of a business.
- To help to assess the correct amount of tax.
- To supply information to the concerned parties whenever required.
- To help disclose the true financial position of the business on a given date.
- To help to determine correct profit or loss.
- To classify transactions into real, personal and nominal account.