Introduction to Book-keeping and Accountancy
Scope and distinction
Book-keeping is the art of identifying, measuring and recording financial transactions in books of accounts in a systematic manner. Accountancy is the wider process: it includes book-keeping plus summarising, analysing, interpreting and communicating results. The exam tests definitions, objectives, functions, advantages and limitations, users of accounting information, and the distinction between book-keeping and accountancy. It also tests basic vocabulary: capital, drawings, assets, liabilities, goods, stock, debtors, creditors, revenue, expense, purchases, sales, and voucher.
Core rules
- Only transactions with a monetary value and a business identity are recorded.
- Record in the order in which they occur, using source documents such as invoices, receipts and vouchers.
- Book-keeping is mechanical and routine; accountancy requires judgement and interpretation.
- Accounting information must be reliable, relevant, comparable and understandable.
- Limitations include recording only monetary items, possible window-dressing, and no guarantee of accuracy without checking.
Worked example
A trader starts business with ₹2,00,000 cash, buys furniture for ₹30,000 cash, and pays rent ₹5,000. All three are business transactions because each has monetary value and changes the business's financial position. The capital introduced creates capital and cash; furniture purchase changes one asset into another; rent is an expense that reduces cash and profit. A customer's promise to buy next month is not recorded yet because no transaction has occurred.
Traps that cost marks
Do not treat the proprietor's household expenses as business expenses; they are drawings. Do not call a debtor a creditor. Do not record an order or an intention as a transaction. In definitions, mention systematic recording and monetary terms; vague phrases such as “maintaining accounts” lose marks.