Book-keeping is that branch of
knowledge which tells us how to keep a record of financial transactions. The
need for recording such transactions arise because
(i) it is difficult to remember the
various financial payments and receipts taking place during a period of time;
(ii) in modem forms of business
organizations the control of business rests with different persons and the
results are to be reported to the owners;
(iii) the financial information is,
required for the purposes of costing, budgeting, forecasting and planning; and
(iv) Book-keeping records are
to be submitted to various government agencies like Income Tax and Sales Tax'
authorities for taxation purposes.
Most of us do maintain some
kind of a written record of their income and expenditure. The essential idea
behind maintaining such a record is to show the correct position regarding
income and expenditure. Such a record should be clear and systematic so that it
can be easily understood. It should show to whom a payment has been made when
and what for. The need for maintaining a record of income and expenditure in a
clear and systematic manner has given rise to the subject of book-keeping.
Book-keeping can as such be defined "as an art and science of recording business
transactions in a systematic and, chronological order".
The necessity of recording all
the transactions clearly and systematically can not be over emphasized. Goods
may be sold on credit to several persons. The latter would pay the price of the
goods to the vendor later. The vendor would like to know, from time to time what
amount is due and from whom. However, strong one's memory may be, one cannot
hope to remember all the details regarding all the transactions. Apart from
this, the object of business is to earn profits; and every merchant likes to
know at the end of a financial year how much profit he has earned during the
course of the year. For this purpose, he would need a lot of factual information
which can be derived from written or computerized records of transactions,
provided such records have been properly kept; in modern times using a computer
software like HiTech Financial Accounting. As such proper maintenance of books
of accounts is indispensable for a businessman.