Necessity of Book-keeping

हिन्दी में पढ़ें:

Book-keeping means managing the economic transactions in a systematic manner in the respective books and it is a part of accounting. Book-keeping plays a very important role for every organization as it plays a vital role in preparing financial reports like trading account, profit and loss account, balance sheet, cash flow statement, etc. It also plays a very important role in functions like calculating taxes, tracking transactions, providing evidence, preventing fraud, etc.

In book-keeping, the transactions are managed through a process that includes identification, measurement, recording, classification, summary, etc. and this process is known as the process of book-keeping. Those who manage the transactions using book-keeping are called bookkeepers and to become a bookkeeper one needs to have basic knowledge of accounting concepts, rules, principles, etc. but now book-keeping has become easier due to the changes in technology.

Necessity of Book-keeping

Following are the necessity of book-keeping:

1. To Replace Human Memory:

Human memory has limitations as it cannot remember everything, that is why book-keeping is used in an organization. An organization that has a limited number of transactions may not use book-keeping, but an organization which has a large number of transactions uses book-keeping. By using this, an organization can manage unlimited number of transactions due to which people do not have to remember the transactions.

2. To Manage Transactions:

Transaction management is very important in any organization as it helps in tracking the transactions and generating various types of accounting information like trading account, profit and loss account, balance sheet, etc. and for this book-keeping helps the organization and the process of book-keeping is used to manage the transactions.

3. To Prepare Financial Information:

Financial information helps to know the organization’s position, performance, etc. in numbers and managing transactions is very important for preparing financial information because managing transactions gives data to prepare financial information, and for this book-keeping helps the organization.

4. To Prevent Fraud:

If an organization is not managing transactions and preparing financial information, there may be a possibility of fraud because without managing transactions it is difficult to identify whether there is fraud in the organization or not. Book-keeping helps in managing transactions and preparing financial information, which helps in identifying fraud.

5. For Evidence:

Any dispute related to the organization requires documentary evidence, as oral evidence is not accepted in the eyes of the law, so proper management of the transactions taking place in the organization is necessary and for this book-keeping helps and the financial information provided by book-keeping has evidentiary value and is accepted in the eyes of law as it is supported by the source documents and concept of accountancy. Note: Exceptions apply.

6. To Calculate Tax:

Every organization is required to pay tax if they fall under the provision formulated by the governing authorities and for this book-keeping helps to check whether the organization is liable to pay tax or not as it provides the financial information which helps the organization to check the tax applicability.

Read Also:

• What is Book-keeping? Meaning, Features, and More.
• Process of Book-keeping
• Objectives of Book-keeping

QNA/FAQ