Every organization carries out financial transactions in some way or the other, which is extremely important to be systematically recorded and managed because not doing so relevant reports such as trading account, profit and loss account, balance sheet, cash flow statement, etc. cannot be prepared hence book-keeping is used so that the transactions can be systematically recorded and managed.
Book-keeping not only helps in preparing accounting reports but also helps in keeping track of all the financial transactions. For example, how much is to be given to whom, how much is to be taken from whom, how much is the asset, how much is the liability, etc. Note that book-keeping is a part of accounting.
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Objectives of Book-keeping
Following are the objectives of book-keeping:
1. Management of Transaction:
The first objective of book-keeping is to manage the transactions systematically for which it involves several steps like identifying the transactions, then measuring in the respective currency, then recording in the books with the help of journal, then classifying in the ledger account, then summarizing in reports, etc. Various rules, concepts, formats, etc. are given to complete these steps.
2. Prevention of Error and Fraud:
Preventing errors and fraud is also an objective of book-keeping because the valuation or position of any business can be known only when all the data is correct. By using a book-keeping, all transactions are managed systematically allowing errors and fraud to be detected and prevented. The more transactions a business has, the greater the possibility of error and fraud, and the fewer transactions, the lower the possibility, or vice versa.
3. Help in Planning:
Helping management in planning is also an objective of book-keeping because planning is not possible without data. Book-keeping provides data to the management such as creditor’s data, debtor’s data, accounting reports, etc. so that the management can make proper plans for the future. The more accurate the data, the better management can plan.
4. Business Status:
Accounting reports like trading account, profit and loss account, balance sheet, etc. are required to find out the status, performance, etc. of any business. Preparing these reports requires organized data which is obtained through book-keeping. Therefore, one of the objectives of using book-keeping is to find out about the position, performance, etc. of the business.
5. Help in Tax Calculation:
Another objective of book-keeping is to help in tax calculation as every eligible person has to pay tax. Using book-keeping, all economic transactions are managed systematically which helps in preparing all the necessary reports. Note that preparing accounting reports is also a part of accounting.
6. Profit and Loss:
It is very important for every business to know whether the business is making a profit or loss because without knowing this the business cannot achieve its goal and cannot make related decisions about the future, that is why helping in calculating profit or loss in business is also an objective of book-keeping. In business, profit or loss is calculated through the Profit and Loss Account.
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QNA/FAQ
Q1. Is book-keeping helpful in managing transactions systematically?
Ans: Yes, book-keeping is helpful in managing transactions systematically as it involves many rules, concepts, formats, etc.
Q2. Is book-keeping helpful in detecting errors?
Ans: Yes, book-keeping is helpful in detecting errors as many reports are prepared in it which helps in detecting errors but not completely.
Q3. Do accounting reports reflect the status of the business?
Ans: Yes, accounting reports reflect the status of the business but not completely.
Q4. Are there different steps in book-keeping?
Ans: Yes, book-keeping consists of different steps like identifying, measuring, recording, classifying, summarizing, etc.
Q5. Write the objectives of book-keeping.
Ans: Following are the objectives of book-keeping:
1. To help in managing transactions systematically.
2. To help in the prevention of errors and fraud.
3. To help management in planning.
4. To help in showing the status of the business.
5. To help in tax calculation.
6. To help in calculating profit or loss.
