Wednesday 28 May 2014

Book keeping and Basic books of Accounting

What is Bookkeeping?
I have mentioned in my previous article that Double entry system involves maintenance of various books of records. This maintenance of records related to accounts is known as Bookkeeping. They are normally kept Financial Year wise starting on 1st of April and closing on 31st of March, each year.

Bookkeeping involves entering of the transactions of any business activity in its proper related books of records with date, transaction detail and amount. Each transaction made needs to be entered in more than one interrelated books of accounts with correct debit and credit to the parties concerned.

These books need to be maintained perfectly with genuine supporting documents like bills and vouchers, legal documents, etc. All these supporting documents need to be maintained bill wise and date wise in secured files or in bunches properly tagged and bundled in easily accessible record rooms or safes.

Books of Accounts

The Company Act and Rules have made it mandatory to maintain some basic books of accounts according to the size and nature of the business.

The minimum books required are:
1.Cash Book
2.General Ledger
3.Journal Register
4.Assets Register
5 Debtors/ Creditors Ledger

The above-mentioned books are the minimum requirements for any type of business, whether it is Proprietorship, Private Company or Public Company.

Now, let us have a look at the nature of transactions entered in these books.

Cash Book
Cash book contains all cash and bank transactions made daily by the firm. All cash payments and receipts are entered in it. Similarly, all cheque/ draft payments and receipts are also entered in it date wise with supporting documents kept in vouchers.

Bank Book
Since big companies and corporations deal in enormous transactions involving national and multinational levels, they mostly transact their business through banks. So it has become necessary to maintain Cash and Bank Books separately. In such cases, only cash transactions are entered in Cash Books and all bank transactions are entered in Bank books. It facilitates in maintaining better track of bank transactions and reconciliation of Bank Books with banks' records.

General Ledger
A General Ledger is the main book of any company. It displays all transactions of the company "account wise". In this Main Ledger, entries are made from the Cash Book and Bank Book.and from Journal registers.

Journal Register
A Journal Register is a record of transactions other than Cash and Bank. The entries in this book are made direct from vouchers known as Journal Vouchers. These entries, generally, do not directly involve any monetary transaction. Mostly, entries of monthly sales, monthly purchases, depreciation, transfer of balances from one account to another, etc. are made in this Register.

Assets Register
This book deals with details of all assets of the company entered item wise and bill wise. It gives you a clear picture of all the assets of your company as on any date. Depreciation calculation is facilitated with this book.

Debtors/ Creditors Ledger.
Any type of business, whether it is a small company or a big one, deals with Debtors or Creditors. You will have to pay advance beforehand for any purchase. So he becomes your debtor until you receive the supply from him. Similarly, you may sometimes receive goods on credit basis. Then he becomes a creditor to you. You will have to maintain records of all these transactions properly in your books. This book is maintained separately for making such entries in order to locate the actual dues. These are known as Debtors and Creditors Ledgers.

I may deal with all these books and how to make entries in them properly at a later stage.

At present, it is enough that the basic knowledge about what is bookkeeping and types of basic books maintained are known to you.

If any doubts, please feel free to contact me at the email id given on my About page.

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