CBSE Class 11 - Accountancy - Chapter 2: Advantages of Book Keeping (Class11Accountancy)(#cbsenotes)(#eduvictors)

Advantages Of Book‐Keeping

(Chapter 2: Theory Base of Accounting)

What is Book-Keeping?

Book‐Keeping is a systematic manner of recording transactions related to business in the books of accounts. In Book‐Keeping, transactions are recorded in the order of the dates. An Accountant is a person who records the transactions in the books of the business and is expected to show the financial results of a business for every financial year. A financial year in India is followed from 1st  April to 31st  March.

According to J. R. Batliboi

"Book‐Keeping is an art of recording business dealings in a set of books." 

According to R.N  Carter:

"Book‐Keeping  is  an  art  of  recording  in  the  books  of  accounts,  all  those  business  transactions  that  result in transfer of money’s worth" 

In book keeping, financial transactions are recorded in a set of books. It is the first stage of maintaining accounts and as such it cannot give any conclusions about the performance of business.

Advantages of Book‐Keeping

All business transactions can be stated in terms of changes in the elements of the accounting equation.

1.  To the Management of a Business 
(a) In evaluating various alternative proposals so as to take maximum benefit from the best alternative.

(b) In deciding matters such as elimination of an unprofitable activity, department or product, replacement of fixed assets, expansion of business etc.

(c) Planning the various activities and planning of revenues and expenses and arranging for finance in case of need.

(d) Comparing various year’s account to know the progress or deterioration of the business and take actions to improve the business.

(e) Accounting information helps in providing evidence in a court of law in case of legal action taken by others.

(f) Accounting information helps in assessing the income tax, sales tax and property tax of the business.

(g) Accounting information constitutes one of the basis for borrowing loans from external source.

(h) It helps to detect errors and frauds that have taken place in the business.

2.  To the Investors:
(a) Types of property owned by the business.

(b) Sources and amount of earnings made or losses incurred by the business.

(c) Particulars such as stock position, debts owed, debts due etc.

(d) Whether rate of earnings is high or low.

3.  To the Employees:
It provides information to employees so as to claim fair wages, bonus, and other welfare facilities.

4.  To the Government:
(a) Accounting information helps Government to extend subsidies and incentives and other exemptions to certain types of business.

(b) The industrial progress can be known by the Government of the country. It can formulate industrial policies for further growth and development of industries.

(c) It enables the Government to assess the income from the industrial sector.

(d) It helps in amending various laws or enacting laws governing the functioning of business enterprises.

(e) It helps the Government in deciding price control, wage fixation, excise duties, sales tax etc.

5.  To the Consumers: 
Customers are not overcharged as selling price is fixed on the total expenses incurred by adding a reasonable rate of profit.

6. To the Prospective Investors: 
It helps the prospective investors in choosing the right type of investment depending upon the profit earning capacity of the business enterprises and the profit earned during past few years.

7.  To the Creditors and Suppliers: 
Creditors can decide the solvency position of the business through the accounting information. Similarly, suppliers can also decide whether goods can be sold in future on credit basis.



☛See also:
Chapter 1: Basic Terms
Accountancy Sample Question Paper (2016-17)
Accountancy (Syllabus) - 2017-18
Chapter 2 - Systems and Basis of Accounting (Revision Notes)
Chapter 2 - Introduction to Book Keeping (Study Notes)