3 BASIC TERMS IN ACCOUNTANCY

3 BASIC TERMS IN ACCOUNTANCY

 

There are three terms in accountancy which are sometimes considered as synonymous. These are: Book keeping, Accounting & Accountancy. However, there is a fundamental difference amongst the three.

Book Keeping: It is mainly concerned with record keeping or maintenance of books of accounts which includes:-

Ø Identifying the transactions of financial nature.

Ø Measuring the identified transactions in terms of money.

Ø Recording the identified transactions in the books of original entry.

Ø Classifying them into ledger.

It is a primary stage and routine function. It is clerical in nature. It is mainly performed by junior staffs who have limited level of knowledge. Book-keeper is not required to possess analytical skill. The main objective of Book-keeping is to maintain records systematically, which are of financial nature only.

Accounting: It starts where book-keeping ends. It includes:-

Ø Summarizing the classified transactions in the form of Profit & Loss A/c and Balance Sheet etc.

Ø Analyzing & Interpreting the summarized result.

Ø Communicating the information to the interested parties.

It is the secondary stage. It starts when book keeping ends. Because it is analytical in nature, so it is performed by senior staff. The accountant is required to possess higher level of knowledge than that of book-keeper. It is narrow in scope and depends on book-keeping. In actual practice, the accounting process includes the book-keeping function also because on the basis of book-keeping records, an accountant draws periodically such financial statements. The main objective of Accounting is to ascertain the net results and the financial position of the business. For this analytical skill is required.

Accountancy: It refers to a systematic knowledge of accounting concerned with the principles & techniques which are applied in accounting. It includes:

Ø How to prepare the books of accounts?

Ø How to summarize the accounting information?

Ø How to communicate it to the interested parties?

Ø Decision making function on the basis of information provided the other two i.e. book-keeping & accounting.

It is much wider in scope i.e. it includes Book-keeping and Accounting both. It is a body of knowledge prescribing certain rules and principles to be observed while doing book- keeping and Accounting. In this way it depends on both. It includes the decision making function also which can be made on the basis of information provided by book-keeping and accounting. It refers to the entire body of theory and practice of accounting.