Let us suppose you have a small book store. You have sold some material to your customer, say, X, who has given you the full amount in return. This is a transaction that took place between you and X. Now, suppose you deposit all the money received from X in the bank. This is another transaction, between you and the bank. You can very easily remember these transactions and need not write them anywhere. But, what if there were a large number of customers, say 100 or even more and most of them have not given you the full amount due? This is what really happens in a business.
In such a case, you will have to memorize all the details regarding each and every customer i.e. details of the amount received from them, the amount due from them etc. which is nearly impossible for anybody. So, what you can do is to prepare an account of each and every customer in order to record the details of the transactions with them. This means you have to prepare a large number of accounts i.e. one account for each customer.
The real problem will arise when one has to prepare a very large number of accounts, considering the discount given to customers, the commission given to salesmen and such other things. Moreover, there are not just customers with whom you have to have everyday transactions. There are the suppliers of raw materials, people who have given you loan etc. with whom you have to transact everyday. This means you have to prepare a separate account for each of these persons as well, and if this is so, you will end up with an interminable list of accounts which will be really difficult to maintain. The situation will be complicated further if your knowledge of accounting concepts is not quite adequate.
In such a case, you will have to memorize all the details regarding each and every customer i.e. details of the amount received from them, the amount due from them etc. which is nearly impossible for anybody. So, what you can do is to prepare an account of each and every customer in order to record the details of the transactions with them. This means you have to prepare a large number of accounts i.e. one account for each customer.
The real problem will arise when one has to prepare a very large number of accounts, considering the discount given to customers, the commission given to salesmen and such other things. Moreover, there are not just customers with whom you have to have everyday transactions. There are the suppliers of raw materials, people who have given you loan etc. with whom you have to transact everyday. This means you have to prepare a separate account for each of these persons as well, and if this is so, you will end up with an interminable list of accounts which will be really difficult to maintain. The situation will be complicated further if your knowledge of accounting concepts is not quite adequate.
Nature of Accounting
An understanding of the principles of bookkeeping and accounting is essential for anyone who is interested in a successful career in business. The purpose of bookkeeping and accounting is to provide information concerning the financial affairs of a business. This information is needed by owners, managers, creditors, and governmental agencies.
An individual who earns a living by recording the financial activities of a business is known as a bookkeeper, while the process of classifying and summarizing business transactions and interpreting their effects is accomplished by the accountant. The bookkeeper is concerned with techniques involving the recording transactions, and the accountant’s objective is the use of data for interpretation.
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