BOOK KEEPING AS A TOOL IN BUSSINESS ; Introduction to book keeping, meaning, importance, qualities of good book keeper, common pratices.

SUBJECT: BUSINESS STUDIES

CLASS: JSS 1

TOPIC: BOOK KEEPING AS A TOOL IN BUSINESS

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Core Concepts

Introduction to Book Keeping

In our daily lives, we often engage in buying and selling. Whether you are buying a pen from the school buttery or a mother is buying food items from the market, money is changing hands. In a small corner shop or a large supermarket, many of these transactions happen every single hour. It would be impossible for any human being to remember every single kobo spent or received by heart. This is where book keeping becomes essential.

Book keeping is the systematic and accurate recording of financial transactions of a business in a chronological order. This means that every time money comes into the business or goes out, it is written down in a specific way and in the order in which it happened. It is the foundation of accounting. Without book keeping, a business owner would not know if they are making a profit or a loss, or even who owes them money.

Meaning of Book Keeping

The term "Book Keeping" can be broken down simply: it is the art of "keeping the books" of accounts. More formally, it is defined as the process of identifying, measuring, and recording the financial activities of an organization. It involves capturing every detail of a transaction, such as the date, the amount, the items involved, and the parties involved (the buyer and the seller).

It is important to note that book keeping is not just about writing things down; it is about writing them down correctly using specific rules. These rules ensure that anyone who looks at the records later can understand exactly what happened in the business. In modern times, book keeping can be done manually in physical registers or electronically using computer software like Excel or specialized accounting programs.

Importance of Book Keeping in Business

Book keeping is often described as the "language of business." It is a vital tool for several reasons:

1. Determination of Profit and Loss: The primary goal of any business is to make a profit. By keeping accurate records of all sales (income) and all expenses (costs), a business owner can easily subtract the expenses from the income to see if they have made a gain or a loss over a period.
2. Assessment of Financial Position: Book keeping helps the owner know what the business owns (assets) and what the business owes to others (liabilities). For example, it tracks how much stock is in the warehouse and how much money is in the bank.
3. Tax Purposes: The government requires businesses to pay taxes based on their earnings. Accurate book keeping provides the evidence needed to calculate the correct amount of tax to be paid to authorities like the Federal Inland Revenue Service (FIRS).
4. Reference and Evidence: In case of a dispute between a buyer and a seller, the records serve as legal evidence of what was agreed upon and paid. It also serves as a historical reference to compare how the business performed this year compared to last year.
5. Planning and Decision Making: When a business owner wants to expand or buy new equipment, they look at their books to see if they have enough cash flow. It helps in making "informed decisions" rather than guessing.

Qualities of a Good Book Keeper

A book keeper is the person responsible for recording the financial transactions of a business. Because this role involves handling sensitive money matters, a good book keeper must possess the following qualities:

• Accuracy: This is the most critical quality. A small mistake of adding an extra zero (turning N1,000 into N10,000) can cause huge problems for a business. A book keeper must be very careful with figures.
• Integrity and Honesty: Since they deal with money and financial records, they must be trustworthy. They should never change figures to hide money or deceive the owner.
• Neatness: The books must be kept clean and legible. If the handwriting is messy or the digital files are unorganized, it becomes difficult for auditors or the business owner to read and understand the records.
• Patience and Diligence: Recording every single receipt and invoice can be repetitive. A good book keeper must be patient enough to ensure every detail is captured without getting tired or skipping steps.
• Objectivity: They must record facts as they are, based on evidence (like receipts), rather than their personal feelings or opinions.

Common Practices in Book Keeping

To ensure that records are useful, there are standard practices that every book keeper follows:

1. Use of Source Documents: Every entry in a book must be backed by a document. Common source documents include Receipts (for cash received), Invoices (for goods sold on credit), and Vouchers (for internal payments).
2. Chronological Recording: Transactions are recorded in the order they occur. You don't record Wednesday’s sales before Monday’s sales. This creates a clear timeline of business activities.
3. The Double Entry Principle: This is the practice where every transaction affects two accounts—one is "Debited" and the other is "Credited." For example, if you buy a chair for cash, your "Furniture Account" increases (Debit) and your "Cash Account" decreases (Credit).
4. Daily Updates: A common practice is to update the books daily. Waiting until the end of the month to record everything leads to forgotten transactions and errors.
5. Classification: Transactions are grouped into categories. For example, all electricity, water, and rent bills might be classified under "Utilities," while all money spent on items to be resold is classified under "Purchases."

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Key Points

• Book Keeping is the systematic recording of financial transactions in a chronological order.
• It is the foundation of accounting and helps in determining if a business is growing or failing.
• Importance includes: Calculating profit/loss, paying correct taxes, and providing evidence for legal matters.
• Qualities required include accuracy, honesty, neatness, and patience.
• Common practices involve using source documents like receipts/invoices and following the double-entry system.

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Contextual Examples

Example 1: The Petty Trader Musa owns a small kiosk in Lagos where he sells bread and minerals. If Musa buys 10 crates of minerals for N20,000 and sells them all for N25,000, his book keeping record would show a "Purchase" of N20,000 and "Sales" of N25,000. By looking at his book, he can clearly see he made a profit of N5,000. If he didn't write it down, he might spend the whole N25,000 and not have money to buy more minerals to restock his shop.

Example 2: Using Source Documents When a student pays school fees at the bank, the bank gives them a teller or a deposit slip. The school's book keeper then takes that teller and issues a Receipt. The receipt is the source document that the book keeper uses to record in the school's accounts that the student has paid. Without that receipt, there is no proof of payment.

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Summary

Book keeping is an indispensable tool in the world of business. It involves the orderly recording of money-related activities so that a business can track its progress. By maintaining accurate, neat, and honest records, a business can plan for the future, satisfy government tax requirements, and ensure that it remains profitable. A good book keeper must be disciplined and rely on source documents like receipts and invoices to ensure that every kobo is accounted for through standard practices such as the double-entry system and chronological filing.