Study Session

Bookkeeping

1:

Financial

Accounting

and

Introduction
In todays world, information is king. Financial accounting provides the rules and
structure for the conveyance of financial information about businesses (and
other organizations). At any point in time, some businesses are poised to prosper
while others teeter on the verge of failure. Many people are seriously interested
in evaluating the degree of success achieved by a particular organization as well
as its prospects for the future. They seek information. Financial accounting
provides data that these individuals need and want.
However, Bookkeeping encompasses the record-keeping aspect of accounting
and therefore provides much of the data to which accounting principles are
applied in the preparation of financial statements and other financial information.
In this study session, you will be introduced to the objectives of book keeping
and Financial Accounting; advantages and disadvantages of Financial
Accounting; and the differences between Financial Accounting and Book keeping.

Learning Outcomes for Study Session 1

On completion of this study session, you should be able to:
1.1Define and discuss the objectives of Book keeping Accounting
1.2Define and discuss the objectives of Financial Accounting
1.3Discuss the advantages and disadvantages of Financial Accounting
1.4Differentiate between Financial Accounting and Book keeping

1.1 Meaning and Definition of Book- Keeping

Book- keeping includes recording of journal, posting in ledgers and balancing of
accounts. All the records before the preparation of trial balance are the whole
subject matter of book- keeping. Thus, book- keeping may be defined as the
science and art of recording transactions in money or moneys worth so
accurately and systematically, in a certain set of books, regularly that the true
state of businessmans affairs can be correctly ascertained.

Figure 1.1: Book-keeping

Source: http://www.google.com.ng/imgres
Here it is important to note that only those transactions related to business are
recorded which can be expressed in terms of money.
Book- keeping is the art of recording business transactions in a systematic
manner. Book- keeping can also be defined as the science and art of correctly
recording in books of account all those business transactions that result in the
transfer of money or moneys worth.

Box 1.1: Definition of Book keeping

Book keeping can be defined as the science and art of correctly recording in
books of account all those business transactions that result in the transfer of
money or moneys worth.

In-text Questions (ITQs) 1.1

1.
2.
3.
A.

Define bookkeeping?
List examples of bookkeeping.
Book- keeping includes recording of the following EXCEPT
Accounting. B. a Journal. C. Record. D. book

In-text Question Answers (ITAs) 1.1

1. Book keeping can be defined as the science and art of correctly recording
in books of account all those business transactions that result in the
transfer of money or moneys worth.
2. Records, Journals, post in ledgers and balancing of accounts.
3. B. a Journal.
1.1.1 Objectives of Book- keeping
The following are the objectives of book keeping
1
2
3
4
5
6

Book- keeping provides a permanent record of each transaction.

Soundness of a firm can be assessed from the records of assets and
abilities on a particular date.
Entries related to incomes and expenditures of a concern facilitate to know
the profit and loss for a given period.
It enables to prepare a list of customers and suppliers to ascertain the
amount to be received or paid.
It is a method that gives opportunities to review the business policies in
the light of the past records.
Amendment of business laws, provision of licenses, assessment of taxes
etc. are based on records.

In-text Question (ITQs) 1.2

1. State any three objectives of book keeping?
In-text Question Answers (ITAs) 1.2
1. The following are the objectives of book keeping
a) Book- keeping provides a permanent record of each transaction.
b) Soundness of a firm can be assessed from the records of assets and
abilities on a particular date.
c) Entries related to incomes and expenditures of a concern facilitate to
know the profit and loss for a given period.
d) It enables to prepare a list of customers and suppliers to ascertain the
amount to be received or paid.
e) It is a method that gives opportunities to review the business policies
in the light of the past records.
f) Amendment of business laws, provision of licenses, assessment of
taxes etc. are based on records.

1.2 Meaning and Definition of Financial Accounting

In simplest terms, financial accounting is the communication of information
about a business or other type of organization (such as a charity or government)
so that individuals can assess its financial health and prospects. Probably no
single word is more relevant to financial accounting than information. Whether
it is gathering financial information about a specific organization, putting that
information into a structure designed to enhance communication, or working to

understand the information being conveyed, financial accounting is intertwined

with information.
Organization Reports information based on the principles of financial
accounting Individual assesses financial health.
Financial accounting is concerned with external reporting to parties outside the
firm. Accounting, as an information system is the process of identifying,
measuring and communicating the economic information of an organization to its
users who need the information for decision making. It identifies transactions
and events of a specific entity.
Financial accounting (or financial accountancy) is the field of accounting
concerned with the summary, analysis and reporting of financial transactions
pertaining to a business. This involves the preparation of financial statements
available for public consumption. Stockholders, suppliers, banks, employees,
government agencies, business owners, and other stakeholders are examples of
people interested in receiving such information for decision making purposes.
However, Financial Accounting can be defined as the science of recording,
classifying and summarizing transactions so that relation with outsiders is
exactly determined and result of operation during a particular period can be
calculated, and the financial position as the end of the period may be shown.
In-text Questions (ITQs) 1.3
1. Differentiate between Accounting as information system and Financial
accounting.
In-text Question Answers (ITAs) 1.3
Accounting
system

1.

2.

as

information

Financial accounting

Accounting, as an information Financial accounting (or financial

system
is
the
process
of
identifying,
measuring
and
communicating
the
economic
information of an organization to
its
users
who
need
the
information for decision making.

accountancy) is the field of

accounting concerned with the
summary, analysis and reporting of
financial transactions pertaining to
a business.

It identifies transactions
events of a specific entity.

This involves the preparation of

financial statements available for
public consumption.

and

Summary of Study Session 1

In this study session, you have learned the following:
1. Book- keeping is the science and art of correctly recording in books of
account all those business transactions that result in the transfer of money
or moneys worth.
2. Accounting is the art and science of recording business transactions in a
methodological manner so as to show the true state of affairs of a
business of a particular period of time; and the surplus or deficiency which
has accrued during a specific period.
3. The American Institute of Certified Public Accountants (AICPA) defined
accounting as the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events, which
are, in part at least, of a financial character and interpreting the results
thereof.
4. The users of accounting information include; business owners,
management, creditors, employee, investors, government, consumers and
researchers.
5. Accounting has certain advantages to the users of accounting information
and it also has disadvantages
6. There are a number of differences between accounting and book keeping.

Glossary of terms
Accounting: Accounting, as an information system is the process of identifying,
measuring and communicating the economic information of an
organization to its users who need the information for decision making.
Book- keeping:Book- keeping is the art of recording business transactions in a
systematicmanner.
Creditors: Creditors are the persons who supply goods on credit, or bankers or
lenders of money.
Financial Accounting: Financial Accounting can be defined as the science of
recording, classifying and summarizing transactions so that relation with
outsiders is exactly determined and result of operation during a particular
period can be calculated, and the financial position as the end of the
period may be shown.

Self-Assessment Questions (SAQs) for Study Session 1

Having completed this study session, you can measure how well you have
achieved its learning outcomes by answering these questions. You can check
your answers with the Notes on Self-Assessment Questions at the end of this
Module.
SAQ 1.1 (Tests Learning Outcome 1.1)
1. What is bookkeeping?
SAQ 1.2 (Tests Learning Outcome 1.2)
1. What are the qualities of financial Accounting
2. Define accounting according to AICPA

Notes on SAQs for Study Session 1

SAQ 1.1
1. Book- keeping can also be defined as the science and art of correctly
recording in books of account all those business transactions that result in
the transfer of money or moneys worth.
SAQ 1.2
1. The American Institute of Certified Public Accountants (AICPA) defined
accounting as the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events, which
are, in part at least, of a financial character and interpreting the results
thereof.

2. The users of accounting information include; business owners,

management, creditors, employee, investors, government, consumers and
researchers.

Refernces
SeyiOjo: Fundamental Principles of Nigerian tax. Second Edition Published by
Sagribra Lax Publication, Lagos.
OmopariolaO : Business finance in Nigeria. Published by Obafemi Awolowo
University Press limited, Ile-Ife, Nigeria.
Asaolu T.O and Nassar M.L: Essentials of Management and Accounting and
Financial Management. Published by Cedar Productions Limited, Ile-Ife,
Nigeria
www.hmrc.gov.uk/charter: HM revenue and customs.
Federal Inland Revenue service: assessment procedure published in February,
2006. Information circular no : 2006/6