Chapter 1 – Introduction To Bookkeeping
1.1 Evolution and Development of Accounting
1. In ancient times, before the advent of currencies, the barter transactions were the only form of trade. Most
record consisted of a list of objects as shown below :
It would be difficult to compare any object of one person to another when there is no common basis of
measurement. How many chickens will you get in exchange for one goat? Four chickens? Or Ten chickens?
2. The Chinese invented coinage around the year 1000 BC. Nowadays, transactions can be measured by currency
and paid-by banknotes and coinage, cheques, credit cards, etc.
3. In 1494, an Italian friar Luca Pacioli was the first
to introduce double-entry bookkeeping system to
record daily transactions. The system is still in use
today.
4. Bookkeeping record is important to business
owners, lenders, taxation authority, etc. Accurate
accounting is even more relevant in the modern
era.
1.2 What is bookkeeping
1. Bookkeeping is the process of recording business transactions accurately and systematically in accordance
with the accounting principles or rules.
2. A business transaction is the occurrence of a business which can be expressed in monetary terms.
Payment of money in exchange for goods or services is an example of a business transaction,
e.g. a. Bought goods for cash;
b. Paid staff salaries by cheques.
Chapter 1 – Introduction To Bookkeeping
1.3 Objectives of Bookkeeping
The objectives of bookkeeping can be summarised as follows:
1. To keep the records of a business operations.
2. To ascertain the profit of loss of a business for a particular period.
3. To show the financial position of a business at a particular date to find out what it owns and owes.
4. To provide useful accounting information for decision making of a business.
1.4 Users of Accounting Information
The main users of accounting information are as follows:
1 Business - Business owners can know exactly how much profit or loss they have
. Owners made and what the business owns and owes.
2 Managers / - They are the people appointed by the business to supervise the daily
. Executives operating activities.
- They need the information to enable them to manage the business
efficiently in order to take effective control and make decision.
3 Employees - Employees’ future careers and their wages and salaries depend on the
. business operating results.
4 Trade - Suppliers will be able to know the ability of the business to pay its debts.
. contacts - Customers need to know whether the business is secured and able to
supply goods or services continuously.
5 Lenders - The lenders may be banks / finance companies, other companies of
. individuals.
- The lenders’ primary concern is the ability of the business to make loan
repayment.
6 Taxation - In Malaysia, it is Lembaga Hasil Dalam Negeri (LHDN) / Inland Revenue
. authority Board (IRB).
- Its main interest is to make sure that the business pays tax on the profit
earned.
Chapter 1 – Introduction To Bookkeeping
1.5 Bookkeeper versus Accountant
1. There are different jobs functions and responsibilities
for bookkeeper and accountant.
2. The roles played by them are listed below:
Bookkeeper Accountant
a. Keeps the source documents that flow into the a. Reviews the detailed bookkeeping transactions
business. and summaries to detect errors or omissions.
b. Makes entries in the books for the transactions of b. Presents and interprets the summarised financial
the business. information to the management.
c. Organises the recorded data. c. Explains the differences between the actual
d. Prepares reports at the end of a period. performance and the forecasted result of the
business.
d. Forecasts the future growth of the business.
e. Sets up the internal control system to assist daily
operations of the business and to prevent fraud.
3. From the above respective roles, the difference and the relationship between bookkeeping and accounting can
now be illustrated as follows:
Recording
Classifying
Summarising Bookkeeping
Accounting
Preparing financial reports
Analysing, Interpreting & Reporting
