Book-Keeping-And-Accounting Igcse Cie

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Exam code:0452 & 0985

Book-keeping

What is book-keeping?

Book-keeping is the process of keeping detailed records of financial transactions
Book-keeping is done by book-keepers
They record the day-to-day transactions of the business
- The information is obtained from business documents
  - Such as bank statements, receipts, invoices, cheques, etc
- The book-keeper makes the records using a system called double entry book-keeping

Every business, no matter how small, must keep a record of every transaction

Case Study

A small business owner’s day-to-day activities usually involve managing their business and carrying out the role of a book-keeper. As a book-keeper, the owner’s role would involve the following tasks.

Collecting business documents	Recording data	Posting data
Including invoices, credit notes, cheques, receipts etc	The documents collected will be recorded in relevant books of prime entry such as the sales journal, purchases journal and cash book	The data posted to the books of prime entry will then be posted to relevant ledger accounts

Accounting

What is accounting?

Accounting uses the records of the book-keepers to prepare the financial statements of the business
Accountants provide information to owners and managers which is used to
- monitor progress of the business
- help with decision making about how to improve profit or reduce loss
Accounting is the function carried out by accountants
- Accountants are primarily responsible for managing, updating, correcting, and reporting the business’ accounts

What is the difference between accounting and book-keeping?

Accounting and book-keeping have distinct functions
They support businesses at different stages of the financial cycle
- Book-keeping involves keeping records of the day-to-day financial data of the business
- Accounting involves using the information recorded by the book-keeper to provide information at regular intervals

Case Study

Barbara runs a burger bar called Barbara’s Burger Bar. She hires Jack as an accountant for her business. Jack runs his own accounting firm, 4J Accounting, with three other partners: James, Jasmin and Junaid.

Jack visits Barbara’s place of business and explains to her the types of financial transactions he would like her to record as well as the rules and procedures for Barbara to follow in recording these transactions.

Barbara carries out all of the book-keeping of the business.

After Barbara completes the book-keeping, Jack takes the records and puts them to use. He transforms the records Barbara has collected in a way that can be used for decision making. He creates financial statements which can be used to see where the business is spending its money, where it is making money, and the financial health of the burger bar. Jack will also conduct tax preparations and tax planning.

Examiner Tips and Tricks

The purpose of accounting and book-keeping will usually appear on Paper 1 as a multiple-choice question. The options might all sound relevant but read the wording carefully to identify the purpose of the role, not the advantages of accounting or book-keeping.

Worked Example

Which statement is correct?

A	Accounting is the process of entering details of transactions into the books of prime entry
B	Accounting involves providing financial information for decision making
C	Book-keeping involves creating the financial statements
D	Book-keeping is only carried out once a year

Answer

A is incorrect as book-keepers enter details of transactions into the books of prime entry.
C is incorrect as accountants create the financial statements, although book-keepers might provide the information.
D is incorrect as book-keeping is performed day-to-day.

The correct answer is B.

Accounting Igcse Cie