Accounting Basics: Government Regulation and Book-Keeping

Government Regulation and Taxation

• Accounting provides necessary information to the government to exercise control on the entity and in the collection of tax revenues.

Book-Keeping

• Book-keeping is an activity concerned with the recording of financial data relating to business operations in a significant and orderly manner.
• It covers procedural aspects of accounting work and embraces record-keeping functions.
• Book-keeping procedures are governed by the end product, the financial statements (Profit and Loss Account, Balance Sheet, and cash flow statements).
• Book-keeping requires suitable classification of transactions and events, which is determined with reference to the requirement of financial statements.

Accounting

• Accounting is based on a careful and efficient book-keeping system.
• The essential idea behind maintaining book-keeping records is to show the correct position regarding each head of income and expenditure.
• Accounting information is used by various stakeholders, including the government, to make economic decisions.

Procedural Aspects of Accounting

• The procedure of accounting can be divided into two parts:
  • Generating financial information
  • Using the financial information
• Generating financial information involves:
  • Recording: the basic function of accounting, recording all business transactions of a financial character in a book called "Journal".
  • Classifying: systematic analysis of recorded data to group transactions or entries of one nature at one place, done in a book called "Ledger".

Functions of Accounting and Book-Keeping

• Book-keeping is mainly concerned with:
  • Recording of financial data
  • Designing the systems in recording, classifying, and summarizing the recorded data
  • Interpreting the data for internal and external users
• Functions of accounting include:
  • Recording financial data
  • Classifying and summarizing the recorded data
  • Interpreting and communicating the data to users
  • Decision making

Financial Statements

• Financial statements are part of accounting and include:
  • Profit and Loss Account
  • Balance Sheet
  • Cash flow statements
  • Schedules and Notes forming part of Accounts
• Financial statements do not consider assets and liabilities expressed in non-monetary terms.

Test your knowledge of accounting fundamentals, including government regulation and taxation, as well as book-keeping principles and procedures.