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We
live in a world where people need things from the
day they are born to the day that they die. Some of
these "need" are physical needs, a need for goods of
various sorts, food, clothing, shelter, and so on.
Some of them are emotional "wants", a need for
education, entertainment, or recreation. In
satisfying such needs businessmen perform useful
services to their fellow humans. In return they
expect to earn a responsible reward for their
efforts in the form of
profits.
"Cut your coat according to your cloth" - so
goes the saying. Even a king becomes a pauper, if he
fails to exercise economy in has expenditures. In
other words, every individual will have to plan his
expenditure according to his income. Obviously the
question arises - why is this planning necessary?
The need for such planning arises as our wants or
desires on needs for goods and services are
unlimited, while the means, i.e. the income with
which to buy such goods and services are limited.
Where, however, goods and services are available
free of cost, i.e. gifts of nature, such as air,
water (not in cities) etc. there is no question of
economy. But the necessity of economy is undeniable,
where goods or services are not available free of
cost and their supply is limited.
A proper ad fair
planning of expenditures helps us to ensure proper
use of our income. Of course it is true that the
quantity of goods or money cannot be increase by
making a proper planning. But certainly we can
ensure most economic use of goods or money at our
disposal.
Most of us do maintain
some kind of a written record of our income and
expenditure. The idea behind maintaining such record is
to know the correct position regarding income and
expenditure. The need for keeping a record of income
and expenditure in a clear and systematic manner has
given rise to the subject of "bookkeeping".
Some individuals do
not recognize the necessity of keeping accounts of
there day to day expenditure, since they spend their
own income and are not required to account for it to
any body. But such an idea is wrong. A family,
however, small it may be, must exercise proper
control over its expenditures as to ensure future
security. A family has two-fold responsibilities -
one is that of ensuring all round welfare of the
family and the other is the social responsibility.
Needless to say, money is the most essential
pre-request for ensuring peace and happiness of a
family, which each and every member desires. The
quantum of money must be adequate in relation to the
needs. But mere adequacy of money will not do; one has
to take care of its proper utilization. For this it
would be necessary to exercise economy and maintain
proper books of accounts. On the other hand each and
every family must save a portion of its income for
future contingencies. It is possible to increase the
amount of savings through proper management and
effective control of the family expenses. Through
such saving the family helps materializing the
economic planning of the country.
It is all the more
necessary for an organization or a concern to keep
proper accounts. At the end of the year the true
result of the economic activities of a concern must
be made available otherwise it will not be possible
to run the concern. In case of a business concern
the profit or loss at the end of a year must be
ascertained, because, the amount of profit must be
adequate in relation to that of investment made in
the business. If it is not so or if there is a loss,
it is an indication of some defects existing
somewhere in the management of the business. All
such defects need to be detected and analyzed and
appropriate measures taken for their rectification.
But it is only possible, if proper books of accounts
are maintained in the business concern.
So,
the importance of
bookkeeping to a business is the
same as that of fresh air to a man to exist. Without
bookkeeping records a business would meet death,
through not instantly, but in a short time.
Moreover, if proper
books of accounts are not kept in a business, the
amount of profit cannot be ascertained and it will
not be possible to distribute the profit among the
owners of the business. The income tax dues to the
government cannot also be paid. In the absence of
books of accounts misuse or defalcation of money
will remain undetected. The owner and other parties
interested will not be able to have any information
about the condition of the business. For the same
reason in the case of non-trading concerns like
schools, clubs, colleges, universities, hospitals
etc. the need for accounting is universally
recognized.
Thus we see that the
necessity of keeping accounts is not only confined
to business concerns but it is also useful for all
classes and grades of people and organizations. |
