What is book-keeping?

the detailed recording of financial transactions. Recording comes first. Everything else is built on it.

Which task is accounting, not book-keeping?

preparing a statement of financial position. Preparing financial statements from the records is accounting.

Why does a business owner measure profit each year?

to see how the business is doing and to plan ahead. Profit shows whether the business is successful, and helps with decisions.

Who would a business show its profit figures to when asking for a loan?

its bank. A lender wants to know that the business can afford the repayments.

Comparing this year's results with last year's is an example of:

monitoring progress. Accounting information lets progress be monitored.

Book-keeping, accounting and why profit is measured

In plain words

Every business needs to know two things: is it making money, and what does it own and owe? Book-keeping is the daily recording that makes those questions answerable. Accounting is using the records to answer them.

5 things to know

Book-keeping is the detailed recording of all the financial transactions of a business.
Accounting uses the book-keeping records to prepare financial statements at regular intervals, and to analyse and interpret them.
Profit or loss is measured so that the owner knows whether the business is succeeding, can compare this year with earlier years and with other businesses, and can plan ahead.
Profit figures are also needed to work out tax, and to show to a bank when asking for a loan.
Accounting information is used for monitoring progress, by comparing results with previous years and with targets, and for decision-making, such as whether to expand or to change prices.

Worked example

Sort these three tasks into book-keeping and accounting: entering a sales invoice in the sales journal; preparing the statement of profit or loss; comparing this year's profit margin with last year's.

Entering an invoice is recording a transaction. That is book-keeping.
Preparing a financial statement from the records is accounting.
Comparing the profit margin with last year's is interpreting the results. That is accounting too.

Tips and tricks

Book-keeping records. Accounting prepares statements, and then analyses and interprets them. Use those verbs.
Asked why profit is measured, give a use for the figure: to compare, to plan, to get a loan. "To know the profit" only repeats the question.

5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Book-keeping, accounting and why profit is measured: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

What is book-keeping?
- interpreting financial statements
- the detailed recording of financial transactions (the answer)
- deciding the selling price of goods
- preparing a business plan
Recording comes first. Everything else is built on it.
Which task is accounting, not book-keeping?
- entering a credit note in the sales returns journal
- writing up the cash book
- preparing a statement of financial position (the answer)
- posting an invoice to a customer's account
Preparing financial statements from the records is accounting.
Why does a business owner measure profit each year?
- to pay suppliers faster
- to see how the business is doing and to plan ahead (the answer)
- to increase the bank balance
- to avoid recording transactions
Profit shows whether the business is successful, and helps with decisions.
Who would a business show its profit figures to when asking for a loan?
- its customers
- its suppliers
- its bank (the answer)
- its employees
A lender wants to know that the business can afford the repayments.
Comparing this year's results with last year's is an example of:
- book-keeping
- monitoring progress (the answer)
- double entry
- petty cash
Accounting information lets progress be monitored.

5 questions

Tap an answer and you’ll see straight away whether it’s right, and why.

Worksheet

2 questions, 4 marks. Write your answers on paper, then check them.

Book-keeping, accounting and why profit is measured

Cambridge IGCSE Accounting 0452 · 4 marks · papermunch.org

Name ______________________________ Date ______________

Explain the difference between book-keeping and accounting.[2]
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Book-keeping is the detailed recording of financial transactions. Accounting uses those records to prepare financial statements and to analyse and interpret them.
I got this one
State two reasons why a business measures its profit or loss.[2]
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To see whether the business is succeeding, by comparing the result with earlier years. To help in planning and decision-making. (Also: to support an application for a loan.)
I got this one

Answers: Book-keeping, accounting and why profit is measured

1. Book-keeping is the detailed recording of financial transactions. Accounting uses those records to prepare financial statements and to analyse and interpret them.
2. To see whether the business is succeeding, by comparing the result with earlier years. To help in planning and decision-making. (Also: to support an application for a loan.)