Page 15 - Book-keeping for Secondary Schools Student’s Book Form One

Introduction to Book-Keeping

Analysing and interpreting the financial
Double entry: This is the system or statements
principle of Book-keeping whereby The financial statements need to be
each business transaction is recorded analysed and interpreted to assess the
in the book of accounts. performance of the enterprise. This is
done in comparison with other enterprises,
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as well as the progress made from one
Making adjusting entries and correction period to another. One of the tools used
of errors for analysing financial statements is ratio
A trial balance is expected to reveal some analysis. Analysed financial information
errors made when transactions are first is useful to several users such as owners,
entered in the books of prime entry or lenders and creditors in making informed
when double entry is done in the ledger. decision.
These errors need to be corrected. This
is a process that goes together with Types of Book-keeping methods/systems
making any necessary adjustments of Modem Book-keeping uses double entry
system. However, some businesses still
the balances before the preparation of find it adequate to use a single entry
financial statements.
system. The following are the two systems
of Book-keeping:
Extracting the adjusted trial balance (i) Double-entry Book-keeping
After correcting the errors and making Double-entry Book-keeping is a
adjusting entries, the adjusted trial more comprehensive and widely
balance will need to be prepared. This is used method that provides a more
the one that has balances that are used in accurate and detailed representation
the preparation of financial statements. of business's financial transactions.
It follows the principle that every

Preparing the financial statements transaction has equal and opposite
Financial statements are prepared using effects on at least two accounts. Each
transaction is recorded with a debit
figures extracted from the adjusted trial entry in one account and an equal
balance. The aim of preparing the financial credit entry in another. This method
statements is to know the performance, maintains a system of accounts,
financial position and cash flows of the including assets, liabilities, equity,
enterprise. This includes determining revenue, and expenses. Double-
whether the enterprise is making profits entry book-keeping ensures that
the accounting equation (Assets =
or losses (usually done through preparing Liabilities + Equity) remains balanced
an income statement) and to show the and allows for the preparation of
financial wealth of the enterprise. This is accurate financial statements such as
done through the statement of financial statement of financial position and
position. income statements.

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