What is Bookkeeping?

Bookkeeping is the charting of the money values of the transactions of a business. Bookkeeping provides the numbers from which accounts are written but is a previous process, required prior to accounting.

Predominantly, bookkeeping provides two kinds of information: (1) the current value, or equity, of the entity and (2) the changes in value—profit or loss—taking place in the business over a singular time period.

Management officials, investors, and credit grantors all need such information: management so as to assess the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to interpret the upshots of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors so as to regard the financial statements of a business in deciding whether to grant a loan.

Pieces of financial and numerical recordkeeping have been found for almost every society with a commercial background. Records of trade contracts were uncovered in the ruins of Babylon, and accounts for both farms and estates were held in ancient Greece and Rome. The two-entry way of bookkeeping came with the progression of the enterprising republics of Italy, and instruction manuals for bookkeeping were created in the 15th century in several Italian cities.

During the late 18th and early 19th centuries, the Industrial Revolution gave a notable stimulus to accounting and bookkeeping.

The development of manufacturing, trading, shipping, and subsidiary services made perfect financial bookkeeping a requirement. The ancestry of bookkeeping, in fact, reflects closely the ancestry of commerce, industry, and government and, in some part, assisted forming it. The worldwide market of industrial and commercial activity demanded better sophisticated decision-making methods, which itself required better sophistication in the selection, classification, and presentation of information, even more so with the assistance of computers. Taxation and government legislation became more significant and resulted in higher requirement for information; enterprising firms had to show available information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also developed in size, and the requirement for bookkeeping for their own departmental operations went up.

Though bookkeeping methodology can be rather complex, all are based on two styles of books utilised in the bookkeeping process—journals and ledgers. A journal must have the daily transactions (sales, purchases, etcetera), and the ledger should have the record of individual accounts. The daily records in the journals are entered in the ledgers.

At the end of each month, generally, an income statement and a balance sheet are made from the trial balance posted from the ledger. The point of the income statement or profit-and-loss statement is to provide an analysis of any changes that occurred in the enterprise equity resulting due to the events of the period. The balance sheet provides the financial position of the business at the particular point in time with regard to assets, liabilities, and the ownership equity.

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