What is Bookkeeping?

Bookkeeping is the recording of the money values of the transactions of a business. Bookkeeping creates the details from which accounts are made but is a separate process, prior to accounting.

Basically, bookkeeping grants two parts of information: (1) the current value, or equity, of the business and (2) changes in value—profit or loss—taking placement in the business during a particular time period.

Management officials, investors, and credit grantors all need to have this information: management so as to assess the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to interpret the upshot of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors so as to regard the financial statements of an enterprise in assessing whether to give a loan.

Pieces of financial and numerical records have been uncovered for almost every state with a commercial backbone. Records of trade contracts have been uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates were held in ancient Greece and Rome. The two-entry way of bookkeeping came up with the development of the entrepeneurial republics of Italy, and tutorial manuals for bookkeeping were created in the 15th century in various Italian cities.

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

The progression of manufacturing, trading, shipping, and subsidiary services made perfect financial bookkeeping a must-have. The past of bookkeeping, in fact, reflects the past of commerce, industry, and government and, in part, assisted to shape it. The worldwide movement of industrial and commercial activity required greater cosmopolitan decision-making processes, which then needed more sophistication in the selection, classification, and presentation of information, even more so with the aid of computers. Taxation and government legislature became more important and resulted in even greater requirement for information; enterprising firms had to have information available 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 inner departmental operations went up.

While bookkeeping methodology can be very detailed, it is all based on two types of books used in the bookkeeping procedure—journals and ledgers. A journal should have the daily transactions (sales, purchases, and so forth), and the ledger has the records of individual accounts. The daily records kept in the journals are written in the ledgers.

Every month, by general practice, an income statement and a balance sheet are made from the trial balance posted from the ledger. The duty of the income statement or profit-and-loss statement is to give an analysis of those changes that have occurred in the business equity from the transactions of the period. The balance sheet provides the financial condition of the enterprise at a particular day with regard to assets, liabilities, and the ownership equity.

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