What is Bookkeeping?
Bookkeeping is the recordkeeping of the money values of the operation of a business. Bookkeeping provides the numbers from which accounts are made but is a distinct process, required prior to accounting.
Essentially, bookkeeping records two types of information: (1) the current value, or equity, of a business and (2) changes in value—profit or loss—taking place in the business within a singular time period.
Management officials, investors, and credit grantors all require such information: management to understand the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to analyse the upshot of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors so as to assess the financial statements of an entity in assessing whether to accept a loan.
Evidence of financial and numerical records are uncovered for almost every nation with a commercial background. Records of commercial contracts have been uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates were created in ancient Greece and Rome. The dual-entry method of bookkeeping began with the progression of the business republics of Italy, and tutorial books for bookkeeping were developed in the 15th century in various Italian cities.
Within the late 18th and early 19th centuries, the Industrial Revolution permitted an important stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made accurate financial books a requirement. The ancestry of bookkeeping, in fact, closely reflects the history of commerce, industry, and government and, in part, assisted forming it. The international spread of industrial and commercial activity needed better cosmopolitan decision-making processes, which in turn demanded higher sophistication in the selection, classification, and presentation of information, even more so with the aid of computers. Taxation and government regulation became more detailed and resulted in increased requirement for information; businesses 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 became sizeable, and the requirement for bookkeeping for their own inner departmental operations increased.
Though bookkeeping processes can be rather multifaceted, it is all based on two types of books employed in the bookkeeping procedure—journals and ledgers. A journal must have the daily transactions (sales, purchases, and so on), and the ledger contains the record of individual accounts. The daily records in the journals are entered in the ledgers.
Each month, generally, an income statement and a balance sheet are constructed from the trial balance posted out of the ledger. The point of the income statement or profit-and-loss statement is to present an analysis of those changes that have occurred in the enterprise equity because of the operations of the period. The balance sheet displays the financial condition of the corporation at the particular point in terms of assets, liabilities, and the ownership equity.
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