What is Bookkeeping?
Bookkeeping is the charting of the money values of the transactions of a business. Bookkeeping creates the figures from which accounts are written but is a previous process, prior to accounting.
Fundamentally, bookkeeping finds two areas of information: (1) the current value, or equity, of an entity and (2) the changes in value—profit or loss—taking placement in the entity from a single period of time.
Management officials, investors, and credit grantors all have to have this kind of information: management in order to analyse the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to interpret the outcomes 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 judging whether to grant a loan.
Bits and pieces of financial and numerical records can be seen for nearly every state with a commercial history. Records of business contracts have been found in the archaelogy of Babylon, and accounts for both farms and estates had been archived in ancient Greece and Rome. The double-entry manner of bookkeeping started with the furthering of the commercial republics of Italy, and manuals for bookkeeping were produced within the 15th century in various Italian cities.
In the late 18th and early 19th centuries, the Industrial Revolution provided an important stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made accurate financial books a necessity. The ancestry of bookkeeping, in fact, reflects closely the ancestry of commerce, industry, and government and, partially, helped to form it. The worldwide movement of industrial and commercial activity required greater sophisticate decision-making methodology, which in turn needed more sophistication in the selection, classification, and presentation of information, increasingly with the assistance of computers. Taxation and government legislature became more significant and resulted in greater need for information; enterprises had to have available information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also become larger, and the need for bookkeeping for departmental operations went up.
Though bookkeeping procedures can be extremely multifaceted, it is all based on two kinds of books used in the bookkeeping process—journals and ledgers. A journal contains the daily transactions (sales, purchases, and such), and the ledger should have the information of individual accounts. The daily records in the journals are written in the ledgers.
Each month, generally speaking, an income statement and a balance sheet are made from the trial balance posted out of the ledger. The duty of the income statement or profit-and-loss statement is to display an analysis of any changes that took place in the enterprise equity resulting from the events of the period. The balance sheet provides the financial condition of the entity at the particular date derived from assets, liabilities, and the ownership equity.
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