What is Bookkeeping?
Bookkeeping is the charting of the money values of the function of a business. Bookkeeping creates the numbers from which accounts are made but is a different process, required prior to accounting.
Basically, bookkeeping finds two types of information: (1) the current value, or equity, of a business and (2) the change in value—profit or loss—taking place in the entity during a particular period.
Management officials, investors, and credit grantors all need to have this information: management to interpret 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 about buying, holding, and selling securities; and credit grantors so as to assess the financial statements of a business in judging whether to accept a loan.
Evidence of financial and numerical records are found for almost every group of people with a commercial history. Records of trade contracts were uncovered in the archaelogy of Babylon, and accounts for both farms and estates had been kept in ancient Greece and Rome. The double-entry style of bookkeeping started with the progression of the entrepeneurial republics of Italy, and tutorial manuals for bookkeeping were developed in the 15th century in several Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution granted an important stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made accurate financial books a necessity. The history of bookkeeping, in fact, closely resembles the history of commerce, industry, and government and, partially, helped shaping it. The global revolution of industrial and commercial activity called for more cosmopolitan decision-making procedures, which in its turn required higher sophistication in the selection, classification, and presentation of information, even more so with the progression of computers. Taxation and government legislation became more important and resulted in greater requirement for information; businesses had to provide information to list with their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also became sizeable, and the need for bookkeeping for their own inner operations went up.
Although bookkeeping procedures can be extremely multifaceted, all of it is based on two kinds of books employed in the bookkeeping procedure—journals and ledgers. A journal contains the daily transactions (sales, purchases, and such), and the ledger must have the information of individual accounts. The daily records kept in the journals are written in the ledgers.
At the end of each month, as a general rule, an income statement and a balance sheet are created from the trial balance posted in the ledger. The duty of the income statement or profit-and-loss statement is to provide an analysis of the changes that happen in the business equity because of the events of the period. The balance sheet displays the financial condition of the corporation at a particular date with regard to assets, liabilities, and the ownership equity.
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