What is Bookkeeping?
Bookkeeping is the recording of the money values of the function of a business. Bookkeeping gives the details from which accounts are written but is a separate process, prior to accounting.
Predominantly, bookkeeping provides two parts of information: (1) the current value, or equity, of an entity and (2) any changes in value—profit or loss—taking position in the entity within a given period of time.
Management officials, investors, and credit grantors all require this kind of information: management in order to understand the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to understand the outcome of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors in order to regard the financial statements of an entity in finding whether to give a loan.
Pieces of financial and numerical records can be seen for nearly every civilization with a commercial background. Records of commercial contracts were discovered in the remains of Babylon, and accounts for both farms and estates were made in ancient Greece and Rome. The dual-entry way of bookkeeping started with the progression of the commercial republics of Italy, and tutorial manuals for bookkeeping were produced in the 15th century in various Italian cities.
In the late 18th and early 19th centuries, the Industrial Revolution granted a notable stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made correct financial recordkeeping a paramount factor. The ancestry of bookkeeping, in fact, reflects closely the past of commerce, industry, and government and, partially, assisted to shape it. The worldwide movement of industrial and commercial activity called for better professional decision-making processes, which in its turn required higher sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government regulation became more detailed and resulted in increased requirement for information; entities had to show 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 demand for bookkeeping for departmental operations went up.
Although bookkeeping methods can be very multifaceted, all are based on two kinds of books employed in the bookkeeping procedure—journals and ledgers. A journal should have the daily transactions (sales, purchases, and such), and the ledger must have the record 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 constructed from the trial balance posted in the ledger. The point of the income statement or profit-and-loss statement is to show an analysis of any changes that happen in the enterprise equity due to the events of the period. The balance sheet provides the financial condition of the business at any particular point in time taken from assets, liabilities, and the ownership equity.
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