Bookkeeping is the recordkeeping of the money values of the function of a business. Bookkeeping provides the figures from which accounts are made but is a distinct process, prior to accounting.
Fundamentally, bookkeeping grants two areas of information: (1) the current value, or equity, of a business and (2) the changes in value—profit or loss—taking placement in the entity over a given period of time.
Management officials, investors, and credit grantors all demand such information: management in order to analyse the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors to assess the results 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 deciding whether to give a loan.
Evidence of financial and numerical record charts are seen for almost every country with a commercial background. Records of business contracts were uncovered in the archaelogy of Babylon, and accounts for both farms and estates had been kept in ancient Greece and Rome. The two-entry style of bookkeeping came with the furthering of the entrepeneurial republics of Italy, and manuals for bookkeeping were created during the 15th century in many Italian cities.
Within the late 18th and early 19th centuries, the Industrial Revolution permitted an important stimulus to accounting and bookkeeping.
The development of manufacturing, trading, shipping, and subsidiary services made factual financial bookkeeping a paramount factor. The past of bookkeeping, in fact, reflects the history of commerce, industry, and government and, in part, helped to shape it. The global movement of industrial and commercial activity needed better cosmopolitan decision-making procedures, which in turn demanded greater 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 higher need for information; enterprising firms had to provide information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also grew, and the need for bookkeeping for their own inner operations went up.
Though bookkeeping procedures 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 so on), and the ledger should have the details of individual accounts. The daily records from the journals are entered in the ledgers.
At the end of every month, by general practice, an income statement and a balance sheet are made from the trial balance posted within the ledger. The point of the income statement or profit-and-loss statement is to show an analysis of the changes that have taken place in the enterprise equity because of the events of the period. The balance sheet gives the financial condition of the enterprise at a particular date taken from assets, liabilities, and the ownership equity.
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