What is Bookkeeping?
Bookkeeping is the charting of the money values of the transactions of a business. Bookkeeping gives the figures from which accounts are written but is a different process, preliminary to accounting.
Fundamentally, bookkeeping grants two parts of information: (1) the current value, or equity, of an entity and (2) the changes in value—profit or loss—taking position in the business during a singular time period.
Management officials, investors, and credit grantors all require such information: management so as to understand the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to understand the outcomes of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors in order to judge the financial statements of an entity in finding whether to give a loan.
Traces of financial and numerical charts can be seen for almost every state with a commercial history. Records of trading contracts were discovered in the archaelogical digs of Babylon, and accounts for both farms and estates had been kept in ancient Greece and Rome. The dual-entry manner of bookkeeping came up with the progression of the enterprising republics of Italy, and instruction books for bookkeeping were produced in the 15th century in some Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution provided a significant stimulus to accounting and bookkeeping.
The development of manufacturing, trading, shipping, and subsidiary services made correct financial recordkeeping a must-have. The past of bookkeeping, in fact, reflects closely the ancestry of commerce, industry, and government and, in part, assisted in forming it. The global spread of industrial and commercial activity called for better cosmopolitan decision-making processes, which in its turn demanded better sophistication in the selection, classification, and presentation of information, increasingly with the assistance of computers. Taxation and government regulation became more detailed and resulted in higher requirement for information; enterprises had to show available information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also developed in size, and the need for bookkeeping for their own operations became higher.
While bookkeeping processes can be rather multifaceted, all are based on two kinds of books employed in the bookkeeping procedure—journals and ledgers. A journal contains the daily transactions (sales, purchases, etcetera), and the ledger contains the record of individual accounts. The daily records from the journals are written 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 in the ledger. The purpose of the income statement or profit-and-loss statement is to display an analysis of those changes that took place in the entity equity due to the operations of the period. The balance sheet shows the financial position of the entity at the particular point in time with regard to assets, liabilities, and the ownership equity.
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