What is Bookkeeping?
Bookkeeping is the charting of the money values of the transactions of a business. Bookkeeping gives the details from which accounts are made but is a previous process, required prior to accounting.
Essentially, bookkeeping grants two parts of information: (1) the current value, or equity, of a business and (2) the change in value—profit or loss—taking place in the business from a particular time.
Management officials, investors, and credit grantors all need to have this kind of information: management in order to assess the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to understand the upshot of business operations and make decisions for buying, holding, and selling securities; and credit grantors so as to regard the financial statements of an enterprise in judging whether to accept a loan.
Pieces of financial and numerical records are uncovered for almost every society with a commercial backbone. Records of commercial contracts have been discovered in the archaelogy of Babylon, and accounts for both farms and estates were held in ancient Greece and Rome. The double-entry manner of bookkeeping came up with the progression of the commercial republics of Italy, and instruction books for bookkeeping were produced during the 15th century in many Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution gave a notable stimulus to accounting and bookkeeping.
The development of manufacturing, trading, shipping, and subsidiary services made factual financial records a paramount factor. The ancestry of bookkeeping, in fact, resembles the history of commerce, industry, and government and, in some part, assisted forming it. The worldwide expansion of industrial and commercial activity required better cosmopolitan decision-making methodology, which in turn needed better sophistication in the selection, classification, and presentation of information, even more so with the progression of computers. Taxation and government regulation became more important and resulted in even greater need for information; business entities had to have available information to go with their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also become larger, and the requirement for bookkeeping for departmental operations became higher.
Although bookkeeping processes can be extremely complex, all of it is based on two types of books employed in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, etcetera), and the ledger contains the record of individual accounts. The daily records from the journals are put in the ledgers.
At the end of each month, as a general rule, an income statement and a balance sheet are constructed from the trial balance posted from the ledger. The point of the income statement or profit-and-loss statement is to provide an analysis of any changes that have occurred in the ownership equity resulting from the operations of the period. The balance sheet gives the financial condition of the business at a particular point derived from assets, liabilities, and the ownership equity.
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