What is Bookkeeping?
Bookkeeping is the recordkeeping of the money values of the operation of a business. Bookkeeping gives the figures from which accounts are prepared but is a different process, required prior to accounting.
Basically, bookkeeping provides two kinds of information: (1) the current value, or equity, of a business and (2) any changes in value—profit or loss—taking placement in the entity within a given period.
Management officials, investors, and credit grantors all have to have such information: management so as to assess the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to interpret the upshot of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors so as to regard the financial statements of an entity in judging whether to accept a loan.
Pieces of financial and numerical record charts are found for just about every state with a commercial background. Records of trading contracts have been uncovered in the remains of Babylon, and accounts for both farms and estates had been kept in ancient Greece and Rome. The dual-entry style of bookkeeping started with the progression of the entrepeneurial republics of Italy, and instruction books for bookkeeping were created during the 15th century in various Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution gave a significant stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made factual financial records a necessity. The past of bookkeeping, in fact, reflects the history of commerce, industry, and government and, in some part, assisted to form it. The worldwide market of industrial and commercial activity demanded greater professional decision-making procedures, which in turn called for greater sophistication in the selection, classification, and presentation of information, even more so with the assistance of computers. Taxation and government regulation became more detailed and resulted in higher requirement for information; business entities had to have available information to support 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 became higher.
While bookkeeping procedures can be very detailed, all of it is based on two kinds of books employed in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, etcetera), and the ledger has the information of individual accounts. The daily records from the journals are written in the ledgers.
Each month, by general practice, an income statement and a balance sheet are created from the trial balance posted in the ledger. The point of the income statement or profit-and-loss statement is to give an analysis of those changes that happen in the business equity because of the operations of the period. The balance sheet shows the financial condition of the enterprise at the particular point in time taken from assets, liabilities, and the ownership equity.
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