What is Bookkeeping?
Bookkeeping is the recordkeeping of the money values of the transactions of a business. Bookkeeping provides the numbers from which accounts are written but is a separate process, required prior to accounting.
Predominantly, bookkeeping records two types of information: (1) the current value, or equity, of the business and (2) any changes in value—profit or loss—taking position in the entity during a given time period.
Management officials, investors, and credit grantors all need this information: management to analyse the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors to assess the upshot of business operations and make decisions about buying, holding, and selling securities; and credit grantors so as to assess the financial statements of an enterprise in finding whether to accept a loan.
Bits and pieces of financial and numerical record charts have been seen for almost every civilization with a commercial backbone. Records of commercial contracts have been uncovered in the ruins of Babylon, and accounts for both farms and estates had been archived in ancient Greece and Rome. The two-entry style of bookkeeping came up with the progression of the commercial republics of Italy, and tutorial books for bookkeeping were created within the 15th century in many Italian cities.
Within the late 18th and early 19th centuries, the Industrial Revolution granted an important stimulus to accounting and bookkeeping.
The rise of manufacturing, trading, shipping, and subsidiary services made perfect financial bookkeeping a requirement. The past of bookkeeping, in fact, resembles the history of commerce, industry, and government and, in part, helped in forming it. The worldwide revolution of industrial and commercial activity called for greater professional decision-making methodology, which itself demanded higher sophistication in the selection, classification, and presentation of information, even more so with the progression of computers. Taxation and government regulation became more significant and resulted in even greater demand for information; business firms 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 requirement for bookkeeping for their own operations became higher.
Although bookkeeping processes can be rather complex, it is all based on two kinds of books employed in the bookkeeping procedure—journals and ledgers. A journal has the daily transactions (sales, purchases, and so on), and the ledger should have the records of individual accounts. The daily records in the journals are put in the ledgers.
At the end of every month, as a general rule, an income statement and a balance sheet are constructed from the trial balance posted out of the ledger. The duty of the income statement or profit-and-loss statement is to present an analysis of the changes that happen in the business equity as a result of the operations of the period. The balance sheet gives the financial position of the business at the particular point with regard to assets, liabilities, and the ownership equity.
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