Bookkeeping is the recordkeeping of the money values of the transactions of a business. Bookkeeping grants the numbers from which accounts are made but is a previous process, preliminary to accounting.
Essentially, bookkeeping provides two parts of information: (1) the current value, or equity, of the business and (2) the change in value—profit or loss—taking placement in the business from a singular period of time.
Management officials, investors, and credit grantors all demand this information: management so as to assess the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to interpret the results of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to assess the financial statements of a business in assessing whether to grant a loan.
Traces of financial and numerical records are uncovered for just about every group of people with a commercial history. Records of commercial contracts were uncovered in the archaelogy of Babylon, and accounts for both farms and estates were made in ancient Greece and Rome. The double-entry manner of bookkeeping came up with the development of the business republics of Italy, and tutorial books for bookkeeping were developed during the 15th century in several Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution granted an important stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made factual financial books a requirement. The history of bookkeeping, in fact, closely resembles the past of commerce, industry, and government and, in some part, assisted to form it. The international spread of industrial and commercial activity required better sophisticate decision-making procedures, which then required greater sophistication in the selection, classification, and presentation of information, more so with the assistance of computers. Taxation and government legislation became more important and resulted in greater demand for information; enterprises had to have available information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also grew in size, and the demand for bookkeeping for their own operations went up.
Though bookkeeping processes can be very detailed, it is all based on two types of books employed in the bookkeeping procedure—journals and ledgers. A journal contains the daily transactions (sales, purchases, and so on), and the ledger contains the details of individual accounts. The daily records from the journals are put in the ledgers.
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 job of the income statement or profit-and-loss statement is to provide an analysis of the changes that took place in the business equity resulting from the events of the period. The balance sheet displays the financial position of the corporation at any particular point in time with regard to assets, liabilities, and the ownership equity.
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