What is Bookkeeping?
Bookkeeping is the charting of the money values of the transactions of a business. Bookkeeping creates the figures from which accounts are written but is a distinct process, preliminary to accounting.
Fundamentally, bookkeeping grants two types of information: (1) the current value, or equity, of an enterprise and (2) the changes in value—profit or loss—taking position in the business within a singular period.
Management officials, investors, and credit grantors all need to have such information: management in order to analyse the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to analyse the outcomes of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to analyze the financial statements of an entity in finding whether to accept a loan.
Bits and pieces of financial and numerical recordkeeping are found for nearly every country with a commercial backbone. Records of trading contracts were found in the archaelogy of Babylon, and accounts for both farms and estates had been made in ancient Greece and Rome. The dual-entry style of bookkeeping came with the furthering of the commercial republics of Italy, and manuals for bookkeeping were created in the 15th century in many Italian cities.
Within the late 18th and early 19th centuries, the Industrial Revolution gave an important stimulus to accounting and bookkeeping.
The rise of manufacturing, trading, shipping, and subsidiary services made factual financial records a requirement. The past of bookkeeping, in fact, resembles the past of commerce, industry, and government and, in some part, helped in forming it. The worldwide spread of industrial and commercial activity called for better professional decision-making procedures, which in turn required higher sophistication in the selection, classification, and presentation of information, increasingly with the assistance of computers. Taxation and government legislature became more detailed and resulted in higher need for information; entities had to show information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also grew, and the requirement for bookkeeping for their own inner operations became higher.
Though bookkeeping procedures can be extremely detailed, it is all based on two types of books used in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, etcetera), 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 each month, by general practice, an income statement and a balance sheet are made from the trial balance posted out of the ledger. The point of the income statement or profit-and-loss statement is to provide an analysis of those changes that took place in the business equity due to the events of the period. The balance sheet gives the financial situation of the corporation at the particular point in time taken from assets, liabilities, and the ownership equity.
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