What Is Bookkeeping?

By Author: Roger Banks
Total Articles: 4762
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Bookkeeping is the recording of the money values of the transactions of a business. Bookkeeping provides the information from which accounts are made but is a previous process, prior to accounting.

Basically, bookkeeping grants two parts of information: (1) the current value, or equity, of an entity and (2) changes in valueâ€profit or lossâ€taking placement in the enterprise during a singular period.

Management officials, investors, and credit grantors all need to have such information: management to understand the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to understand the results of business operations and make decisions about buying, holding, and selling securities; and credit grantors so as to judge the financial statements of an entity in assessing whether to allow a loan.

Evidence of financial and numerical records have been uncovered for just about every group of people with a commercial history. Records of trade contracts were found in the archaelogy of Babylon, and accounts for both farms and estates ...
... have been created in ancient Greece and Rome. The double-entry process of bookkeeping came with the progression of the commercial republics of Italy, and tutorial books for bookkeeping were developed in the 15th century in some Italian cities.

During the late 18th and early 19th centuries, the Industrial Revolution permitted a notable stimulus to accounting and bookkeeping.

The development of manufacturing, trading, shipping, and subsidiary services made accurate financial bookkeeping a necessity. The past of bookkeeping, in fact, closely reflects the ancestry of commerce, industry, and government and, in part, helped to shape it. The global revolution of industrial and commercial activity called for higher sophisticated decision-making methodology, which in turn required better sophistication in the selection, classification, and presentation of information, more so with the progression of computers. Taxation and government legislation became more significant and resulted in increased demand for information; businesses 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 grew, and the demand for bookkeeping for their inner operations increased.

Though bookkeeping processes can be very detailed, all are based on two kinds of books employed in the bookkeeping procedureâ€journals and ledgers. A journal has the daily transactions (sales, purchases, etcetera), and the ledger must have the record of individual accounts. The daily records from the journals are written in the ledgers.

At the end of each month, generally, 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 display an analysis of the changes that have taken place in the ownership equity due to the operations of the period. The balance sheet displays the financial position of the corporation at a particular point in time derived from assets, liabilities, and the ownership equity.
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