Bookkeeping is the charting of the money values of the function of a business. Bookkeeping gives the figures from which accounts are written but is a separate process, preliminary to accounting.
Basically, bookkeeping finds two types of information: (1) the current value, or equity, of the enterprise and (2) changes in value-profit or loss-taking position in the enterprise within a given time.
Management officials, investors, and credit grantors all require such information: management in order to analyse the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to interpret the outcomes of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to assess the financial statements of an entity in finding whether to give a loan.
Traces of financial and numerical records have been uncovered for almost every society with a commercial background. Records of trading contracts were uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates had been created in ancient Greece and Rome. The dual-entry process of bookkeeping came up with the progression of the commercial republics of Italy, and tutorial manuals for bookkeeping were created during the 15th century in various Italian cities.
Within the late 18th and early 19th centuries, the Industrial Revolution permitted a significant stimulus to accounting and bookkeeping.
The development of manufacturing, trading, shipping, and subsidiary services made accurate financial records a requirement. The ancestry of bookkeeping, in fact, reflects closely the past of commerce, industry, and government and, in part, helped to form it. The global movement of industrial and commercial activity demanded higher sophisticate decision-making methods, which in turn demanded more sophistication in the selection, classification, and presentation of information, more so with the assistance of computers. Taxation and government regulation became more significant and resulted in greater requirement for information; businesses had to show available 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 own inner departmental operations became larger.
Although bookkeeping procedures can be rather multifaceted, all are based on two kinds of books used in the bookkeeping process-journals and ledgers. A journal must have the daily transactions (sales, purchases, and so on), and the ledger contains the records of individual accounts. The daily records kept in the journals are put in the ledgers.
At the end of each month, generally, an income statement and a balance sheet are constructed from the trial balance posted in the ledger. The purpose of the income statement or profit-and-loss statement is to give an analysis of any changes that happen in the entity equity due to the operations of the period. The balance sheet provides the financial condition of the enterprise at any particular day with regard to assets, liabilities, and the ownership equity.
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