What is Bookkeeping?
June 23rd, 2010Bookkeeping is the charting of the money values of the operation of a business. Bookkeeping provides the information from which accounts are written but is a distinct process, preliminary to accounting.
Basically, bookkeeping provides two parts of information: (1) the current value, or equity, of the business and (2) changes in value—profit or loss—taking position in the entity during a singular time period.
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 in order to understand the outcomes of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors to analyze the financial statements of a business in judging whether to grant a loan.
Bits and pieces of financial and numerical record charts have been seen for just about every nation with a commercial backbone. Records of trading contracts have been found in the archaelogy of Babylon, and accounts for both farms and estates had been created in ancient Greece and Rome. The two-entry process of bookkeeping came up with the furthering of the enterprising republics of Italy, and instruction books for bookkeeping were developed within the 15th century in many Italian cities.
During 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 bookkeeping a paramount factor. The past of bookkeeping, in fact, closely reflects the history of commerce, industry, and government and, in some part, assisted in shaping it. The global revolution of industrial and commercial activity needed greater sophisticate decision-making methodology, which in its turn called for greater sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government legislation became more important and resulted in higher need for information; enterprising firms had to provide information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also become larger, and the need for bookkeeping for departmental operations went up.
Though bookkeeping procedures can be extremely multifaceted, all of it is based on two kinds of books used in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, and so forth), and the ledger must have the records of individual accounts. The daily records in the journals are put in the ledgers.
At the end of every 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 give an analysis of any changes that took place in the ownership equity due to the operations of the period. The balance sheet provides the financial position of the corporation at a particular date regarding assets, liabilities, and the ownership equity.
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