What is Bookkeeping?
Posted on June 23, 2010, under Uncategorized.
Bookkeeping is the recordkeeping of the money values of the operation of a business. Bookkeeping provides the figures from which accounts are prepared but is a distinct process, prior to accounting.
Essentially, bookkeeping finds two parts of information: (1) the current value, or equity, of an enterprise and (2) the changes in value—profit or loss—taking position in the enterprise over a single time.
Management officials, investors, and credit grantors all demand this kind of information: management so as to understand the results 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 to analyze the financial statements of an entity in assessing whether to give a loan.
Evidence of financial and numerical charts have been seen for nearly every country with a commercial history. Records of business contracts have been found in the ruins of Babylon, and accounts for both farms and estates were made in ancient Greece and Rome. The double-entry process of bookkeeping came up with the development of the business republics of Italy, and instruction manuals for bookkeeping were developed in the 15th century in various Italian cities.
During the late 18th and early 19th centuries, the Industrial Revolution gave an important stimulus to accounting and bookkeeping.
The progression of manufacturing, trading, shipping, and subsidiary services made perfect financial recordkeeping a paramount factor. The past of bookkeeping, in fact, reflects closely the past of commerce, industry, and government and, in part, assisted in shaping it. The global market of industrial and commercial activity needed better sophisticate decision-making processes, which in its turn needed better sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government legislature became more important and resulted in higher demand for information; entities had to have information available to list with their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also developed in size, and the demand for bookkeeping for their own departmental operations became larger.
While bookkeeping methodology can be rather detailed, all are based on two styles of books utilised in the bookkeeping procedure—journals and ledgers. A journal should have the daily transactions (sales, purchases, and so forth), and the ledger must have the details of individual accounts. The daily records from the journals are put in the ledgers.
Each month, generally, an income statement and a balance sheet are made from the trial balance posted out of the ledger. The job of the income statement or profit-and-loss statement is to display an analysis of the changes that occurred in the entity equity due to the events of the period. The balance sheet gives the financial condition of the business at any particular point in terms of assets, liabilities, and the ownership equity.
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