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Bookkeeping is the recording of the money values of the operation of a business. Bookkeeping creates the numbers from which accounts are drafted but is a separate process, required prior to accounting.

Basically, bookkeeping finds two areas of information: (1) the current value, or equity, of the business and (2) the change in value-profit or loss-taking position in the business over a particular period.

Management officials, investors, and credit grantors all require such information: management in order to interpret the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to understand the upshots of business operations and make decisions about buying, holding, and selling securities; and credit grantors to assess the financial statements of an enterprise in judging whether to give a loan.

Bits and pieces of financial and numerical charts can be seen for almost every country with a commercial backbone. Records of commercial contracts have been discovered in the archaelogical digs of Babylon, and accounts for both farms and estates had been created in ancient Greece and Rome. The double-entry manner of bookkeeping came with the progression of the business republics of Italy, and instruction books for bookkeeping were created in the 15th century in various Italian cities.

In 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 correct financial recordkeeping a must-have. The past of bookkeeping, in fact, closely resembles the history of commerce, industry, and government and, partially, assisted in forming it. The global expansion of industrial and commercial activity called for more sophisticated decision-making methodology, which itself demanded more sophistication in the selection, classification, and presentation of information, even more so with the progression of computers. Taxation and government legislation became more detailed and resulted in increased demand for information; enterprising firms had to show information to support their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also grew in size, and the requirement for bookkeeping for their own departmental operations increased.

Though bookkeeping methodology can be extremely multifaceted, all are based on two styles of books used in the bookkeeping process-journals and ledgers. A journal must have the daily transactions (sales, purchases, and so forth), and the ledger should have the information of individual accounts. The daily records from the journals are put in the ledgers.

At the end of each month, as a general rule, an income statement and a balance sheet are constructed from the trial balance posted in 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 enterprise equity resulting from the operations of the period. The balance sheet provides the financial condition of the business at a particular point in time in terms of assets, liabilities, and the ownership equity.

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