What is Bookkeeping?
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Bookkeeping is the charting of the money values of the operation of a business. Bookkeeping provides the figures from which accounts are written but is a separate process, preliminary to accounting.
Basically, bookkeeping provides two parts of information: (1) the current value, or equity, of a business and (2) the changes in value—profit or loss—taking placement in the entity over a single period.
Management officials, investors, and credit grantors all need such information: management so as to analyse the outcomes 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 for buying, holding, and selling securities; and credit grantors so as to judge the financial statements of an entity in finding whether to accept a loan.
Evidence of financial and numerical charts have been found for almost every nation with a commercial backbone. Records of commercial contracts were discovered in the ruins of Babylon, and accounts for both farms and estates have been created in ancient Greece and Rome. The double-entry process of bookkeeping started with the furthering of the enterprising republics of Italy, and manuals for bookkeeping were produced within the 15th century in several Italian cities.
Within 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 factual financial records a requirement. The history of bookkeeping, in fact, resembles closely the ancestry of commerce, industry, and government and, partially, helped to form it. The international spread of industrial and commercial activity required greater sophisticate decision-making methods, which in its turn demanded higher sophistication in the selection, classification, and presentation of information, more so with the aid of computers. Taxation and government legislature became more significant and resulted in even greater need for information; enterprising firms had to show available 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 need for bookkeeping for their inner departmental operations went up.
While bookkeeping methodology can be extremely multifaceted, all are based on two kinds of books employed in the bookkeeping procedure—journals and ledgers. A journal must have the daily transactions (sales, purchases, and so forth), and the ledger contains the details of individual accounts. The daily records kept in the journals are put in the ledgers.
Each month, as a general rule, an income statement and a balance sheet are constructed from the trial balance posted out of the ledger. The purpose of the income statement or profit-and-loss statement is to display an analysis of any changes that took place in the ownership equity resulting from the events of the period. The balance sheet provides the financial situation of the entity at the particular point in time with regard to assets, liabilities, and the ownership equity.
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