Article DetailsWhat is Bookkeeping? |
| Date Added: June 22, 2010 05:00:00 PM |
| Author: Roger Banks |
| Category: Business: Accounting |
| Bookkeeping is the recordkeeping of the money values of the transactions of a business. Bookkeeping provides the details from which accounts are made but is a previous process, preliminary to accounting.
Fundamentally, bookkeeping provides two areas of information: (1) the current value, or equity, of the entity and (2) the change in value—profit or loss—taking position in the entity during a given period. Management officials, investors, and credit grantors all need to have this information: management so as to understand the outcomes of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to analyse the outcomes of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to regard the financial statements of a business in deciding whether to give a loan. Evidence of financial and numerical recordkeeping are found for almost every society with a commercial background. Records of trade contracts were uncovered in the archaelogy of Babylon, and accounts for both farms and estates were held in ancient Greece and Rome. The dual-entry way of bookkeeping started with the progression of the entrepeneurial republics of Italy, and manuals for bookkeeping were created in the 15th century in many Italian cities. Within the late 18th and early 19th centuries, the Industrial Revolution permitted an important stimulus to accounting and bookkeeping. The progression of manufacturing, trading, shipping, and subsidiary services made perfect financial records a requirement. The history of bookkeeping, in fact, reflects the past of commerce, industry, and government and, in part, assisted shaping it. The international market of industrial and commercial activity demanded better sophisticate decision-making processes, which in turn called for better sophistication in the selection, classification, and presentation of information, increasingly with the assistance of computers. Taxation and government regulation became more detailed and resulted in higher requirement for information; business firms had to have 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 requirement for bookkeeping for their own inner departmental operations became higher. Though bookkeeping methods can be rather complex, all of it is based on two kinds 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 contains the records of individual accounts. The daily records in the journals are entered in the ledgers. At the end of every month, as a general rule, an income statement and a balance sheet are prepared from the trial balance posted in the ledger. The purpose of the income statement or profit-and-loss statement is to show an analysis of any changes that took place in the ownership equity due to the transactions of the period. The balance sheet gives the financial position of the enterprise at any particular point in terms of assets, liabilities, and the ownership equity. |
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