The Role of Business Bookkeeping
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, prior to accounting.
Essentially, bookkeeping finds two areas of information: (1) the current value, or equity, of an enterprise and (2) any changes in value-profit or loss-taking placement in the enterprise during a particular period.
Management officials, investors, and credit grantors all need this information: management to assess the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to interpret the upshots of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors in order to analyze the financial statements of an entity in judging whether to grant a loan.
Evidence of financial and numerical charts have been uncovered for nearly every group of people with a commercial backbone. Records of trading contracts have been uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates had been archived in ancient Greece and Rome. The two-entry way of bookkeeping came with the development of the commercial republics of Italy, and manuals for bookkeeping were produced in the 15th century in many 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 factual financial books a paramount factor. The history of bookkeeping, in fact, reflects the ancestry of commerce, industry, and government and, in part, helped in shaping it. The global spread of industrial and commercial activity demanded higher sophisticate decision-making processes, which in its turn demanded higher sophistication in the selection, classification, and presentation of information, even more so with the progression of computers. Taxation and government regulation became more detailed and resulted in greater requirement for information; 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 requirement for bookkeeping for departmental operations became larger.
Though bookkeeping methodology can be extremely detailed, all are based on two types of books employed in the bookkeeping process-journals and ledgers. A journal should have the daily transactions (sales, purchases, and so on), and the ledger has the information of individual accounts. The daily records from the journals are put in the ledgers.
Each month, by general practice, an income statement and a balance sheet are constructed from the trial balance posted from the ledger. The point of the income statement or profit-and-loss statement is to give an analysis of those changes that have occurred in the enterprise equity resulting due to the transactions of the period. The balance sheet shows the financial situation of the company at a particular date with regard to assets, liabilities, and the ownership equity.
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