Bookkeeping is the recordkeeping of the money values of the function of a business. Bookkeeping creates the details from which accounts are drafted but is a distinct process, preliminary to accounting.
Predominantly, bookkeeping provides two types of information: (1) the current value, or equity, of the enterprise and (2) any changes in value—profit or loss—taking placement in the business within a given time period.
Management officials, investors, and credit grantors all demand this information: management so as to assess the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to assess the upshots of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to analyze the financial statements of an enterprise in finding whether to grant a loan.
Pieces of financial and numerical records can be uncovered for nearly every society with a commercial history. Records of commercial contracts have been uncovered in the archaelogy of Babylon, and accounts for both farms and estates had been held in ancient Greece and Rome. The two-entry style of bookkeeping began with the progression of the enterprising republics of Italy, and instruction books for bookkeeping were produced within the 15th century in several Italian cities.
In the late 18th and early 19th centuries, the Industrial Revolution provided a notable stimulus to accounting and bookkeeping.
The rise of manufacturing, trading, shipping, and subsidiary services made accurate financial records a requirement. The history of bookkeeping, in fact, closely resembles the past of commerce, industry, and government and, in some part, assisted in forming it. The international movement of industrial and commercial activity required more sophisticate decision-making methods, which in its turn called for higher sophistication in the selection, classification, and presentation of information, more so with the progression of computers. Taxation and government regulation became more significant and resulted in higher demand for information; firms had to show available information to bolster their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also grew, and the demand for bookkeeping for their own operations increased.
Although bookkeeping methods can be extremely multifaceted, it is all based on two styles of books used in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, and so forth), and the ledger should have the records of individual accounts. The daily records in the journals are put in the ledgers.
At the end of each month, generally, an income statement and a balance sheet are made from the trial balance posted in the ledger. The duty of the income statement or profit-and-loss statement is to show an analysis of those changes that have taken place in the ownership equity due to the operations of the period. The balance sheet gives the financial condition of the enterprise at a particular day with regard to assets, liabilities, and the ownership equity.
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June 23rd, 2010UncategorizedRead More >No Comments
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