Bookkeeping is the recording of the money values of the transactions of a business. Bookkeeping provides the details from which accounts are drafted but is a distinct process, required prior to accounting.

Basically, bookkeeping provides two areas of information: (1) the current value, or equity, of the entity and (2) any changes in value-profit or loss-taking place in the enterprise during a given time period.

Management officials, investors, and credit grantors all require 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 to analyse the outcome of business operations and make decisions about buying, holding, and selling securities; and credit grantors to regard the financial statements of an entity in assessing whether to allow a loan.

Pieces of financial and numerical charts can be seen for almost every group of people with a commercial backbone. Records of trade contracts have been uncovered in the ruins of Babylon, and accounts for both farms and estates have been made in ancient Greece and Rome. The two-entry manner of bookkeeping started with the progression of the business republics of Italy, and tutorial books for bookkeeping were produced during the 15th century in several Italian cities.

During the late 18th and early 19th centuries, the Industrial Revolution granted a notable stimulus to accounting and bookkeeping.

The development of manufacturing, trading, shipping, and subsidiary services made correct financial records a requirement. The ancestry of bookkeeping, in fact, closely resembles the history of commerce, industry, and government and, in some part, helped to shape it. The worldwide market of industrial and commercial activity called for better sophisticate decision-making methods, which then called for higher sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government legislature became more detailed and resulted in even greater requirement for information; entities 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 in size, and the need for bookkeeping for their inner departmental operations increased.

Although bookkeeping procedures can be extremely detailed, all of it is based on two kinds of books employed in the bookkeeping process-journals and ledgers. A journal has the daily transactions (sales, purchases, and such), and the ledger should have the information of individual accounts. The daily records from the journals are written in the ledgers.

At the end of each month, as a general rule, an income statement and a balance sheet are created from the trial balance posted in the ledger. The duty of the income statement or profit-and-loss statement is to provide an analysis of the changes that have occurred in the ownership equity due to the operations of the period. The balance sheet provides the financial position of the business at a particular point in time derived from assets, liabilities, and the ownership equity.

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