Bookkeeping is the recording of the money values of the function of a business. Bookkeeping grants the details from which accounts are prepared but is a previous process, required prior to accounting.

Predominantly, 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 place in the entity from a single period.

Management officials, investors, and credit grantors all require this kind of information: management so as to assess the upshots of operations, to control costs, to budget for the future, and to make financial policy decisions; investors to understand the outcome of business operations and make decisions for buying, holding, and selling securities; and credit grantors in order to assess the financial statements of a business in deciding whether to grant a loan.

Bits and pieces of financial and numerical records can be uncovered for almost every nation with a commercial backbone. Records of trade contracts were found in the archaelogy of Babylon, and accounts for both farms and estates were kept in ancient Greece and Rome. The two-entry style of bookkeeping started with the development of the business republics of Italy, and tutorial manuals for bookkeeping were developed during the 15th century in many Italian cities.

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

The development of manufacturing, trading, shipping, and subsidiary services made perfect financial bookkeeping a requirement. The ancestry of bookkeeping, in fact, resembles the ancestry of commerce, industry, and government and, in some part, assisted to shape it. The international spread of industrial and commercial activity required greater sophisticate decision-making procedures, which in turn demanded greater sophistication in the selection, classification, and presentation of information, more so with the assistance of computers. Taxation and government legislature became more significant and resulted in increased requirement for information; enterprises had to provide information to go with their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also developed in size, and the need for bookkeeping for their own operations went up.

Although bookkeeping methods can be very complex, it is all based on two styles of books employed in the bookkeeping process—journals and ledgers. A journal contains the daily transactions (sales, purchases, and so forth), and the ledger contains the records of individual accounts. The daily records kept in the journals are put in the ledgers.

Every month, generally speaking, an income statement and a balance sheet are created from the trial balance posted out of the ledger. The purpose of the income statement or profit-and-loss statement is to give an analysis of the changes that have occurred in the enterprise equity resulting due to the operations of the period. The balance sheet gives the financial situation of the corporation at any particular day taken from assets, liabilities, and the ownership equity.

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