Bookkeeping is the charting of the money values of the operation of a business. Bookkeeping creates the information from which accounts are prepared but is a different process, required prior to accounting.

Fundamentally, bookkeeping grants two areas of information: (1) the current value, or equity, of the entity and (2) changes in value—profit or loss—taking position in the enterprise over a single time.

Management officials, investors, and credit grantors all require 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 in order to analyse the upshots of business operations and make decisions for buying, holding, and selling securities; and credit grantors to analyze the financial statements of an entity in finding whether to grant a loan.

Traces of financial and numerical records are seen for nearly every country with a commercial history. Records of business contracts were found in the ruins of Babylon, and accounts for both farms and estates were archived in ancient Greece and Rome. The two-entry style of bookkeeping started with the development of the business republics of Italy, and instruction manuals for bookkeeping were developed during the 15th century in many Italian cities.

During the late 18th and early 19th centuries, the Industrial Revolution provided an important stimulus to accounting and bookkeeping.

The development of manufacturing, trading, shipping, and subsidiary services made perfect financial recordkeeping a necessity. The ancestry of bookkeeping, in fact, resembles the past of commerce, industry, and government and, partially, helped to shape it. The international spread of industrial and commercial activity called for higher cosmopolitan decision-making procedures, which then required higher sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government legislature became more important and resulted in increased requirement for information; firms had to provide information to support their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also became sizeable, and the demand for bookkeeping for their inner operations increased.

Although bookkeeping processes can be very complex, all are based on two types of books used in the bookkeeping procedure—journals and ledgers. A journal has the daily transactions (sales, purchases, and so forth), and the ledger contains the information of individual accounts. The daily records from the journals are entered in the ledgers.

Each month, as a general rule, an income statement and a balance sheet are prepared from the trial balance posted within the ledger. The purpose of the income statement or profit-and-loss statement is to display an analysis of any changes that have occurred in the enterprise equity as a result of the operations of the period. The balance sheet gives the financial condition of the corporation at a particular day in terms of assets, liabilities, and the ownership equity.

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