Bookkeeping is the recording of the money values of the transactions of a business. Bookkeeping creates the numbers from which accounts are prepared but is a distinct process, preliminary to accounting.

Basically, bookkeeping records two areas of information: (1) the current value, or equity, of the enterprise and (2) any changes in value—profit or loss—taking position in the enterprise from a single period of time.

Management officials, investors, and credit grantors all have to have this kind of information: management in order to understand the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to analyse the outcomes of business operations and make decisions about buying, holding, and selling securities; and credit grantors to judge the financial statements of a business in deciding whether to accept a loan.

Evidence of financial and numerical charts have been found for almost every country with a commercial history. Records of commercial contracts have been uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates have been archived in ancient Greece and Rome. The two-entry method of bookkeeping began with the furthering of the entrepeneurial republics of Italy, and tutorial manuals for bookkeeping were produced in the 15th century in some Italian cities.

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

The development of manufacturing, trading, shipping, and subsidiary services made correct financial recordkeeping a requirement. The ancestry of bookkeeping, in fact, reflects closely the past of commerce, industry, and government and, in part, helped shaping it. The global market of industrial and commercial activity demanded greater sophisticate decision-making processes, which in its turn demanded more sophistication in the selection, classification, and presentation of information, increasingly with the progression of computers. Taxation and government regulation became more detailed and resulted in increased requirement for information; entities had to have information available 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 requirement for bookkeeping for their own operations increased.

While bookkeeping processes can be rather complex, all are based on two kinds of books used in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, and so on), and the ledger has the record of individual accounts. The daily records kept in the journals are written in the ledgers.

At the end of each month, generally, an income statement and a balance sheet are created from the trial balance posted in the ledger. The job of the income statement or profit-and-loss statement is to present an analysis of those changes that took place in the ownership equity because of the transactions of the period. The balance sheet shows the financial position of the enterprise at the particular point in time taken from assets, liabilities, and the ownership equity.

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