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Bookkeeping is the recording of the money values of the transactions of a business. Bookkeeping grants the details from which accounts are prepared but is a separate process, preliminary to accounting.

Essentially, bookkeeping records two areas of information: (1) the current value, or equity, of the enterprise and (2) the change in value—profit or loss—taking position in the enterprise within a given period of time.

Management officials, investors, and credit grantors all need such information: management to assess the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors in order to understand the upshot of business operations and make decisions regarding buying, holding, and selling securities; and credit grantors so as to analyze the financial statements of an enterprise in finding whether to grant a loan.

Bits and pieces of financial and numerical records have been found for nearly every civilization with a commercial history. Records of trade contracts were found in the archaelogical digs of Babylon, and accounts for both farms and estates have been archived in ancient Greece and Rome. The double-entry process of bookkeeping started with the furthering of the entrepeneurial republics of Italy, and tutorial books for bookkeeping were created in the 15th century in various Italian cities.

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

The rise of manufacturing, trading, shipping, and subsidiary services made accurate financial records a paramount factor. The past of bookkeeping, in fact, reflects the ancestry of commerce, industry, and government and, in part, helped shaping it. The worldwide expansion of industrial and commercial activity needed higher sophisticate decision-making methodology, which in turn demanded higher sophistication in the selection, classification, and presentation of information, more so with the progression of computers. Taxation and government legislation became more detailed and resulted in even greater need for information; enterprising firms had to have available information to go with 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 departmental operations went up.

While bookkeeping methodology can be rather complex, all of it is based on two styles of books used in the bookkeeping process—journals and ledgers. A journal must have the daily transactions (sales, purchases, etcetera), and the ledger contains the information of individual accounts. The daily records from the journals are put in the ledgers.

At the end of each month, generally, an income statement and a balance sheet are constructed from the trial balance posted in the ledger. The purpose of the income statement or profit-and-loss statement is to give an analysis of those changes that took place in the entity equity resulting from the operations of the period. The balance sheet displays the financial position of the entity at a particular point in terms of assets, liabilities, and the ownership equity.

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