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Bookkeeping is the recording of the money values of the function of a business. Bookkeeping provides the information from which accounts are drafted but is a previous process, prior to accounting.

Essentially, bookkeeping finds two parts of information: (1) the current value, or equity, of the business and (2) the changes in value—profit or loss—taking position in the enterprise from a single period of time.

Management officials, investors, and credit grantors all need to have this 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 understand the outcomes of business operations and make decisions about buying, holding, and selling securities; and credit grantors in order to regard the financial statements of an enterprise in finding whether to accept a loan.

Pieces of financial and numerical charts can be found for nearly every nation with a commercial backbone. Records of commercial contracts have been found in the remains of Babylon, and accounts for both farms and estates had been made in ancient Greece and Rome. The dual-entry manner of bookkeeping came up with the furthering of the commercial republics of Italy, and tutorials for bookkeeping were produced during the 15th century in various Italian cities.

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

The rise of manufacturing, trading, shipping, and subsidiary services made correct financial recordkeeping a requirement. The ancestry of bookkeeping, in fact, reflects closely the ancestry of commerce, industry, and government and, in part, helped forming it. The worldwide expansion of industrial and commercial activity required higher professional decision-making procedures, which itself demanded better 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 demand for information; business entities 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 grew, and the need for bookkeeping for their own inner operations increased.

Though bookkeeping methods can be extremely complex, all of it is based on two types of books utilised in the bookkeeping process—journals and ledgers. A journal must have the daily transactions (sales, purchases, and so forth), and the ledger should have the records of individual accounts. The daily records kept in the journals are entered in the ledgers.

At the end of each month, by general practice, an income statement and a balance sheet are created from the trial balance posted from the ledger. The purpose of the income statement or profit-and-loss statement is to display an analysis of those changes that have taken place in the business equity from the events of the period. The balance sheet provides the financial condition of the enterprise at any particular date regarding assets, liabilities, and the ownership equity.

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