Bookkeeping is the recordkeeping of the money values of the transactions of a business. Bookkeeping gives the numbers from which accounts are prepared but is a distinct process, prior to accounting.

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

Management officials, investors, and credit grantors all require this kind of information: management 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 outcome of business operations and make decisions about buying, holding, and selling securities; and credit grantors so as to assess the financial statements of an enterprise in finding whether to accept a loan.

Pieces of financial and numerical records have been seen for just about every state with a commercial background. Records of commercial contracts were uncovered in the archaelogical digs of Babylon, and accounts for both farms and estates were created in ancient Greece and Rome. The two-entry method of bookkeeping came with the development of the entrepeneurial republics of Italy, and instruction manuals for bookkeeping were produced in the 15th century in many Italian cities.

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

The development of manufacturing, trading, shipping, and subsidiary services made accurate financial bookkeeping a requirement. The past of bookkeeping, in fact, closely resembles the history of commerce, industry, and government and, partially, helped in forming it. The global expansion of industrial and commercial activity called for more professional decision-making processes, which then required higher sophistication in the selection, classification, and presentation of information, more so with the assistance of computers. Taxation and government legislation became more detailed and resulted in even greater demand for information; entities had to have available information to support 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 departmental operations went up.

Though bookkeeping methods can be very complex, it is all based on two kinds of books utilised in the bookkeeping process—journals and ledgers. A journal should have the daily transactions (sales, purchases, etcetera), and the ledger has the information of individual accounts. The daily records kept in the journals are written in the ledgers.

At the end of each month, as a general rule, an income statement and a balance sheet are constructed from the trial balance posted from the ledger. The duty of the income statement or profit-and-loss statement is to show an analysis of those changes that have occurred in the business equity as a result of the operations of the period. The balance sheet provides the financial position of the business at a particular date with regard to assets, liabilities, and the ownership equity.

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