Bookkeeping is the recording of the money values of the operation of a business. Bookkeeping provides the details from which accounts are drafted but is a distinct process, preliminary to accounting.

Predominantly, bookkeeping grants two parts of information: (1) the current value, or equity, of an entity and (2) the change in value—profit or loss—taking place in the business over a given period of time.

Management officials, investors, and credit grantors all demand such information: management to assess the results of operations, to control costs, to budget for the future, and to make financial policy decisions; investors so as to understand the upshots of business operations and make decisions about buying, holding, and selling securities; and credit grantors so as to assess the financial statements of an entity in judging whether to grant a loan.

Bits and pieces of financial and numerical charts can be found for just about every group of people with a commercial history. Records of business contracts have been uncovered in the archaelogy of Babylon, and accounts for both farms and estates have been archived in ancient Greece and Rome. The two-entry style of bookkeeping came with the development of the business republics of Italy, and tutorials for bookkeeping were created during the 15th century in several 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 factual financial bookkeeping a requirement. The ancestry of bookkeeping, in fact, closely reflects the history of commerce, industry, and government and, in part, assisted forming it. The international expansion of industrial and commercial activity needed higher sophisticated decision-making processes, which in its turn required better sophistication in the selection, classification, and presentation of information, increasingly with the aid of computers. Taxation and government legislature became more significant and resulted in even greater requirement for information; enterprises had to have available information to list with their income tax, payroll tax, sales tax, and other tax reports. Governmental agencies and educational and other nonprofit institutions also become larger, and the need for bookkeeping for their own operations became higher.

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

Every month, as a general rule, 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 provide an analysis of those changes that happen in the entity equity as a result of the events of the period. The balance sheet provides the financial situation of the corporation at the particular date with regard to assets, liabilities, and the ownership equity.

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