Bookkeeping vs bookkeeping

The act of "Bookkeeping" has both an informal and a formal context.  

1. If you speak Spanish, this is like the difference between tu and Usted. 

2. If you speak German it would be like the difference between du and Sie.  

In the written English language we do not differentiate between and informal "you" and a formal "You". 

1. In some parts of the country younger generations will add "Mr" or "Ms" before someone's first name as an act of formality and respect that would be comparable to  above. 

When you understand the nuance between "bookkeeping" and "Bookkeeping" things are far easier to learn. Without that it would have been more confusing. 

1. bookkeeping with a lower case "b" s anything related to recording information related to money and/or the exchange of product and services. 

2. "Bookkeeping" with a capital "B" is a subset of "bookkeeping". 

   1. In that sense it's the inverse of what most might expect. Most might expect the informal to be a subset of the formal but for this topic the formal is a small portion of the informal. 

   2. Bookkeeping with a capital "B" is a recording process that has the singular initial goal of creating ONE REPORT with a single value at the end of the report.  In that regard it's like looking at a shopping receipt with the total at the bottom being the single goal of the report. .  

   3. That  report that is the goal of "Bookkeeping" is called an "Income Statement" or a "Profit/Loss Statement"

The term "Income Statement" is confusing and not representative of all the information on that report. 

To correct that confusion, think of that repot as the "Net Income Statement" not the "Income Statement". 

The word "net" refers to the difference between income (money coming in) and expenses (money going out). 

Money Coming In   -      Money Going Out         =    Money that is left with you
Income    -       Expenses     =     Net Income
Gross Income            -       Expenses                           =     Net Income

The word "Gross" in  german means "Large".   When it's added to the equation it helps make things make sense.  "Large Income"  - Expenses  is equal to  net income (or just income).   Without the word Gross nothing makes as much sense. 

Calling it an "income statement" was deceptive given that would have only partially identified what was on the report and it did not identify that singular value the report generated.  

When the "net income value" is positive, that is referred to as "profit" or  "profits". 

When the "net income value" is negative, meaning you lost money for that time period, that is called a "loss".  

Thus the reason why the report can also be called a "Profit / Loss Report".   

Never call it a "Profit and Loss" report because that is a mutually exclusive scenario.  People call it that all the time but that is in bad form. 

As we proceed, you will see there is in fact one additional report that is critical to "Bookkeeping" with a capital "B" and that is the "Balance Sheet". 

1. Without getting into nuance now, think of the Balance sheet as providing two sets of facts

   1. It shows the amount of money you had available to you AND that which you owed others for a  given date.

   2. When it is in balance, it shows that no "obvious errors" were made in the transaction recording and categorization process for a time period that preceded the ending date of the report.

You are now 75% of the way through the hardest part about learning about Bookkeeping with a capital B. 

The next 25% is contained in the paragraphs below! Keep going, you are almost there!!

The "Bookkeeping System", be it manual or digital, was the system where "debits" and "credits" were used.  

Debits and credits created record of data where there were no "negative values".   

Debits and credits had little to no proper correlation with "debit cards" and "credit cards".  

That confused many things.  if they had used the words "squirrel" and "cat"  to represent debits and credits, that would have led to less confusion. 

The Debit and Credit recording system that resulted in absolute values, resulted in two columns of numbers.   

One column was for numbers that would be considered negative but were recorded without the - sign.  

One column was for numbers that would be considered positive.  

This separation of signed values facilitated long addition by hand. It also provided a summary cross check system that was valuable for trying to ensure accuracy in record keeping. 

In digital Bookkeeping Systems, there is no need for users to think in terms of Debits and Credits. They can think in terms of positive and negative values, which they had to do anyway to then use the debits and credits system.  

The software can do the debits and credits on the backside and use those for some cross checks.  

A user can learn about them by viewing them on the back end of the software, so anyone learning this way is not learning a lesser system. 

When you look at them there, you will realize nobody has needed to use those on the data entry side of Bookkeeping since the 1980s, if they were using a digital record keeping system.   

That exposes the fact that our foundational Accounting Education Curriculum is over 40 years out of date , and you just got more out of this short read than most get in years of confusing education.