This is a very basic but very important question, and it deserves a very basic but important answer. The following is taken from the first page of the first chapter of Bookkeeping by Andrew Lymer and Andrew Piper in the Teach Yourself Series published by Hodder Education.
What is bookkeeping?
The process of correctly recording in Books of Account cash, credit and other transactions.
What are Books of Account?
The primary Book of Account is called the ledger, so called because all transactions, after first being recorded in subsidiary books, are afterwards grouped or summarized in accounts in the ledger.
Why should goods or services be bought or sold on ‘credit’?
Almost all business dealings are conducted on a credit basis to avoid the inconvenience and danger of carrying large amounts of cash. The supplier of goods or services is usually content to accept payment at some future date. The main exception is the retail trade for a private individual.
Why is it necessary to record these transactions?
Even in the smallest business the proprietor or manager will want to have accurate and up-to-date information about how much has been bought and sold, how much money has been received for sales, how much has been paid away for purchases, etc. Private individuals often find it convenient to have the same information for their cash receipts and payments. You can imagine that with a very large business, chaos would quickly result without this information.
So bookkeeping really involves analyzing in some way or another these various transactions?
You could say it involves recording these transactions so as to permit analysis in a systematic fashion, in a way that can be applied to all businesses of whatever kind, and that is intelligible not only now but at any future time.
Do you mean by this ‘the double entry system of bookkeeping’?
The term ‘Books of Account’ has a distinctly old-fashioned sound. It perhaps makes you think of a Charles Dickens novel set in early Victorian England, with rows of clerks perched on high stools writing in large books. Bookkeeping today is likely to be done with the aid of a computer rather than with handwritten books, and this is a virtual certainty in a business of any significance. Nevertheless, modern bookkeepers are doing exactly the same as the clerks in the Dickens novel, though they are doing it much more quickly and perhaps more accurately – though Victorian clerks achieved very high standards. (Whether or not they are any happier is a question for another book!)