How can you keep track of the money you spend? How can you make sure that you’re earning enough to cover your debts? Bookkeeping allows people and businesses to track their money. When you keep a careful record of what you earn and what you spend, you can set goals and save up for big purchases.
Positives and Negatives
The easiest way to keep track of your finances is with positive and negative numbers. Imagine that you have $500.00 in your bank account. You buy a new tablet that costs $199.00. If you write -$199.00 in your records, you’ll be able to tell that you spent $199.00. By using the additive inverse of 199, you’re indicating that money is going out of your bank account. Keeping careful track of your accounts enables you to know whether you have enough money to buy something or whether you should hold off on purchasing. The people of ancient India were the first people to use negative numbers to show debt.
Most businesses have too many accounts to use negative numbers to keep track of their finances. Instead, they use a system called double-entry bookkeeping. This method records money spent and money earned separately. It allows business owners to see how they’re spending their money and where they’re making a profit. The system is especially useful for firms that buy and sell merchandise. In any case, to be a good bookkeeper, you must pay attention to small details and always check your work.
See for yourself: http://www.youtube.com/watch?v=2-HK4qSz6cA
Read the following article to learn about the origins of double-entry bookkeeping, which emerged in Venice, Italy in the late 1400s. Then answer the question below.
Why did Renaissance merchants use double-entry bookkeeping?