1.3 Bookkeeping

Let's do a thought experiment. Imagine that a space virus comes, infects Earth, and destroys all novels that have ever been written. “Tom Sawyer”? Gone. “Gone with the Wind” is gone with the wind.  With all novels having disappeared over night, could you then function the next morning? Well, you'd feel horrible. A tragic, cultural loss. But if you went to the bank to get some cash out, okay fine, that bank records are not affected. If you went to the store to shop, everything's working fine there. Everyone is feeling sad because of the cultural loss but society could continue to function, even if all novels ever written disappeared over night.

All right, let's do another thought experiment. Let's imagine that a space virus comes and destroys all bookkeeping records on earth. All bank records, all records that all companies have of the inventory that they have on the shelves of their stores. All dry cleaning records, everything. All those records are gone.  Could we continue to function as a society? Go to the bank and say, "I would like to withdraw $100." The bank would then tell you: "We don't have any records. We don't know whether you've got any money here or not. We are sorry, but you can’t withdraw any money.”  Go to the dry cleaners to pick up your dry cleaning. They will say: "Well, we've got a bunch of clothes in the back in a big pile, but we don't have any records on what belongs to whom."  Society would cease to exist. Societal gridlock. We wouldn't be able to do anything.

Is bookkeeping more important than the collection of all novels that have been written? No. But without novels, society can continue to function. Without bookkeeping we're shut down. Bookkeeping underlies modern society.  At its heart, bookkeeping is about collecting information, getting things recorded. Because once events are recorded, then we can organize those events and start making better decisions.

For example, Walmart has 10 billion customer visits per year. In order to operate, Walmart must have an organized bookkeeping system in place to keep track of what those customers bought, how much they paid, what items need to be ordered, and so forth. 10 billion visits per year. Walmart needs a good bookkeeping system.

Google is the most visited website on the Internet. There are between one trillion and two trillion Google searches per year. How does Google make money? Google makes money by charging advertisers for customer views or customer clicks. How can the company charge those advertisers unless Google has a system in place of keeping track of the number of clicks and what people clicked on? The Google search engine is awesome. The Google bookkeeping system is equally as awesome.

Without bookkeeping Walmart and Google could not continue to function. Bookkeeping seems mundane, but that's where it all begins.  

Now let's make this more personal. Think about you and your personal budget. Let's focus on your food budget. How much did you spend in the past 12 months on food? The honest answer for most of us, for me for example, is “I'm not sure I know how much I spent on food last year.” I could use a better bookkeeping system. If I want to start making decisions and changing my behavior with respect to how much money I'm spending on food, I first have to have a system in place where I keep track of it.

Simply stated, bookkeeping is the preservation of a systematic, quantitative record of an activity. And until you have a record of an activity, you really can't make any sophisticated decisions with respect to that activity. You got to get it written down, you got to get it recorded. Once that happens, then you can start to make more informed decisions.

We can use the past to help us make better decisions for the future. But it starts with getting things written down. That's bookkeeping.