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Assignment 1 FABM1

Accounting is defined as the process of systematically recording, classifying, and summarizing financial transactions and presenting related information to decision makers like managers and investors. It serves as the primary communication system between a business and its stakeholders. Accounting has evolved from its origins thousands of years ago in Mesopotamia, where early records were kept of crop and herd growth, to the modern, globally regulated practice it is today.

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102 views

Assignment 1 FABM1

Accounting is defined as the process of systematically recording, classifying, and summarizing financial transactions and presenting related information to decision makers like managers and investors. It serves as the primary communication system between a business and its stakeholders. Accounting has evolved from its origins thousands of years ago in Mesopotamia, where early records were kept of crop and herd growth, to the modern, globally regulated practice it is today.

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Wonwoo Svt
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment

What is Accounting?
Accounting is defined by American Institute of Certified Public Accountants (AICPA)
as ‘the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least of financial character, and
interpreting the results thereof. Accounting has been referred to as the language of
business because it is the communication link between the business entity and the users of
financial information. These users are decision makers, such as the management of the
business, investors, the government.

The Nature of Accounting


Accounting is a systematic recording of financial transactions and the presentation of
the related information to appropriate persons. Based on this definition we can derive the
following basic features of accounting:
 Accounting is a service activity.
 Accounting is a process.
 Accounting is both an art and a discipline.
 Accounting deals with financial information and transactions.
 Accounting is an information system.

The Function of Accounting


Accounting is the means by which business information is communicated to business
owners and stakeholders. The role of accounting in business is to provide information for
managers and owners to use in operating the business. In addition, accounting information
allows business owners to assess the efficiency and effectiveness of their business
operations. Prepared accounting reports can be compared with industry standards or to a
leading competitor to determine how the business is doing. Business owners may also use
historical financial accounting statements to create trends for analyzing and forecasting
future sales.

Accounting vs. Bookkeeping


Accounting and bookkeeping have very similar definition that they are often used
interchangeably. Basically, their difference is only a matter of complexity, such that
bookkeeping is an element of accounting. Bookkeeping deals primarily with the systematic
method of recording and classifying financial transaction of business. Accounting,
meanwhile, needs further summarization, analysis, reporting and interpreting of the
records generated by bookkeeping. In short, bookkeeping is only one of the steps in an
accounting process.

A Brief History of Accounting


Accounting has been around for centuries. It’s a critical part of the business, record-
keeping, and life in general. The first record of accounting occurred thousands of years ago
in Mesopotamia and has evolved into the intricate element of business and life that it is
today.

The Craddle of Civilization (3600 B.C.) - The earliest accounting records were found over
7,000 years ago among the ruins of Ancient Mesopotamia. At the time, people relied on
accounting to keep a record of crop and herd growth.
14th Century - In 1494, Pacioli wrote Summa de Arithmetica, Geometria, Proportioni et
Proportionalita. Pacioli’s book became the reference text and teaching tool on the subjects
of bookkeeping and accounting for the next several hundred years.
The Middle Ages - During the Middle Ages, bartering was the primary form of money-
changing, but when Europe changed to a monetary economy is the 13th Century,
merchants began relying on bookkeeping to keep a record of multiple transactions. This is
when double-entry bookkeeping got its start, which provided them with constant
information about their businesses that they could use in decision-making to grow their
business as they saw fit.
Present Day - Nowadays, there are accounting standards, auditing regulations, and ethical
standards for accountants to follow. Beyond the industry's self-regulation, the government
also sets accounting standards, through laws and agencies such as the Securities and
Exchange Commission (SEC). Nowadays, investors seek investment opportunities all over
the world. To remain competitive, businesses everywhere feel the need to operate globally.

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