Definition of Accounting

The systematic recording, reporting, and analysis of financial transactions of a business. Accounting is an art of recording, classifying, summarizing and interpreting financial events and transactions in a significant manner and in terms of money. The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit.

Modern History of Accounting

Accounting is one of the oldest professions. The history of accounting dates back to the earliest days of civilization driven by the trade system of crops and products necessary for survival. As the barter system expanded to include monetary exchange, methods were formalized by 2000 BC. To include the creation of accurate records of the quantities and relative values. Influence of Earliest Accountants Through archaeological discoveries of artifacts, researchers are learning more about the true influence the earliest accountants had on civilization. Through their discoveries, archeologists have discovered accountants participated in the development of: o trade - expand market for and access to goods and services o cities - as trade grew, so did the marketplace o concepts of wealth and numbers - personal and governmental planning o writing - understandable system of accurate recordkeeping o double entry bookkeeping - associated with birth of Italian Renaissance o money and banking - helped businesses avoid bankruptcy in Industrial Revolution Father of Accounting The history of accounting is not complete without Luca Pacioli (1445 - 1517), also known as Friar Luca dal Borgo and the "Father of Accounting". Pacioli is credited for the "birth" of accounting. In 1494, he wrote a textbook that was a compilation of the mathematical and accounting knowledge of his time. His textbook provided the first printed description of the double-entry accounting system used by Venetian merchants in the late 15th century including a similar accounting cycle as we know it today. The system described journals and ledgers with sections for assets, liabilities, capital, income, and expenses found on the modern accounting balance sheet.

Modern Accounting As civilization evolved, businesses grew and so did capital markets and with that...accountability. Successes depended more and more on accurate and dependable financial documents. Through time, the role of the accountant has become an integral part of almost every aspect of day-to-day business and governmental regulation. The history has led modern accounting to become a global, real-time integrated information system driving the direction of accounting expertise and emphasis on the importance of the accounting profession.

Scope of Accounting
Management Accounting and Cost Accounting Management or cost accounting is a management information system which analysis data to provide information as a basis for managerial action. The concern of a management accountant is to present accounting information in the form most helpful to management. Financial Accounting Financial accounting is mainly a method of reporting the results and financial position of a business. It is not primarily concerned with providing information towards the more efficient conduct of a business. This is particularly clear in the context of the published accounts of limited companies. Accounting standards and public law prescribe that a company should produce accounts to be presented to the shareholders. Financial Management The financial manager is responsible for raising finance and controlling financial resources. Including the following decisions: (a) Should the firm borrow from a bank or raise funds by issuing shares? (b) How much should be paid as a dividend? (c) Should the firm spend money on new machinery? (d) How much credit should be given to customers? (e) How much discount should be given to customers who pay early? Auditing The annual accounts of a company must generally be audited by a person independent of a company. In practice, this often means that the members of the company appoint a firm of registered auditors to investigate the financial statements and report as to whether or not they show a true and fair view of the companies results for the year and its financial position at the end of the year.

Qualities of Good Accounting Information Below are some features that accounting information should have if it is to be useful: Relevance Comprehensibility Reliability Completeness Objectivity Timeliness Comparability

Accounting Cycle Introduction

The Accounting Cycle is a series of steps which are repeated every reporting period. The process starts with making accounting entries for each transaction and goes through closing the books.

Accounting Cycle Steps During the Accounting Period

These accounting cycle steps occur during the accounting period, as each transaction occurs: 1. Identify the transaction through an original source document (such as an invoice, receipt , cancelled check, time card, deposit slip, purchase order) which provides: o date o amount o description (account or business purpose) o name and address of other party (if practical) 2. Analyze the transaction determine which accounts are affected, how (increase or decrease), and how much 3. Make Journal entries record the transaction in the journal as both a debit and a credit o journals are kept in chronological order o journals may include sales journal, purchases journal, cash receipts journal, cash payments journal, and the general journal 4. Post to ledger transfer the journal entries to ledger accounts o ledger is kept by account o ledger accounts may be T-account form or include balances o (Learn more about the Chart of Accounts.)

Accounting Cycle: Steps at the end of the accounting period

These accounting cycle steps occur at the end of the accounting period:

1. Trial Balance this is a calculation to verify the sum of the debits equals the sum of the credits. If they dont balance, you have to fix the unbalanced trial balance before you go on to the rest of the accounting cycle. (If they do balance you could still have a problem, but at least it balances!) 2. Adjusting entries prepare and post accrued and deferred items to journals and ledger T-accounts 3. Adjusted trial balance make sure the debits still equal the credits after making the period end adjustments 4. Financial Statements prepare income statement, balance sheet, statement of retained earnings, and statement of cash flows (this can occur at other points in time with appropriate adjustments) 5. Closing entries prepare and post closing entries to transfer the balances from temporary accounts (such as the revenue and expenses from the income statement to owners equity on the balance sheet). 6. After-Closing trial balance final trial balance after the closing entries to make sure debits still equal credits.

users of accounting information

There are two types of users( internal and external):list of internal users:1. employees 2. management 3. shareholders/owners.

list of external users :those who have economic transactions like

suppliers creditors bankers financial institutions

others like

competitors government and regulatory agencies auditors researchers and academicians representatives of others interest like brokers ,underwriters etc

potential shareholders

business transaction
An economic event that initiates the accounting process of recording it in a company's accounting system. It is the business event ( activity ) which can be measured in term of money. and which must be recorded in business book ( or system) of account. For example to buy raw material for your business. Raw material has a money value. so we can measured the raw material in term of money. ( it costs 2000$ to buy a machine)

Accounting concepts
Accounting concepts are particular statement of accounting theory. They are also referred to as priciples or fundamental accounting postulates, they are rules adopted as guides to actions which rest on general acceptance rather than basic undeniable truths. A concept is general and offers a guide. Accounting concept do not prescribe exactly how economic events affecting the business should be collected, recorded or evaluated; there is an infinite number of posible events and no rule could be prescribed for every conceivable eventually. The following important accounting concept should require attention: * The Accrue Concept : The accrue concept states that income(profit) arises from events which affect the owner's equity only. This is the same as the matching concept which stipulates that profit will be recorded at the point of sale irrespective of whether cash due accrue or is in arrears. The attributable cost or expense is also simultaneously recognized when incurred and not neccessarily when cash is paid. The concept holds that for any accounting period, the earned revenue and all the incurred cost that generated the revenue have to be match and reported for the period. if revenue is carried over from a prior period or deferred to a future period. all elements of cost and expense relating to that revenue are usually carried over or deferred as the case may be. * Business Entity : A distinction is drawn between a business and its owner and therefore all trasactions can be recorded as they affect the business as distinct from the owner. The distinction can easily be maintained in the case of a company because the law accords to the business, a personality of its own, wherby it can sue and be sue in its own name instead of in names of all its owners, the shareholders. Every economic unit, regardless of its legal form of existence, is treated as a separate entity (in accounting) from parties having proprietary or economic * Quatifiable/Money Measurement : This states that every item in the account should be measurable in monetary terms, viz in dollar and cent. That is monetary values are placed

upon each of the items. The simple reason for this is that money is accepted both as a valye and a medium of exchange. * Duality : This ia a convention associated with the systems of double-entry book-keeping. To every debit there is an equal and a corresponding credit, e.g an asset is acquired by either the creation of a liability or the use of a resource of equal value. * Periodicity : In accounting, the intervals or accountingt periods are normally one year, although for management purposes,reports ( often called interim statements) are prepared at much shorter intervals. Although the result of a business unit cannot be with precision until its final liquidation, the business is divided into accounting periods (usually one year) and changes in position are measured over these periods. * Realization : The recognition of revenue in an accounting period is the subject of discussion under the realization concept. There are four categories; > Recognition of revenue at time of scale > Recognition of revenue during production > Recognition of revenue at the completion of production > Recognition of revenue subsequent to sale e.g at the point of cash collection. The concept establishes the rule for the periodic recognition of revenue as as; > it is capable of objective measurement. > The value of asset receive or receivable in exchange is reasonbly certain. It is possible to recognize revenue at a variety of pionts, e.g when goods are produce, at the piont goods are delivered, or when the transaction is completed. choice,in most cases is an industrial norm, and depends on which of the ppoints is the critical event. only when this event is passed can revenue be legitimately recognized. * Historical : The historical cost concept holds that cost is the appropriate basis for initial accounting recognition of all asset acquisitions, services rendered or receive,expenses incurred, creditors and owners interest; it also holds that subsequent to acquisition costs are retained throughout the accounting process

Basic Accounting Equation

Accounting as a whole is based on a single equation: ASSETS = EQUITY + LIABILITIES The word equation comes from the word equal. What a company owns must always equal (=) what it owes to its creditors plus (+) what it owes to the owner or owners