ACCOUNTING OR ACCOUNTANCY is the measurement, processing and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the “language of business”, measures the results of an organisation’s economic activities and conveys this information to a variety of users, including investor, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms “accounting” and “financial reporting” are often used as synonyms.
Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting.
Accounting information systems are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organisation’s financial information, including the preparation of financial statements, to external users of the information, such as investors, regulators and suppliers; and management accounting focuses on the measurement, analysis and reporting of information for internal use by management. The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. Accounting is facilitated by accounting organisations such as standard-setters, accounting firms and professional bodies. Financial statement are usually audited by accounting firms, and are prepared in accordance with generally accepted accounting principles (GAAP) GAAP is set by various standard-setting organisations such as the Financial Accounting Standards Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom. As of 2012, “all major economies” have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).HISTORY
HISTORY OF ACCOUNTING
Portrait of Luca Pacioli, painted by Jacopo de’ Barbari, 1495, (Museo di Capodimonte).
The history of accounting is thousands of years old and can be traced to ancient civilizations. The early development of accounting dates back to ancient Mesopotamia, and is closely related to developments in writing, counting and money; there is also evidence for early forms of bookkeeping in ancient Iran, and early auditing systems by the ancient Egyptians and Babylonians. By the time of the Emperor Augustus, the Roman government had access to detailed financial information. Double-entry bookkeeping developed in medieval Europe and accounting split into financial accounting and management accounting with the development of joint-stock companies. The first work on a double-entry bookkeeping system was published it Italy, by Luca Pacioli. Accounting began to transition into an organizes profession in the nineteenth century, with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880.
Early 19th-century ledger.
Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English (used roughly between the 12th and the late 15th century) the verb “to account” had the from accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning “to reckon”. The base of computare is putare, which “variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think. The word “accountant” is derived from the French word compter, which is also derived from the Italian and Latin word computare. The word was formerly written in English as “accomptant”, but in process of time the word, which was always pronounced by dropping the “p”, became gradually changed both in pronunciation and in orthography to its present form.
ACCOUNTING AND ACCOUNTANCY
Financial Reporting Council (FRC) sets accounting standards. However, as of 2012 “all major economies” have plans to converge towards or adopt the IFRS.