Accounting by danialcharlis



Accountancy (UK), or accounting (US), is the production of financial records about an organization.
Accountancy generally produces financial statements that show in money terms the economic resources
under the control of management; selecting information that is relevant and representing it faithfully.
The principles of accountancy are applied to accounting, bookkeeping, and auditing.

Many tedious accounting practices have been simplified with the help of computer software. Enterprise
resource planning (ERP) software provides a comprehensive, centralized, integrated source of
information that companies can use to manage all major business processes, from purchasing to
manufacturing to human resources. This software can replace up to 200 individual software programs
that were previously used. Computer integrated manufacturing allows products to be made and
completely untouched by human hands and can increase production by having less errors in
manufacturing process. Computers have reduced the cost of accumulating, storing, and reporting
managerial accounting information and have made it possible to produce a more detailed account of all
data that is entered into any given system. Computers have changed business to business interaction
through e-commerce. Rather than dealing with multiple companies to purchase products a business can
purchase a product at a less expensive price and take out the third party and vastly reduces expenses
companies once accrued. Inter-organizational information system enable suppliers and businesses to be
connected at all times. When a company is low on a product the supplier will be notified and fulfill an
order immediately which eliminates the need for someone to do inventory, fill out the proper
documents, send them out and wait for their products. Accounting is thousands of years old; the
earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia
(Assyrians). The people of that time relied on primitive accounting methods to record the growth of
crops and herds. Accounting evolved, improving over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson and the audience for the
account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the
problems created by a business entity involving multiple investors, so double-entry bookkeeping first
emerged in northern Italy in the 14th century, where trading ventures began to require more capital
than a single individual was able to invest. The development of joint-stock companies created wider
audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts
to provide the requisite information. This development resulted in a split of accounting systems for
internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and
subsequently also in accounting and disclosure regulations and a growing need for independent
attestation of external accounts by auditors.

Today, accounting is called "the language of business" because it is the vehicle for reporting financial
information about a business entity to many different groups of people. Accounting that concentrates
on reporting to people inside the business entity is called management accounting and is used to
provide information to employees, managers, owner-managers and auditors. Management accounting
is concerned primarily with providing a basis for making management or operating decisions. Accounting
that provides information to people outside the business entity is called financial accounting and
provides information to present and potential shareholders, creditors such as banks or vendors,
financial analysts, economists, and government agencies. Because these users have different needs, the
presentation of financial accounts is very structured and subject to many more rules than management
accounting. The body of rules that governs financial accounting in a given jurisdiction is called Generally
Accepted Accounting Principles, or GAAP. Other rules include International Financial Reporting
Standards, or IFRS, or US GAAP.

Accounting in the Roman Empire

The Res Gestae Divi Augusti (Latin: "The Deeds of the Divine Augustus") is a remarkable account to the
Roman people of the Emperor Augustus' stewardship. It listed and quantified his public expenditure,
which encompassed distributions to the people, grants of land or money to army veterans, subsidies to
the aerarium (treasury), building of temples, religious offerings, and expenditures on theatrical shows
and gladiatorial games. It was not an account of state revenue and expenditure, but was designed to
demonstrate Augustus' munificence. The significance of the Res Gestae Divi Augusti from an accounting
perspective lies in the fact that it illustrates that the executive authority had access to detailed financial
information, covering a period of some forty years, which was still retrievable after the event. The scope
of the accounting information at the emperor's disposal suggests that its purpose encompassed
planning and decision-making.

The Roman historians Suetonius and Cassius Dio record that in 23 BC, Augustus prepared a rationarium
(account) which listed public revenues, the amounts of cash in the aerarium (treasury), in the provincial
fisci (tax officials), and in the hands of the publicani (public contractors); and that it included the names
of the freedmen and slaves from whom a detailed account could be obtained. The closeness of this
information to the executive authority of the emperor is attested by Tacitus' statement that it was
written out by Augustus himself.

Roman writing tablet from the Vindolanda Roman fort of Hadrian's Wall, in Northumberland (1st-2nd
century AD) requesting money to buy 5,000 measures of cereal used for brewing beer. Department of
Prehistory and Europe, British Museum. Records of cash, commodities, and transactions were kept
scrupulously by military personnel of the Roman army. An account of small cash sums received over a
few days at the fort of Vindolanda circa 110 AD shows that the fort could compute revenues in cash on a
daily basis, perhaps from sales of surplus supplies or goods manufactured in the camp, items dispensed
to slaves such as cervesa (beer) and clavi caligares (nails for boots), as well as commodities bought by
individual soldiers. The basic needs of the fort were met by a mixture of direct production, purchase and
requisition; in one letter, a request for money to buy 5,000 modii (measures) of braces (a cereal used in
brewing) shows that the fort bought provisions for a considerable number of people.

The Heroninos Archive is the name given to a huge collection of papyrus documents, mostly letters, but
also including a fair number of accounts, which come from Roman Egypt in 3rd century AD. The bulk of
the documents relate to the running of a large, private estate is named after Heroninos because he was
phrontistes (Koine Greek: manager) of the estate which had a complex and standarised system of
accounting which was followed by all its local farm managers. Each administrator on each sub-division
of the estate drew up his own little accounts, for the day-to-day running of the estate, payment of the
workforce, production of crops, the sale of produce, the use of animals, and general expenditure on the
staff. This information was then summarized as pieces of papyrus scroll into one big yearly account for
each particular sub-division of the estate. Entries were arranged by sector, with cash expenses and gains
extrapolated from all the different sectors. Accounts of this kind gave the owner the opportunity to take
better economic decisions because the information was purposefully selected and arranged. Simple
accounting is mentioned in the Christian Bible (New Testament) in the Book of Matthew, in the Parable
of the Talents.

Luca Pacioli and double-entry bookkeeping

When medieval Europe moved to a monetary economy in the 13th century, sedentary merchants
depended on bookkeeping to oversee multiple simultaneous transactions financed by bank loans. One
important breakthrough took place around that time: the introduction of double-entry bookkeeping,
which is defined as any bookkeeping system in which there was a debit and credit entry for each
transaction, or for which the majority of transactions were intended to be of this form. The historical
origin of the use of the words 'debit' and 'credit' in accounting goes back to the days of single-entry
bookkeeping in which the chief objective was to keep track of amounts owed by customers (debtors)
and amounts owed to creditors. 'Debit,' is Latin for 'he owes' and 'credit' Latin for 'he trusts'.

The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300.
Giovanno Farolfi & Company were a firm of Florentine merchants whose head office was in Nîmes who
also acted as moneylenders to the Archbishop of Arles, their most important customer. The oldest
discovered record of a complete double-entry system is the Messari (Italian: Treasurer's) accounts of the
city of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form,
and contain balances carried forward from the preceding year, and therefore enjoy general recognition
as a double-entry system.

Portrait of Luca Pacioli, attributed to Jacopo de' Barbari, 1495, (Museo di Capodimonte).

Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" (early Italian: "Review
of Arithmetic, Geometry, Ratio and Proportion") was first printed and published in Venice in 1494. It
included a 27-page treatise on bookkeeping, "Particularis de Computis et Scripturis" (Latin: "Details of
Calculation and Recording"). It was written primarily for, and sold mainly to, merchants who used the
book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid
the education of their sons. It represents the first known printed treatise on bookkeeping; and it is
widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli
introduced symbols for plus and minus for the first time in a printed book, symbols that became
standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known
book printed in Italy to contain algebra.
Although Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise on bookkeeping
contained the first known published work on that topic, and is said to have laid the foundation for
double-entry bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no
originality, it is generally considered as an important work, mainly because of its wide circulation, it was
written in the vernacular Italian language, and it was a printed book.

According to Pacioli, accounting is an ad hoc ordering system devised by the merchant. Its regular use
provides the merchant with continued information about his business, and allows him to evaluate how
things are going and to act accordingly. Pacioli recommends the Venetian method of double-entry
bookkeeping above all others. Three major books of account are at the direct basis of this system: the
memoriale (Italian: memorandum), the giornale (Journal), and the quaderno (ledger). The ledger is
considered as the central one and is accompanied by an alphabetical index.

Pacioli's treatise gave instructions in how to record barter transactions and transactions in a variety of
currencies – both of which were far more common than they are today. It also enabled merchants to
audit their own books and to ensure that the entries in the accounting records made by their
bookkeepers complied with the method he described. Without such a system, all merchants who did not
maintain their own records were at greater risk of theft by their employees and agents: it is not by
accident that the first and last items described in his treatise concern maintenance of an accurate

The nature of double-entry can be grasped by recognizing that this system of bookkeeping did not
simply record the things merchants traded so that they could keep track of assets or calculate profits
and losses; instead as a system of writing, double-entry produced effects that exceeded transcription
and calculation. One of its social effects was to proclaim the honesty of merchants as a group; one of its
epistemological effects was to make its formal precision based on a rule bound system of arithmetic
seem to guarantee the accuracy of the details it recorded. Even though the information recorded in the
books of account was not necessarily accurate, the combination of the double entry system's precision
and the normalizing effect that precision tended to create, produced the impression that books of
account were not only precise, but accurate as well. Instead of gaining prestige from numbers, double
entry bookkeeping helped confer cultural authority on numbers.

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