What is accounting
Accounting is the process of recording, summarizing, and analyzing business and financial transactions. It involves verifying the accuracy of these transactions and reporting the financial outcomes to provide a clear overview of a company's financial health.
Overview of Accounting
Accounting is an essential function for almost every business. In smaller firms, it is typically overseen by a bookkeeper or an accountant, whereas larger companies often have comprehensive finance departments that follow a standardized accounting manual and consist of numerous employees.
Reports generated by various branches of accounting, including financial accounting, cost accounting and managerial accounting, tax accounting, social accounting are vital for aiding management in making informed business decisions.
The financial statements that summarize a large company's
operations, financial position, and cash flows over a defined period are clear
and consolidated reports based on thousands of individual financial
transactions.
History of Accounting
The history of accounting stretches back thousands of years,
beginning in the cradle of civilization in Mesopotamia and developing alongside
writing, counting, and money. Early Egyptians and Babylonians implemented
auditing systems, while the Romans maintained detailed financial records.
The Italian Luca Pacioli is known as the father of modern
accounting for his description of the double-entry bookkeeping system used by
Venetian merchants in his 1494 work ‘Summa de Arithmetica, Geometria,
Proportioni et Proportionalita’. While he did not invent accounting, Pacioli
was the first to articulate the system of debits and credits in journals and
ledgers, which forms the basis of contemporary accounting practices.
The onset of the Industrial Revolution in 1760 brought a
significant increase in the number of companies and a heightened demand for
more advanced accounting systems. As corporations emerged, they introduced
larger groups of investors and more intricate ownership structures, prompting
the evolution of accounting systems to address these new challenges.
The modern accounting profession traces its roots back to
Scotland in the mid-1800s, when the Institute of Accountants in Glasgow sought
a Royal Charter from Queen Victoria. This initiative aimed to establish a clear
distinction between accountants and solicitors, as accountants had previously
been part of associations that offered both legal and accounting services. In
1854, the institute adopted the title "chartered accountant" for its
members, a designation that continues to carry legal significance worldwide today.
The petition, signed by 49 accountants from Glasgow,
emphasized that accounting had long been regarded as a distinct and respected
profession in Scotland, with a steadily increasing number of practitioners. It
highlighted the range of skills necessary for a professional accountant; beyond
strong mathematical capabilities, accountants needed to be well-versed in
general legal principles, as they were often called to provide expert testimony
on financial matters in court—much like they are today.
By the mid-1800s, the Industrial Revolution in Britain was
thriving, positioning London as the world's financial hub. The emergence of
limited liability companies, coupled with large-scale manufacturing and
logistics, led to a surging demand for skilled accountants capable of
navigating the increasingly intricate world of global transactions.
As accountants gained prominence, the profession began to evolve, first in the UK and later in the US. In 1904, eight individuals established the London Association of Accountants to expand access to the profession beyond the existing UK associations. After undergoing several name changes, the London Association of Accountants officially became the Association of Chartered Certified Accountants (ACCA) in 1996.