What is an accounting?
Accounting is the orderly and comprehensive way of recording the financial transactions that pertain to a business. This is also referred to the process of summarizing, analyzing and reporting the transactions that are carried out in the business.
Objectives of Accounting
- To maintain a systematic record of all the transactions of the business
- To determine profit or loss of the business
- To represent the financial position of the business
- To provide accounting information to the interested parties (investors etc.)
What is meant by double entry system?
In accounting, the double entry system is also known as bookkeeping. Bookkeeping means that every transaction in the business involves two accounts (or more). For instance: when a company borrows money from the bank. The cash account of the company will increase and the liability account will also increase. Thus, having a double effect.
Double entry system allows the following accounting equation: assets= liabilities + owner’s equity. This is used to balance the accounting equation. One more aspect that needs to be taken care of in the double entry system is that the amounts that have been entered into the general ledger accounts as debits must be of the same amounts entered as credits.
History of Accounting
Accounting has a long history. Accounting has been around for centuries now. Accounting is a critical part of the business, record-keeping, and life in general. In Mesopotamia, thousands of years ago, the first record of accounting happened.
Earliest Record of Accounting
It has been found that the earliest records of accounting were originated over 7000 years ago. These were found in the remains of Ancient Mesopotamia. During that time, people trusted the accounting to keep a record of the growth of crop and mob. Accounting techniques were used at that time and are still used in analyzing if there was any surplus or deficiency after the crops have been harvested.
Accounting History during the Roman Empire
Later, in the rule of the Roman Empire, the development of accounting continued. “The Deeds of the Divine Augustus” is an account of the Emperor Augustus’ financial contacts. The account had information related to the distributions to the people, grants of land, the building of temples, money to military veterans, religious offerings and amount spent on theatrical shows and gladiator events. This information was used for planning and decision-making purposes.
Luca Pacioli and his contributions
It is believed that the double entry system of accounting was developed in the Italian city-states in the 1300s. Luca Pacioli was a Franciscan monk, who wrote the first book on double entry accounting that was published in 1494. But, it is necessary to know that he did not formulate the double entry system. The book of Pacioli contributed a lot in the invention of the double entry system of accounting as his writings were copied all over Europe for centuries. This book was used as a reference book and a teaching tool for various subjects on bookkeeping and accounting for next hundreds of years. The double entry bookkeeping system that is used today also has touches of the original system that was described by Pacioli in his books. This was the first time that signs of plus and minus appeared in a printed book.
There have been two inventions of mankind that have developed the importance of accounting to the modern society, since Pacioli’s time. First, is the advancement of the company or the corporation with shared ownership. With this invention, there is a need to develop comprehensive bookkeeping records so that the owners of the enterprise are known about the efficiency and effectiveness of the organization. The second invention that has helped in increasing the importance of accounting is that of Income Tax.
Present Day Accounting
Talking about the present day accounting, there are many accounting standards, auditing protocols and principle standards of the accountants to follow. Accountants are not the only ones responsible for the transactions of the company but play a vital role. It is important for every business, company, corporation, government, and people to utilize the basic accounting principles in their lives and routine activities. Accounting was, is and will be an essential element of the business.