welcome to Acc.World






WHAT IS ACCOUNTING-WORLD? 

It is absoluttely everything about Accounting

This content is designed for you to inform yourself on what theres is to know about accounting.tar
we will start off with the basics. There is one question that will open this universe you are about to be part of.

WHAT IS ACCOUNTING?

' The textbook definition of accounting is that it is the act of collecting, organizing. and interpreting financial data. In a nutshell, that's true. However, to fully understand the entire concept of accounting, there are a few more things that we need to discuss.'

Introduction to Accounting


In this section you’ll learn the basics of accounting such as the accounting equation, 

Charlie has just opened his own hardware store. Even though he knows the basics of business management, he has no idea how to keep financial records. He decides to take a crash course in accounting.

Charlie walks into class on day one prepared to conquer accounting. The first thing that he notices when he walks in the room is three questions written on the board. The first question asks what accounting is and what its purpose is. The second asks how accounting is important. The last question asks how accounting relates to business.
'Well,' Charlie says to himself, 'if I knew that I wouldn't be here.'
Soon, a rather burly-looking old fellow comes in and leans on the podium. 'Good morning class. I am Professor Potter. How many of you can answer the questions I have on the board?' The room is silent. 'Well, then, I guess we have quite a bit to talk about. I can't promise miracles, but I can promise you that before you leave this room today, you will know the answer to all three questions!'
Professor Potter points to the first question. Speaking loudly, he says, 'What is accounting? I know that you have all heard it before. So, tell me what the word 'accounting' means to you.' Pointing at Charlie, Professor Potter says, 'Go ahead, young man. I'm sure that you can give me some kind of answer.'
Charlie smiles and replies, 'Accounting is just a bunch of numbers that get added or subtracted, depending on if you are making money or paying bills.'
'Not a bad answer,' Professor Potter says, 'but accounting is really much more than that. The textbook definition of accounting is that it is the act of collecting, organizing. and interpreting financial data. In a nutshell, that's true. However, to fully understand the entire concept of accounting, there are a few more things that we need to discuss.'

Basic Accounting Equation


'How many of you know what aloe is?' Professor Potter asks. Several people raise their hands. 'I see that there are a lot of you that know what aloe is. Is aloe the stuff that you can put on a burn to make it feel better?' Professor Potter sees several heads bobbing in agreement. 'That's true; aloe is a plant that is used to relieve the pain of burns. But, did you know that aloe has a place in accounting, too?' Looking around, Professor Potter sees a room full of questioning faces.
He takes a piece of chalk and writes the word 'ALOE' on the board. 'A-L-O-E, class, is an acronym for the most important piece of the accounting puzzle. ALOE stands for assets, liabilities, and owner's equity. These are the components of the basic accounting equation: assets = liabilities + owner's equity.'
diagram of th BAE
(basic accounting equation)
'Now that you know what ALOE represents, let's talk about what each term means. Assets are items that are owned, have value, and can be turned into cash. Bank accounts, CDs, cars, property, and machinery are all examples of assets. Liabilities are what is owed. A loan to purchase an asset is a liability. Owner's equity is the amount of money that a person has invested into an organization. The investment may be in the form of a stock purchase or a capital investment made by buying into a company. The most important thing to remember is that both sides of the accounting equation must be equal. If they don't balance, then there is a problem.'
'Let me see if I understand this correctly, Professor Potter,' Charlie says. 'I am opening up a hardware store in a building that I inherited. I know that I have to have $30,000 to purchase inventory, $15,000 to purchase shelving, and an additional $10,000 in the bank for beginning operating costs. I had $20,000 of my own money saved, and I borrowed $35,000 from the bank. If I'm looking at this correctly, then my assets are the $30,000 in inventory plus the $15,000 in shelves I bought and installed plus the $10,000 that's in cash that is in the bank for beginning operations. That means my total assets are $55,000. I borrowed $35,000 to get the store going, so that's what I owe, which is a liability. The $20,000 is what I personally invested in the business, so that is my owner's equity. My assets equal $55,000, and the sum of my liabilities and owner's equity equals $55,000. Both sides of the accounting equation are equal. So, I balance.'
'You've got it, Charlie,' Professor Potter says. 'Does everyone understand the basic accounting equation?' The entire class nods their heads. 'Excellent, then we can move on.'


Accounting areas of activit



ccounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not least because accounting professionals tend to organize themselves around these various specialties.

Financial Accounting

Financial accounting is the periodic reporting of a company's financial position and the results of operations to external parties through financial statements, which ordinarily include the balance sheet (statement of financial condition), income statement (the profit and loss statement, or P&L), and statement of cash flows. A statement of changes in owners' equity is also often prepared. Financial statements are relied upon by suppliers of capital - e.g., shareholders, bondholders and banks - as well as customers, suppliers, government agencies and policymakers. (To learn more on this read, What You Need To Know About Financial Statements.)

There's little use in issuing financial statements if each company makes up its own rules about what and how to report. When preparing statements, American companies use U.S. Generally Accepted Accounting Principles, or U.S. GAAP. The primary source of GAAP is the rules published by the FASB and its predecessors; but GAAP also derives from the work done by the SEC and the AICPA, as well standard industry practices. (For more on this see, What is the difference between the IAS and GAAP?)

Management Accounting

Where financial accounting focuses on external users, management accounting emphasizes the preparation and analysis of accounting information within the organization. According to the Institute of Management Accountants, it includes "…designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls, and analyzing, synthesizing and aggregating information…to help drive economic value."

A primary concern of management accounting is the allocation of costs; indeed, much of what now is considered management accounting used to be called cost accounting. Although a seemingly mundane pursuit, how to measure cost is critical, difficult and controversial. In recent years, management accountants have developed new approaches like activity-based costing(ABC) and target costing, but they continue to debate how best to provide and use cost information for management decision-making.

Auditing

Auditing is the examination and verification of company accounts and the firm's system of internal control. There is both external and internal auditing. External auditors are independent firms that inspect the accounts of an entity and render an opinion on whether its statements conform to GAAP and present fairly the financial position of the company and the results of operations. In the U.S., four huge firms known as the Big Four - PricewaterhouseCoopers, Deloitte Touche Tomatsu, Ernst & Young, and KPMG - dominate the auditing of large corporations and institutions. The group was traditionally known as the Big Eight, contracted to a Big Five through mergers and was reduced to its present number in 2002 with the meltdown of Arthur Andersen in the wake of the Enron scandals. (For further information see, An Inside Look At Internal Auditors.)

The external auditor's primary obligation is to users of financial statements outside the organization. The internal auditor's primary responsibility is to company management. According to the Institute of Internal Auditors (IIA), the internal auditor evaluates the risks the organization faces with respect to governance, operations and information systems. Its mandate is to ensure (a) effective and efficient operations; (b) the reliability and integrity of financial and operational information; (c) safeguarding of assets; and (d) compliance with laws, regulations and contracts.

Tax Accounting

Financial accounting is determined by rules that seek to best portray the financial position and results of an entity. Tax accounting, in contrast, is based on laws enacted through a highly political legislative process. In the U.S., tax accounting involves the application of Internal Revenue Service rules at the Federal level and state and city law for the payment of taxes at the local level. Tax accountants help entities minimize their tax payments. Within the corporation, they will also assist financial accountants with determining the accounting for income taxes for financial reporting purposes.

Fund Accounting

Fund accountingis used for nonprofit entities, including governments and not-for-profit corporations. Rather than seek to make a profit, governments and nonprofits deploy resources to achieve objectives. It is standard practice to distinguish between a general fund and special purpose funds. The general fund is used for day-to-day operations, like paying employees or buying supplies. Special funds are established for specific activities, like building a new wing of a hospital. 

Segregating resources this way helps the nonprofit maintain control of its resources and measure its success in achieving its various missions.

The accounting rules for federal agencies are determined by the Federal Accounting Standards Advisory Board, while at the state and local level the Governmental Accounting Standards Board (GASB) has authority.

Forensic AccountingFinally, forensic accounting is the use of accounting in legal matters, including litigation support, investigation and dispute resolution. There are many kinds of forensic accounting engagements: bankruptcy, matrimonial divorce, falsifications and manipulations of accounts or inventories, and so forth. Forensic accountants give investigate and analyze financial evidence, give expert testimony in court and quantify damages.

FINANCIAL ACCOUNTING




What is Financial Accounting?

Definition: Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis.
Keeping track of records and creating a summary of financial transactions is called bookkeeping - When this information is produced and displayed in reports for the use of the public outside the company, this process is called financial accounting.

The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization.

Whereas managerial accounting information is aimed at helping managers within the organization make decisions.

Reports

There are three standard reports that are created through the accounting process: The income statement, which describes the profits or losses, expenses, and gross proceeds over a given period of time.

The balance sheet, basically shows the firm’s assets (what they own) and their liabilities (what they owe) at a specific point in time. The statement of cash flow is an analysis of the flow of cash out of the firm and in.

In managerial accounting

For managerial accounting, these reports are created more often (typically monthly) for internal planning, control and decision-making. The aim of these reports in the managerial sense is to provide decision-makers with the right tools for budgeting purposes.

Reliable and relevant information on the costs of operations and on standards which are appropriate for costs to be compared are presented through such reports.

ACCOUNTING NOW AND THEN

Roman empire[edit]

Part of the Res Gestae Divi Augusti from the Monumentum Ancyranum (Temple of Augustus and Rome) at Ancyra, built between 25 BCE - 20 BCE.
By the time of Emperor Augustus (63 BC - AD 14), the Roman government had access to detailed financial information as evidenced by the Res Gestae Divi Augusti (Latin: "The Deeds of the Divine Augustus"). The inscription was an account to the Roman people of the Emperor Augustus' stewardship, and listed and quantified his public expenditure, including 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, covering a period of about forty years. The scope of the accounting information at the emperor's disposal suggests that its purpose encompassed planning and decision-making.[6]
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.[12]
Records of cashcommodities, 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 AD 110 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 productionpurchase 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.[13]
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[14] is named after Heroninos because he was phrontistes (Koine Greekmanager) of the estate which had a complex and standarised system of accounting which was followed by all its local farm managers.[15] 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.[16]

Medieval and renaissance periods[edit]

Double-entry bookkeeping[edit]

When medieval Europe moved towards 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,[7] 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.[17] The historical origin of the use of the words "debit" and "credit" in accounting goes back to the days of single-entry bookkeeping, which had as its chief objective keeping track of amounts owed by customers (debtors) and amounts owed to creditorsDebit in Latin means "he owes" and credit in Latin means "he trusts".[18]
The earliest extant evidence of full double-entry bookkeeping appears in the Farolfi ledger of 1299-1300.[7] Giovanno Farolfi & Company, a firm of Florentine merchants headquartered in Nîmes, acted as moneylenders to the Archbishop of Arles, their most important customer.[19] The oldest discovered record of a complete double-entry system is the Messari (ItalianTreasurer's) accounts of the city of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form and carry forward balances from the preceding year, and therefore enjoy general recognition as a double-entry system.[20]
Ragusan economist Benedetto Cotrugli's 1458 treatise Della mercatura e del mercante perfetto contained the earliest known manuscript of a double-entry bookkeeping system. His manuscript was first published in 1573.[21]
Luca Pacioli's Summa de Arithmetica, Geometria, Proportioni et Proportionalità (early Italian: "Review of ArithmeticGeometryRatio 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"). Pacioli wrote 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. His work represents the first known printed treatise on bookkeeping; and it is widely believed[by whom?] to be the forerunner of modern bookkeeping practice. In Summa de arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols which became standard notation in Italian Renaissance mathematics. Summa de arithmetica was also the first known book printed in Italy to contain algebra.[22]
Ragusan economist Benedetto Cotrugli's 1458 treatise Della mercatura e del mercante perfetto contained the earliest known manuscript of a double-entry bookkeeping system, however Cotrugli's manuscript was not officially published until 1573. In fact even at the time of writing his work in 1494 Pacoili was aware of Cotrugli’s efforts and credited Cortrugli with the origination of the double entry book keeping system.[23][24]
Although Luca Pacioli did not invent double-entry bookkeeping,[25] 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.[26] Even though Pacioli's treatise exhibits almost no originality, it is generally considered[by whom?] as an important work, mainly because of its wide circulation; it was written in the vernacular Italian language, and it was a printed book.[27]
Pacioli saw accounting as 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:
  1. the memoriale (Italian: memorandum)
  2. the giornale (Journal)
  3. the quaderno (ledger)
The ledger classes as the central document and is accompanied by an alphabetical index.[28]
Pacioli's treatise gave instructions on recording barter transactions and transactions in a variety of currencies – both of which were far more common than 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 inventory.[29]

The Renaissance cultural context[edit]

Accounting as it developed in Renaissance Europe also had moral and religious connotations, recalling the judgment of souls and the audit of sin.[30]

Financial and management accounting[edit]

The development of joint-stock companies (especially from about 1600) built wider audiences for accounting information, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information.[31] 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.[8]

Modern professional accounting[edit]

The modern profession of the chartered accountant originated in Scotland in the nineteenth century. During this time, accountants often belonged to the same associations as solicitors, and the latter solicitors sometimes offered accounting services to their clients. Early modern accounting had similarities to today's forensic accounting:[32]
"Like forensic accountants today, accountants then incorporated the duties of expert financial witnesses into their general services rendered. An 1824 circular announcing the accounting practice of one James McClelland of Glasgow promises he will make “statements for laying before arbiters, courts or council.”[32]
In July 1854 The Institute of Accountants in Glasgow petitioned Queen Victoria for a Royal Charter. The Petition, signed by 49 Glasgow accountants, argued that the profession of accountancy had long existed in Scotland as a distinct profession of great respectability, and that although the number of practitioners had been originally few, the number had been rapidly increasing. The petition also pointed out that accountancy required a varied group of skills; as well as mathematical skills for calculation, the accountant had to have an acquaintance with the general principles of the legal system as they were frequently employed by the courts to give evidence on financial matters. The Edinburgh Society of accountants adopted the name "Chartered Accountant" for members.[33]
By the middle of the 19th century, Britain's Industrial Revolution was in full swing, and London was the financial centre of the world. With the growth of the limited liability company and large scale manufacturing and logistics, demand surged for more technically proficient accountants capable of handling the increasingly complex world of high speed global transactions, able to calculate figures like asset depreciation and inventory valuation and cognizant of the latest changes in legislation such as the new Company law, then being introduced. As companies proliferated, the demand for reliable accountancy shot up, and the profession rapidly became an integral part of the business and financial system.
To improve their status and combat criticism of low standards, local professional bodies in England amalgamated to form the Institute of Chartered Accountants in England and Wales, established by royal charter in 1880.[10] Initially with just under 600 members, the newly formed institute expanded rapidly; it soon drew up standards of conduct and examinations for admission and members were authorised to use the professional designations "FCA" (Fellow Chartered Accountant), for a firm partner and "ACA" (Associate Chartered Accountant) for a qualified member of an accountant's staff. In the United States the American Institute of Certified Public Accountants was established in 1887.

HISTORY OF ACCOUNTING

The history of accounting or accountancy 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 writingcounting and money[1and early auditing systems by the ancient Egyptians and Babylonians.[2] By the time of the Emperor Edrian Henio, the Roman government had access to detailed financial information.[6]
In India Chanakya wrote a manuscript similar to a financial management book, during the period of the Mauryan Empire. His book "Arthashasthra" contains few detailed aspects of maintaining books of accounts for a Sovereign State.
The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping was the first person to publish a work on double-entry bookkeeping, and introduced the field in Italy.[
The modern profession of the chartered accountant originated in Scotland in the nineteenth century. Accountants often belonged to the same associations as solicitors, who often offered accounting services to their clients. Early modern accounting had similarities to today's forensic accounting. Accounting began to transition into an organized 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.
Accounting records dating back more than 7,000 years have been found in Mesopotamia,expenditures, and goods received and traded.[1] The development of accounting, along with that of money and numbers, may be related to the taxation and trading activities of temples:
 and documents from ancient Mesopotamia show lists of
"another part of the explanation as to why accounting employs the numerical metaphor is [...] that money, numbers and accounting are interrelated and, perhaps, inseparable in their origins: all emerged in the context of controlling goods, stocks and transactions in the temple economy of Mesopotamia."[1]
The early development of accounting was closely related to developments in writingcounting, and money. In particular, there is evidence that a key step in the development of counting—the transition from concrete to abstract counting—was related to the early development of accounting and money and took place in Mesopotamia[1]
Other early accounting records were also found in the ruins of ancient BabylonAssyria and Sumeria, which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Because there was a natural season to farming and herding, it was easy to count and determine if a surplus had been gained after the crops had been harvested or the young animals weaned.[11]

Expansion of the role of the accountant

Between the 4th millennium BC and the 3rd millennium BC, the ruling leaders and priests in ancient Iran had people oversee financial matters. In Godin Tepe (گدین تپه) and Tepe Yahya (تپه يحيی), cylindrical tokens that were used for bookkeeping on clay scripts were found in buildings that had large rooms for storage of crops. In Godin Tepe's findings, the scripts only contained tables with figures, while in Tepe Yahya's findings, the scripts also contained graphical representations.[4] The invention of a form of bookkeeping using clay tokens represented a huge cognitive leap for mankind.[5]
During the 1st millennium BC, the expansion of commerce and business expanded the role of the accountant. The Phoenicians invented a phonetic alphabet "probably for bookkeeping purposes", and there is evidence that an individual in ancient Egypt held the title "comptroller of the scribes". There is also evidence for an early form of accounting in the Old Testament; for example the Book of Exodus describes Moses engaging Ithamar to account for the materials that had been contributed towards the building of the tabernacle.[
By about the 4th century BC, the ancient Egyptians and Babylonians had auditing systems for checking movement in and out of storehouses, including oral "audit reports", resulting in the term "auditor" (from audireto hear in Latin) importance of taxation had created a need for the recording of payments, and the Rosetta Stone also includes a description of a tax revolt.