Accounting or accountancy is the formal measurement, assessment, and reporting of financial and/or non-financial information about organizations including corporations and businesses. It is also known as accounting theory, accounts analysis, or auditing accounting. The practice of accounting has evolved throughout history because of the need to understand the relationships between various financial transactions and the activities of the companies that perform them. The early history of accounting dates back to the 10th century, with the Medieval Europe Accounting Commission. Over time, accounting practices and techniques have been developed, and accounting itself has evolved into a very specific science, often referred to as management accounting.
There are three basic parts to an accounting system, the ledger, the journal, and the register book. The ledger records daily financial transactions, such as sales or purchases, in a ledger notebook or ledger. Invoices and payments are entered in the ledger, while balance entries indicate the difference between the balances at the end of the period covered by the journal and the end of the fiscal period – the current period of performance.
A journal is usually called a journal or daybook. It consists of records regarding the daily financial transactions, which are written in number and in a particular format. The first accountants used ledgers, while legal and business documents were stored in lockers. In modern times, all financial transactions are recorded digitally using computers. The latest trend in modern accounting practices is the computerization of accounting systems. Online accounting systems allow a company to easily track its assets and liabilities, as well as keep track of its expenses and revenues.
The main aim of managerial accounting is to make decisions for the business, and solve problems that may arise. To do this, an accountant will take a look at the balance between capital assets and liabilities, income and expenses. managerial accounting differs from other forms of accountancy in the way it views and handles financial issues. The accountant will make decisions about where to invest money, when to make loans, when to issue shares etc. managerial accounting differs from other forms of accountancy in that it normally reports directly to senior management.
Before the age of computers, a large number of business enterprises relied on manual data entry systems to store and manage their financial information. Manual systems were prone to errors, frequently leading to incomplete or wrong information, which was difficult to analyze and act upon. Computerized systems have made it possible to store and manage all types of financial data, easily and quickly. Accounting reports can be analyzed quickly via the Internet, allowing managers to act on any piece of financial information that is generated, with minimal attention required to the actual entry of figures.
A major advantage of cost accounting over managerial accounting is that the costs of doing business can be easily monitored. The reason for this is that the costs of production and sales can be easily computed. The results of every transaction can be accessed, recorded and reported as soon as they are received by the accounting system. A major disadvantage is that the use of such systems typically results in increased costs for the enterprise.
Usually, financial reporting is based on the information gathered from accounting data. Every company must decide what type of accounting system best suits its type of business. All companies must, therefore, establish procedures for the proper recording and interpretation of accounting data in order to determine their financial position.
While most of the responsibilities of accountants are dealt with on an hourly basis, there are specialties within the field of accounting that require more specialized knowledge and training. For example, tax accounting refers to the preparation and submission of tax reports. Many accountants also perform forensic accounting, which refers to examining accounting records for clues regarding any fraudulent activities by a company’s officers and directors.