Introduction to Accounting

The purpose of accounting is to provide a means of recording, reporting, summarizing, and interpreting
economic data. In order to do this, an accounting system must be designed. A system design serves the needs of
users of accounting information. Once a system has been designed, reports can be issued and decisions based
upon these reports are made for various departments. Since accounting is used by everyone in one form or another,
a good understanding of accounting principles is beneficial to all.

Accounting or accountancy is the measurement, processing, and communication of financial information

Nature of Accounting

1.Accounting is a process: A process refers to the method of performing any specific job step by step
according to the objectives, or target. Accounting is identified as a process as it performs the specific task of
collecting, processing and communicating financial information. In doing so, it follows some definite steps
like collection of data recording, classification summarization, finalization and reporting.
2. Accounting is an art: Accounting is an art of recording, classifying, summarizing and finalizing the
financial data. The word ‘art’ refers to the way of performing something. It is a behavioral knowledge
involving certain creativity and skill that may help us to attain some specific objectives. Accounting is a
systematic method consisting of definite techniques and its proper application requires applied skill and
expertise. So, by nature accounting is an art.
3. Accounting is means and not an end: Accounting finds out the financial results and position of an
entity and the same time, it communicates this information to its users. The users then take their own
decisions on the basis of such information. So, it can be said that mere keeping of accounts can be the
primary objective of any person or entity. On the other hand, the main objective may be identified as taking
decisions on the basis of financial information supplied by accounting. Thus, accounting itself is not an
objective, it helps attaining a specific objective. So it is said the accounting is ‘a means to an end’ and it is
not ‘an end in itself.’
Accounting deals with financial information and transactions; Accounting records the financial
transactions and date after classifying the same and finalizes their result for a definite period for conveying
them to their users. So, from starting to the end, at every stage, accounting deals with financial information.
Only financial information is its subject matter. It does not deal with non-monetary information of non-
financial aspect.
 Accounting is an information system: Accounting is recognized and characterized as a storehouse of
information. As a service function, it collects processes and communicates financial information of any
entity. This discipline of knowledge has been evolved out to meet the need of financial information required
by different interested groups.

History

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 writing, countingand money and early auditing systems by the
ancient Egyptians and Babylonians. By the time of the Roman Empire, the government had access to detailed
financial information. 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.

Accounting records dating back more than 7,000 years have been found in Mesopotamia, and documents
from ancient Mesopotamia show lists of expenditures, and goods received and traded. The development of
accounting, along with that of money and numbers, may be related to the taxation and trading activities
of temples: 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.

Function of Accounting in Business

The purpose of accounting is to provide financial information to the stakeholders of the business:
management, investors and creditors. Accounting measures and summarizes the activities of the company and
communicates the results to management and other interested parties. The primary purpose of any accounting
function is that of ongoing financial record keeping. Monetary information of all types--operational expenses, salaries,
donations, capital expenditures, investments, cash flow, utilities--should be tracked on a monthly basis at a minimum. The
role of accounting is to provide you and any other stakeholders with financial information about the company, such as
sales revenue, the cost of benefits and the amount you owe your suppliers. Without the information from your
accountants, you can't make good financial decisions for your business.