What is Accounting?

What is Accounting?

Accounting defines the process of producing, tracking, and maintaining the finances of a business, although it can also be relevant to individual financial matters. It generally refers to anything that is under management control in a business setting. In its most basic premise, accounting looks at things such as accounts payable, accounts receivable, and other financial transactions related to a business, such as the calculation of profits and losses, and the correct payment of tax and accurate filing of company accounts.

In depth, accounting might begin to look at individual profit margins, depreciation of assets, and take a wider look at how a business, or an individual, manages on-going costs and expenses.

The Role of Accounting

Accounting is the most detailed of all financial services. A bookkeeper or a payroll officer, for example, will usually be specialized in their particular role, while an accountant is required to have knowledge of each individual component of financial accounting, how these can influence each other, and how they contribute to the bigger picture.

While an accountant might be employed to work within a company and prepare accounts and profit and loss documents, for example, the usual role of an accounting professional is to prepare financial information for use outside of the company. This usually means preparing tax returns or overall accounts for submission to the relevant authorities and organisations; financial analysts are more commonly employed in house for financial reporting at the local level.

History of Accounting

Accounting practices of some form can be traced back thousands of years, almost to the earliest recognized human civilisation. A 76,000-year-old plaque found in South Africa shows signs of systematic organization of information, although most believe that the origins of accounting date from 5,000BC, as there have been records retrieved from ancient ruins across what was once Mesopotamia.

Italian Luca Pacioli is widely regarded, however, as the founding father of modern accounting, as he was the first to pioneer double entry accounting, with his 1494 textbook Summa de arithmetica, geometria, proportioni et proportionalità renowned for featuring many of the accounting practices widely used in the industry today.