Preparation Of Account Books Using Accounting Packages Innovation
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Wikipedia
In bookkeeping, an account refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of common financial accounts are sales, accounts receivable, mortgages, loans, PP&E, common stock, sales, services, wages and payroll.
A chart of accounts provides a listing of all financial accounts used by particular business, organization, or government agency.
The system of recording, verifying, and reporting such information is called accounting. Practitioners of accounting are called accountants.
Example: A sales account is opened for recording the sales of goods or services and at the end of the financial period the total sales are transferred to the revenue statement account (Profit and Loss Account or Income and Expenditure Account).
Similarly expenses during the financial period are recorded using the respective Expense accounts, which are also transferred to the revenue statement account. The net positive or negative balance (profit or loss) of the revenue statement account is transferred to reserves or capital account as the case may be.
The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset, liability, juristic entity or financial transaction.
The further classification of accounts is based on the periodicity of their inflows or outflows in the context of the fiscal year:
- Income is a short term inflow during the fiscal year.
- Expense is short term outflow during the fiscal year.
- An asset is a long term inflow with implications extending beyond the financial period and by the traditional view could represent unclaimed income. Alternatively, an asset could be valued at the present value of its future inflows.
- Liability is a long term outflow with implications extending beyond the financial period and by the traditional view could represent unamortised expense. Alternatively, a liability could be valued at the present value of future outflows.
| Type of accounts | Long term inflows | Long term outflows | Short term inflows | Short term outflows |
|---|---|---|---|---|
| Real | Assets | |||
| Personal | Assets | Liability | ||
| Nominal | Incomes | Expenses |
Items in accounts are classified into five broad groups, also known as the elements of the accounts:
- Asset, Liability, Equity, Revenue, Expense
The classification of equity as a distinctive element for classification of accounts is disputable on account of the “entity concept”, since for the objective analysis of the financial results of any entity the external liabilities of the entity should not be distinguished from any contribution by the shareholders.
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the “language of business”, measures the results of an organization’s economic activities and conveys this information to a variety of stakeholders, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms “accounting” and “financial reporting” are often used as synonyms.
Accounting can be divided into several fields including financial accounting, management accounting, tax accounting and cost accounting. Financial accounting focuses on the reporting of an organization’s financial information, including the preparation of financial statements, to the external users of the information, such as investors, regulators and suppliers; and management accounting focuses on the measurement, analysis and reporting of information for internal use by management. The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. Accounting information systems are designed to support accounting functions and related activities.
Accounting has existed in various forms and levels of sophistication throughout human history. The double-entry accounting system in use today was developed in medieval Europe, particularly in Venice, and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli. Today, accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are usually audited by accounting firms, and are prepared in accordance with generally accepted accounting principles (GAAP). GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom. As of 2012, “all major economies” have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).
Accounting 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, counting and money; there is also evidence of early forms of bookkeeping in ancient Iran, and early auditing systems by the ancient Egyptians and Babylonians. By the time of Emperor Augustus, the Roman government had access to detailed financial information.
Double-entry bookkeeping was pioneered in the Jewish community of the early-medieval Middle East and was further refined in medieval Europe. With the development of joint-stock companies, accounting split into financial accounting and management accounting.
The first published work on a double-entry bookkeeping system was the Summa de arithmetica, published in Italy in 1494 by Luca Pacioli (the “Father of 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.
Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English (used roughly between the 12th and the late 15th century) the verb “to account” had the form accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning “to reckon”. The base of computare is putare, which “variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think”.
The word “accountant” is derived from the French word compter, which is also derived from the Italian and Latin word computare. The word was formerly written in English as “accomptant”, but in process of time the word, which was always pronounced by dropping the “p”, became gradually changed both in pronunciation and in orthography to its present form.
Accounting has variously been defined as the keeping or preparation of the financial records of transactions of the firm, the analysis, verification and reporting of such records and “the principles and procedures of accounting”; it also refers to the job of being an accountant.