What is Accounting?
Accounting varies in definition, from scholars to institutes. According to Investopedia, accounting may be established as all the recording work related to a business’ financial transactions. The accounting process may include analysing, summarising, and reporting of these transactions to tax collection agencies and regulators. The primary purpose of the accounting department is to analyse all relevant statistical data and for the upkeep of financial transactions in records.
Let’s begin with a quick look at the evolution of accounting.
History of Accounting
The earliest found reference to the history of accounting is Luca Pacioli, who described double-entry bookkeeping in the “Summa de Arithmetica” way back in 1494, though the roots may be traced back to even older times.
Oldest Record of Accounting
Over about 7000 years ago, the earliest accounting records were found amongst the ruins of Ancient Mesopotamia. In earlier times, accounting found its most common use in maintaining records of crop and herd growth. Some of these accounting techniques are used even today to determine surplus or shortage in the harvest season.
Accounting in the Roman Empire
Accounting techniques flourished during the Roman Empire. Emperor Augustus’ financial transactions are recorded in “The Deeds of the Divine Augustus.” It contains an elaborate record of distributions to the common people, land grants, temples built, religious offerings, and money spent on other social activities. The revenue systems, state treasury, taxes, count of slaves and freemen were also kept track of.
Luca Pacioli’s Contribution
Summa de Arithmetica, Geometria, Proportioni et Proportionalita (1494) written by Luca Pacioli, includes a 27-page treaty on bookkeeping. The book was used as a reference on accounting and bookkeeping teachings for the next hundred years. For the first time, plus and minus were used in a printed book.
Accounting During the Middle Ages
Barter system was the most popular form of monetary transactions during the medieval periods. Later in the 13th Century, Europe adopted a monetary form of economy. It marked the beginning of double-entry bookkeeping when credit and debit values started finding its use. It also laid the foundation of accounting as we understand it today.
Modern Accounting Methods
In today’s date, there are hundreds of accounting standards, auditing regulations, and other ethical standards in practice by accountants. Accountants are part and parcel of the economy flow today. Every company, corporation, business, government, and individual needs to follow these basic accounting principles in daily life and activities. Accounting has become a vital element of businesses today and is in its most modern form of the last thousand years.
What are the Objectives Of Accounting?
Being one of the foundation pillars of any organisation, accounting plays an important role in the growth of an organisation. But what makes accounting so important? Even though the objectives may vary from business to business, what are the most basic objectives that define accounting today?
1. Record Keeping
The fundamental role of the accounting department in any business or organisation is to maintain a systematic and updated record of all the financial transactions. System record helps in easy calculation of the company’s balance sheets.
2. Analysing financial results
Businesses need to analyse and determine their financial health after periods of time, mostly quarterly. The accounts department does its part in preparing the profit and loss details of the company based upon regular income statements. The process is continuously ongoing and a prime objective of accounting.
3. Analysis of financial affairs
Another certain objective of accounting is to update the financial affairs within an organisation, including property, debts, liabilities, and assets. The preparation of balance sheets achieves this.
4. Decision making
Another broader sense objective of accounting is to aid business managers and owners in making decisions in accordance with the financial goals of the company. For example, deciding upon the pricing of a new smartphone to be launched to maximize profits.
5. Liquidity status
A good picture of the company’s liquidity status is another important aspect of accounting to achieve. A misplanned accounting structure may often cause situations of financial mismanagement and bring up a severe crisis such as shutdown. On the other hand, a proper accounting system aids in manners to ascertain the cash investments they can utilise in making financial commitments. The liquidity is a good index to measure the working capital and capital that could be utilised to pay off liabilities.
6. Maintaining a good position of the organisation
A broader objective of accounting is the upkeep and maintenance of a good position of an organisation. Accounting aids in preparing financial statements that help in ascertaining and improving the financial status of the company. Accounting manages all the balance sheets, funds utilised business activities, and more to provide an excellent structure to the organisation.
With all the responsibility comes accountability. Amongst all other objectives, accounting needs to fulfill and promote the accountability of the organisation to the best ability. The accounting dept essentially provides the base for assessing the performance of an organisation at multiple levels of hierarchy. An accountable financial status is essential to secure loans and investments from shareholders and investors.
Accounting in an organisation also doubles up support as a legal requirement within. Going by the law, every business or organisation needs to keep its financial records updated from time to time and share info of the same to promoters, backing agencies, and shareholders. Accounting aids in meeting all the legal requirements pertaining to the finance of an organisation.
9. Checking frauds
One of the prime reasons for losses or business failures is financial mismanagement. Accounting is crucial in preventing the chances of illegal and fraudulent transactions within an organisation. Authenticity is the key to employee engagement and business growth. Accounting brings with it the essential transparency in all the commercial setups.
Thus establishes, accounting is an essential part and parcel of any organisation and crucial for maintaining the credibility, accountability, and transparency of the firm. It helps in ascertaining the financial health of the business, thus aiding owners and managers to make business decisions in alignment with the financial targets of the organisation.
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