Accounting

Accounting, also known as accountancy, is the process of recording and organizing information about businesses and other organizations. It helps measure how well a company is doing and shares this information with important people like investors, creditors, managers, and regulators. People who practice accounting are called accountants.

There are several types of accounting. Financial accounting focuses on preparing reports for people outside the company, like investors and suppliers. Management accounting helps leaders inside the company make better decisions. Tax accounting deals with taxes, and cost accounting looks at how much it costs to run different parts of a business.

Accounting has been around for a very long time. The method most people use today was created in medieval Europe, especially in Venice, by an Italian mathematician named Luca Pacioli. Today, special organizations help make sure accounting is done correctly, and reports are often checked by accounting firms to make sure they follow the rules.

History

Main article: History of accounting

Accounting has been around for thousands of years, starting in ancient places like Mesopotamia, Iran, Egypt, and Babylon. Early accounting was linked to writing, counting, and the use of money. By the time of the Roman government, leaders had detailed financial records.

Later, the use of Arabic numerals instead of Roman numbers made accounting easier for traders in Europe. As big companies called joint-stock companies grew, accounting split into two types: financial accounting and management accounting. In 1494, a book called the Summa de arithmetica by Luca Pacioli in Italy explained a method called double-entry bookkeeping. In the 1800s, accounting became a professional job with groups forming to organize it.

Etymology

The words "accounting" and "accountancy" have been used in Great Britain since the mid-1800s. They come from older words like accompting and accountantship from the 18th century. In Middle English, people used the word accounten, which came from the Old French word aconter. This word is related to the Vulgar Latin word computare, meaning "to reckon" or "to calculate".

The word "accountant" comes from the French word compter, which also has roots in Italian and Latin. It was once written as "accomptant" in English but changed over time in how people said and wrote it.

Terminology

Accounting means keeping and preparing the financial records of a business. It also involves checking, analyzing, and reporting these records. It includes the principles and methods used for accounting, as well as the job of an accountant.

Accountancy refers to the occupation or profession of an accountant, especially in British English.

Topics

Accounting has several areas of study, including financial accounting, management accounting, auditing, taxation, and accounting information systems.

Financial accounting focuses on reporting a company's financial information to outside groups, like investors and lenders. It records business transactions and creates financial statements following special rules called generally accepted accounting principles (GAAP).

Management accounting helps managers make decisions by providing them with useful information. It can include both past and future reports, like budgets, and may cover specific products or departments.

Intercompany accounting deals with financial records between related companies, like a parent company and its subsidiaries.

Auditing checks a company's financial statements to make sure they are fair and accurate.

Information systems in accounting use computers to help process data. Many companies use special software to make accounting tasks easier.

Tax accounting focuses on preparing and analyzing taxes, following specific rules that can be different from general accounting rules.

Forensic accounting is used when there are legal disputes or court cases involving money matters.

Political campaign accounting handles the finances of political campaigns, making sure they follow the law.

Organizations

See also: Category:Accounting organizations

Professional bodies

Main article: Professional accounting body

Professional accounting bodies help guide and support people who work in accounting. Some well-known groups include the American Institute of Certified Public Accountants (AICPA) and groups like the International Federation of Accountants (IFAC). These groups offer learning and training for people who want to become accounting experts.

Firms

Companies often need to have their financial records checked by a special person called an auditor. These checks are usually done by accounting firms. Over time, a few big accounting firms became very important in checking financial records for many companies around the world.

Standard-setters

See also: Accounting standards and Convergence of accounting standards

Different countries have their own rules for how accounting should be done. There is also a group called the International Accounting Standards Board (IASB) that creates rules used by many countries. These rules help make sure that financial records are clear and fair for everyone to understand.

Education, training and qualifications

To become an accountant or auditor, most people need a bachelor's degree or a master's degree in accounting or a similar subject. Some jobs also require extra qualifications or training. Having a degree can also help people join professional groups that support accountants.

If someone wants to teach accounting at a university, they usually need a doctorate, like a Doctor of Philosophy (PhD) or a Doctor of Business Administration (DBA). These degrees help prepare people for teaching and advanced research in accounting.

Main articles: Chartered accountant and Certified Public Accountant

See also: Professional certification § Accountancy, auditing and finance

Research

Accounting research studies how money-related events affect the way we keep records, how these records influence decisions, and the role of accounting in businesses and society. Researchers look at many areas, such as financial records, managing money inside companies, checking records, and taxes.

People who study accounting can be teachers or professional accountants. They use many ways to research, like looking at real data, doing experiments, using math to test ideas, studying how people understand and use accounting information, and even using computers to simulate situations.

Scandals

See also: Accounting ethics

In 2001, several big companies like Enron, WorldCom, Qwest, and Sunbeam were caught lying about their money matters. This showed that the rules for keeping and checking financial records needed to be better. Sometimes, leaders made their companies look richer than they were. Other times, rules encouraged risky decisions.

The Enron case led to new laws to make financial reports more trustworthy. It was the biggest company collapse in U.S. history and caused a major accounting firm, Arthur Andersen, to close down. One result was the Sarbanes–Oxley Act in the United States in 2002, which made it a serious crime to lie about financial records or destroy information during investigations.

Fraud and error

Accounting fraud happens when people in charge of the records intentionally tell lies or leave out important information. This is a serious crime and can also break laws that protect people and businesses.

Accounting errors are mistakes that happen by accident, like misunderstanding facts or making a calculation wrong. These are not crimes, but they can still cause problems and might break certain rules. The people who run the business are mainly responsible for stopping and finding these frauds and errors.