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Accounting
Accounting
Accounting
Accounting
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Accounting

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  • 1. accountingDefinitionThe systematic recording, reporting, and analysis of financial transactions of a business. The person incharge of accounting is known as an accountant, and this individual is typically required to follow a set ofrules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows acompany to analyze the financial performance of the business, and look at statistics such as net profit.Read more: http://www.investorwords.com/48/accounting.html#ixzz20ryYU6Lv…………………………..Accounting HistoryThe name that looms largest in early accounting history is Luca Pacioli, who in 1494 firstdescribed the system of double-entry bookkeeping used by Venetian merchants inhis Summa de Arithmetica, Geometria, ProportionietProportionalita. Of course, businessesand governments had been recording business information long before the Venetians. But itwas Pacioli who was the first to describe the systemof debits and credits in journals and ledgers that is still the basis of todays accountingsystems.The industrial revolution spurred the need for more advanced cost accounting systems, andthe development of corporations created much larger classes of external capital providers - shareowners and bondholders - who were not part of the firms management but had avital interest in its results. The rising public status of accountants helped to transformaccounting into a profession, first in the United Kingdom and then in the United States. In1887, thirty-one accountants joined together to create the American Association of PublicAccountants. The first standardized test for accountants was given a decade later, andthe first CPAs were licensed in 1896.The Great Depression led to the creation of the Securities and Exchange Commission (SEC)in 1934. Henceforth all publicly-traded companies had to file periodic reports with theCommission to be certified by members of the accounting profession. The AmericanInstitute of Certified Public Accountants (AICPA) and its predecessors had responsibility forsetting accounting standards until 1973, when the Financial Accounting StandardsBoard (FASB) was established. The industry thrived in the late 20th century, as the largeaccounting firms expanded their services beyond the traditional auditing function to manyforms of consulting.The Enron scandals in 2001, however, had broad repercussions for the accounting industry.
  • 2. One of the top firms, Arthur Andersen, went out of business and, under the Sarbanes-OxleyAct, accountants faced tougher restrictions on their consulting engagements. One of theparadoxes of the profession, however, is that accounting scandals generate more work foraccountants, and demand for their services continued to boom throughout the early part ofthe 21st century. (For details on this and other scandals see, The Biggest Stock Scams OfAll Time.)Readmore: http://www.investopedia.com/university/accounting/accounting1.asp#ixzz20rzROnxv……………………….Uses of accounting1. Accounting provides a vital service by supplying the information decision makers need to makereasoned choices among the alternative uses of scarce resources in the conduct of business andeconomic activities.2. Evaluation of financial performance by managers, inventors, creditors, government agencies, analystsand other users.3. Analysis of cash flows.4. Planning and control of internal operations by decision makers.Users of accounting -Existing investorsPotential investorsManagers within the co. and others charged with governanceGovernment agencies (regulatory and tax, for e.g.)DebtorsCreditorsBanksStaff of the co.........................What are limitations of accounting?4 years agoReport AbuseBest Answer - Chosen by Voters I. Accounting is only one source of information and primarily provides information based on financial terms: Although this information is vital, decisions cannot be
  • 3. based solely on a monetary basis. Various decisions depend upon a diverse range ofissues being considered. A unique combination of Quantitative as well as Qualitativefactors should be considered to ensure an effective decision making process.II. The historical perspective of financial accounting: In order to obtain a recentestimate of an entity’s financial performance, the corporate managers carefullyscrutinize financial accounting information. In retrospect, this information is based onpast performance. The information does provide clarity on the monetary issues butdoes not provide a definite insight into the strategic future; as the future holds variouschanges in terms of technology, economic situations as well as political scenariosetc. Such factors in relation to accounting are unpredictable. Therefore, a carefulbalance between historical accounting as well as the future forecasted outlook isrequired.III. Historical cost accounting vs. underlying value in use: Some items loose theirmonetary value over a period of time, but under the financial accounting rules needto be included in financial reports. Though mentioned year after year in the books asmonetary figures, the information may be unreliable due to the historical assumptionsmade on the item’s measurability criterion. For example, a machine in a textile factoryis considered to have a useful life which extends over a period of ten years inmonetary terms; however, after the period of ten years, the machine may still havethe same value as prior years and contribute significantly to the overall operability ofthe factory.IV. Inability to reflect the true value of strategic management: Various factors such asgoodwill and natural circumstances influence the operations of an enterprise;however, these elements are difficult to measure thus, leading to their unavoidableexclusion from financial reports. For example companies depend upon theirshareholders, who in turn depend on the performance of the Chief Executive Officers.Although the CEOs may have been hired by the company based upon priorperformance, their future performances are not reliably measurable as they maycontinually vary. In the initial stages, it may be impossible to measure whether theCEO’s presence will deter or appeal to the shareholders, which in turn will influencethe profitability of the enterprise.V. Measuring Volatility of external factors: Financial accounting information does nottake into consideration volatile and ever increasing changes in the natural andcommercial environment. Although scarcely measurable in monetary terms, theirunstable nature may have adverse effects if included within the financial reports andhave a volatile and cosmetic impact upon the earnings of the firm. For example,tariffs on trade, duties and other environmental issues can have significant short-termvolatile effects on the organisation.VI. The effect of non-stable monetary unit: Based from region to region, accountinginformation is generated at all enterprises based on the assumption that themonetary unit is stable over a period of time. In the real world scenario, the unitfluctuates on a daily basis. Enterprises usually decide on a flat rate to calculate theirfinancing and investing needs. However, this can have adverse impacts which cannotbe communicated to shareholders, if the unit has high fluctuations. For example:Indonesia 1995 US$ 1 = RP 6000, 1997 US$ 1 = RP 12000, 1999 US$ 1 = RP 9000.(Figures are approximates, just to provide an insight into the argument about theeffects of the fluctuations)
  • 4. Importance of accounting----The significance of accounting has never been more apparent than in todays market, with thestruggling economy and the job market in decline. Though the loss of jobs may be happening inmany fields the one that continues to stay strong is accounting. The reasons for this are the samereasons that accounting is such an important aspect in the economy and in society.RELATED ARTICLES Before we can begin to understand the importance of accounting, we first must understandwhat accounting is. Accounting can be defined as the theory and system of setting up, maintaining,and auditing the books of a firm. It is the art of analyzing the financial position of a business throughits sales, purchases, and overhead. These records must be kept in chronological order and must besummarized in a useful format. It is also responsible for identifying information on the transactions,analyzing it and then interpreting each and every document. Now that we have begun to understand what accounting means we can begin to examinehow important accounting really is. The first way in which it is important is that an accountingeducation can be applied to any job industry. For instance a secretary uses accounting in managinga companys check book. Also the executives of this same company must be able to analyze thesuccess of their business through analyzing the accounting statements from the past and present.These are just two of the many job positions found in any company that must have some knowledgeof accounting. Another reason that accounting is important to all business majors is because of thefact that the business world has now come under much scrutiny. As a result they are held muchmore accountable for their financial practices. This has occurred because of the events of the Enronand WorldCom scandals. For this reason nearly all businesses require their employees to have ageneral knowledge of accounting. Another way in which accounting is such an important aspect to any business is thataccountants are responsible for providing information that is used to determine the present andfuture economic stability of the organization. It has been proven that these companies that use goodaccounting practices have a competitive advantage over their opponents. Also they have the abilityto improve their decision making abilities. Those that do not use these practices face an inability tocompete in the market and make their decisions simply on a hunch.

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