Accounting-It is a systematic process of
identifying, recording, measuring, classifying,
verifying, summarizing, interpreting and
communicating financial information. It reveals
profit or loss for a given period, and the value
and nature of a firm’s assets, liabilities and
owners’ equity.
The Accounting process
1. Identifying and Analysing
Business transaction – The
transactions identified are then
analysed to determine the accounts
affected and the amounts to be
recorded.
2. Recording in the Journal- A
journal is a book –paper or
electronic- in which transactions are
recorded. They are recorded in
journal entries containing at least two
accounts (one debited and one
credited).
3. Posting to the Ledger- Also known
as Books of final Entry, the ledger is
a collection of accounts that shows
the changes made to each account as
a result of past transactions, and their
current balances.
4. Unadjusted Trial Balance- A trial
balance is prepaid to test the equality
of the debits and credits. When errors
are discovered, correcting entries are
made to rectify them or reverse their
effect. Take note however that the
purpose of a trial balance is only to
test the equality of total debits and
total credits and not to determine the
correctness of accounting records.
5. Adjusting Entries-Adjusting entries
are prepared to update the accounts
before they are summarized in the
financial statements.
6. Adjusted Trial Balance- An
adjusted trial balance may be
prepared after adjusting entries are
made and before the financial
statements are prepared. This is to
test the debits are equal to credits
after adjusting entries are made.
7. Financial Statements- When the
accounts are already up-to-date and
equality between the debits and
credits have been tested, the financial
statements can now be prepared.
8. Closing Entries- The accounts are
closed to a summary account
(usually, Income Summary) and then
closed further to the appropriate
capital account. Take note that
closing entries are made only for
temporary accounts. Real or
permanent accounts, balance sheet
accounts, are not closed.
9. Post-Closing Trial Balance- In the
accounting cycle, the last step is to
prepare a post-closing trial balance.
It is prepared to test the equality of
debits and credits after closing
entries are made.
Nature of Accounting- According
in its essence is a function that aims
to accumulate the communicate
information essential to the
understanding of the activities of an
entity. It is an abstraction of the real
world economics events.
Functions of Accounting are as
follows:
Measuring- Accounting measures
past performances of the business
entity and depicts its current
financial position.
Forecasting- Accounting helps in
forecasting future performances and
financial position of the enterprise
using past data.
Decision Making- Accounting
provides relevant information to the
users of accounts to Aid rational
decision-making.
Comparison and Evaluation-
Accounting assesses performance
achieved in relation to targets and
discloses information regarding
accounting polices and contingent
liabilities which plays an important
role in predicting , comparing and
evaluating the financial results.
Control- Accounting also identifies
weaknesses of the operational system
and provides feedbacks regarding
effectiveness of measures adopted to
check such weaknesses.
Government Regulation and
Taxation- Accounting provides
necessary information to the
government to exercise control on
the entity as well as collection of tax
revenues.
History of Accounting
The history of accounting or accountancy
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 and early auditing systems by the
ancient Egyptians and Babylonians. By the
time of the Roman Empire,
the government had access to detailed
financial information.
In India Chanakya wrote a manuscript
similar to a financial management book,
during the period of the Mauryan Empire.
His book "Arthashasthra" contains few
detailed aspects of maintaining books of
accounts for a Sovereign State.
The Italian Luca Pacioli, recognized as The
Father of accounting and bookkeeping was
the first person to publish a work on double-
entry bookkeeping, and introduced the field
in Italy.
The modern profession of the chartered
accountant originated in Scotland in the
nineteenth century. Accountants often
belonged to the same associations as
solicitors, who often offered accounting
services to their clients. Early modern
accounting had similarities to
today's forensic 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.