Introduction to Accounting Ms. Stewart

What is Accounting? Accounting can be defined simply as the recording, summarising and interpretation of financial information. The origins of accounting can be traced back to ancient times, with the need for accurate records of trading transactions. A logical system of recording financial information, known as double-entry bookkeeping, was in use in medieval Italy, and the first published accounting work was written in 1494 by a Venetian monk, Luca Pacioli.

Key Aspects of Accounting The key aspects of accounting are identifying, recording and communicating: 1) First, economic events are identified. A sale at a clothing store, payment of employee benefits by a business, or purchase of equipment are all examples of economic events. 2) All economic events are recorded. Recording provides a history of a company's financial activities. In this step, economic events are also classified and summarized. 3) Finally, information about classified and summarized economic events is communicated to interested parties. Such communication may take several forms, one such form is a financial statement which you will learn about later in this course.

Types of Accounting Financial Accounting provides information to satisfy the needs of external users. Managerial Accounting provides information that is useful in running a company by internal users.

Who uses Accounting Information? External users are parties outside the reporting entity or company who are interested in the accounting information. Examples? Investors, lenders/suppliers, government, public/customers Internal users are parties inside the reporting entity or company who are interested in accounting information. Examples? Management, employees

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Why do businesses need to do accounting? Businesses must establish accounting systems in order to keep accurate records of their financial standing and to monitor profits and losses. Both businesses organized for profit and non-profit organizations must keep accounting records.

How do we keep accounting consistent? People and organizations make decisions based on financial information prepared by accountants. That is why it is important for people and organizations to understand the ways in which accounting information is measured. To ensure consistency, rules are established that business people can use to make sure they are comparing oranges to oranges.

Generally Accepted Accounting Principles (GAAPS) Generally Accepted Accounting Principles (GAAP) are common standards that guide accountants in reporting economic events. GAAP places all companies on a level playing field by ensuring that any financial information presented is uniformly consistent, relevant, feasible and objective.