Accounting

Accounting, also known as accountancy, is the way we keep and organize information about businesses and groups. It helps show how well a company is doing and tells important people like investors, creditors, managers, and regulators.

There are several kinds of accounting. Financial accounting makes reports for people outside the company, like investors and suppliers. Management accounting helps leaders inside the company make good choices. Tax accounting is about taxes, and cost accounting checks how much it costs to run parts of a business.

Accounting has been used for a very long time. The way we use it today was made in medieval Europe, especially in Venice, by an Italian mathematician named Luca Pacioli. Today, special groups help make sure accounting is done right, and reports are checked by accounting firms to follow the rules.

History

Main article: History of accounting

Accounting has been around for thousands of years. It started 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 kept detailed financial records.

Later, using 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 from the 18th century. In Middle English, people used the word accounten, from the Old French word aconter. This word is related to the Vulgar Latin word computare, meaning "to calculate".

The word "accountant" comes from the French word compter. It was once written as "accomptant" in English but changed over time.

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 reports a company's money information to outside groups, like investors and lenders. It keeps track of business deals and makes financial reports using special rules called generally accepted accounting principles (GAAP).

Management accounting helps managers make choices by giving them useful information. It can include reports about the past and future, like budgets, and may cover specific products or departments.

Intercompany accounting handles money records between related companies, like a parent company and its subsidiaries.

Auditing checks a company's financial reports to make sure they are fair and correct.

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

Tax accounting focuses on preparing and looking at taxes, using rules that can be different from general accounting rules.

Forensic accounting is used when there are legal problems or court cases about money.

Political campaign accounting manages the money for 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 may also need extra training. Having a degree can help people join groups that support accountants.

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

Main articles: Chartered accountant and Certified Public Accountant

See also: Professional certification § Accountancy, auditing and finance

Research

Accounting research looks at how money affects how we keep records. It also looks at how these records help us make decisions. People study how accounting works in businesses and for everyone.

Researchers can be teachers or accountants. They use many ways to study. They look at real data, do tests, use math, and study how people use accounting. They also use computers to try out different situations.

Scandals

See also: Accounting ethics

In 2001, some big companies like Enron, WorldCom, Qwest, and Sunbeam were found to be lying about their finances. This showed that the rules for keeping and checking financial records needed to be improved. Sometimes, leaders made their companies seem richer than they really were.

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

Fraud and error

Accounting fraud happens when people who keep the records tell lies or leave out important information. This is a serious crime and can break laws.

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. The people who run the business need to find and stop these frauds and errors.