Introduction of Accounting

History of Accounting:
Accounting is an ancient process. Before the introduction of currency, people used to keep accounts by tying ropes, writing on walls or writing on trees. But from the beginning of civilization, people began to keep accounts differently. However, the way people kept accounts at the beginning of civilization was not scientific. So this method was not accepted by the public.

In 1494, a mathematician named Luca Pacioli discovered a method that later became known as the two-way filing system. He wrote a book called Summa de Arithmetica Geometria Propositional Proportionality. The golden formula of accounting (Asset= Liability+ Owner's equity) is printed first in this book. The extended formula is as follows.

Assets = Liabilities + Capital - Expenses - Drawings + Income.

Accounting is also called the language of business. Because a business organization expresses its financial condition, financial performance through various financial reports. These reports are prepared by the Accountant within the Department of Accounting department of an organization. Accounting is also known as data management.

Professional accounting bodies:
Nowadays accounting science follows certain rules. These rules are usually governed by various international organizations. They are:
AICPA = American Institute of Certified Public Accountants
IFRS = International Financial Reporting Standards
IAS = International Accounting Standards
ICAEW = Institute of Chartered Accountants in England & Wales
FASB = Financial Accounting standard board
ACCA= Association of Chartered Certified Accountants
CIMA = Chartered Institute of Management Accounting

The objective of Accounting:

To keep accurate and comprehensive records of the transactions: Accounting is the language of corporate operations. Considering the limits of human memory, the key goal of accounting is to preserve ‘ a complete and comprehensive record of all corporate transactions.

To determine company profit or loss: Company runs to generate money. By preparing Profit & Loss Report or Financial Statement, accounting ascertains whether the company received a benefit or suffered a loss. A revenue and expense relation allows you a profit or a loss.

To understand the financial position of business: A businessman is also eager to assess his financial status at the end of a defined era. A status statement called the Balance Sheet is provided for this reason in which assets and liabilities are displayed.

Users of accounting:

Generally, two types of users use accounting information. They are internal and external users.

Internal users:

Internal users are individuals who utilize financial details inside a corporate enterprise. Owners, administrators and staff are instances of internal users.

External users:

External users are those who use financial records outside of the corporate organization (organisation). External users sources are vendors, insurers, employers, customers, prospective investors and tax authorities.

Types of accounting:
Accounting can be divided into two parts in terms of the type of work, purpose and usage. These are financial accounting and managerial accounting.
Financial accounting: Financial accounting is a process that generates information about various accounts for external users. They prepare different financial reports such as income statement, balance sheet, equity changes statement and cash flow statement.
Managerial accounting: Managerial accounting prepares information for internal users. This information helps to prepare a different budget as a planning tool and take an effective decision. Its perimeter is wide. This helps in reducing the cost of the organization.
In addition, accounting science can be further divided into several parts. These are governmental accounting, tax accounting, project accounting.
Governmental accounting: It is also known as federal or public accounting, referring to the method of accounting information system employed in the public sector. This is a minor divergence from the Private Sector financial accounting framework.
Tax accounting: It applies to the accounting of subjects pertaining to tax. It is regulated by fiscal regulations specified by a jurisdiction's tax laws. These laws are also distinct from those regulating the production of public-use financial statements (i.e. GAAP).
Project Accounting: It refers to the use of an accounting method to monitor a project's financial progress through regular financial reports. The accounting of projects is a critical aspect of project management. It is a specialist management accounting division with a specific emphasis on ensuring the financial performance of corporate ventures such as the introduction of a consumer product.

Difference between financial accounting and managerial accounting:

Resources	Financial Accounting	Managerial Accounting
Aggregation	Financial accounting reports the performance of the business.	Managerial accounting prepares cost report, budgeting report and so on.
Efficiency	Financial accounting presents the profitability of the organization.	Managerial accounting presents the cause of the problem and fixes the solution
Reporting focus	Financial accounting promised to create a financial report of the organization.	Managerial accounting prepares cost report, budgeting report and so on.
Standards	Financial accounting needs to follows various accounting standard.	Managerial accounting doesn’t need to follow any standards covered by the standard committee.
Users	Both internal and external users use this information.	Only internal users use this information.
Requirements	It must follow GAAP and prescribed formats.	It need not to follow any specific guideline.

Principle of Accounting:
Revenue Recognition Principle: This principle indicates the revenue will be recognized when it will be earned not received. It is a part of accrual account which means revenue will be recognised service rendered rather a period of cash collection. 
The historical cost of principle: It indicates that an accountant records all past related data. The accountant deals with historical cost-related data. Income statements show the amount charged to purchase it at the time of the acquisition, and the sum provides the basis for the accounts over the transaction process and future accounting periods.
Matching principle: According to Matching Principle, the expenditures generated during an accounting cycle should be compared to the sales recorded in that time, e.g. if income is recognized from the products produced during a year, the costs of such goods sold can therefore be paid during that era.
Economic entity principle: Every transaction of the organization needs to be measured by an economic value so that an accountant can recognise the change of financial condition due to occurring a transection.
Full disclosure principle: In simple meaning, the accountant needs to disclose all the information regarding each process such as the process of depreciation, inventory management system.    

Understanding of Transaction