Accountancy is
one of subject in Vocational High School. Accountancy is the process of
communicating financial information about a business
entity to users such as shareholders
and managers. The communication
is generally in the form of financial statements that show in money
terms the economic resources under the control of
management; the art lies in selecting the information that is relevant to the
user and is reliable. The principles
of accountancy are applied to business entities in three divisions of practical
art, named accounting, bookkeeping, and auditing.
Accountancy is defined by the Oxford English Dictionary (OED) as
"the profession or duties of an accountant".Accounting is
defined by the American
Institute of Certified Public Accountants (AICPA) as "the art
of recording, classifying, and summarizing in a significant manner and in terms
of money, transactions and events which are, in part at least, of financial
character, and interpreting the results thereof."
Accounting is thousands
of years old; the earliest accounting records, which date back more than 7,000
years, were found in Mesopotamia (Assyrians).
The people of that time relied on primitive accounting methods to record the
growth of crops and herds. Accounting evolved, improving over the years and
advancing as business advanced. Early accounts served mainly to assist the
memory of the businessperson and the audience for the account
was the proprietor or record keeper alone. Cruder forms
of accounting were inadequate for the problems created by a business entity
involving multiple investors, so double-entry bookkeeping first emerged in
northern Italy in the 14th century, where trading ventures began to require
more capital than a single individual was able to
invest. The development of joint stock companies created wider
audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the
requisite information. This development resulted in a split of accounting
systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and
subsequently also in accounting and disclosure regulations and a growing need
for independent attestation of external
accounts by auditors.
Today, accounting is
called "the language of business" because it is the vehicle for
reporting financial information about a business entity to many different
groups of people. Accounting that concentrates on reporting to people inside
the business entity is called management accounting and is used to provide
information to employees, managers, owner-managers
and auditors.
Management accounting is concerned primarily with providing a basis for making
management or operating decisions. Accounting that provides information to
people outside the business entity is called financial accounting and provides
information to present and potential shareholders, creditors
such as banks
or vendors, financial analysts, economists,
and government agencies. Because these users have
different needs, the presentation of financial accounts is very structured and
subject to many more rules than management accounting. The body of rules that
governs financial accounting in a given jurisdiction is called Generally Accepted Accounting
Principles, or GAAP. Other rules include International Financial Reporting
Standards, or IFRS, or US GAAP.
The basic accounting
equation is assets = liabilities + stockholders' equity. This is the balance
sheet. The foundation for the balance sheet begins with the income statement,
which is revenues - expenses = net income or net loss. This is followed by the
retained earnings statement, which is beginning retained earnings + net income
- dividends = ending retained earnings or beginning retained earnings - net
loss - dividends = ending retained earnings. The current ratio is current
assets divided by current liabilities. The debt to total assets ratio is total
assets divided by total liabilities.
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