accounting eacher
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INTRODUCTION
Accounting has a very long and interesting history. There is evidence that there were accounting systems in place in Mesopotamia over 7,000 years ago. The accounting system we use today was described by Fra Luca Bartolomeo de Pacioli (1400 - 1517) in his book Summ de arithmetica, geometria, proportioni et proprtionalità (Venice 1494). To this day, we essentially follow the accounting cycle that was practiced by the merchants of Venice as it was described by Pacoioli. In his book, Pacoili described what we call a double entry accounting system, where for every transaction at least two accounts must be affected.So the first obvious question we need to answer is, what is the purpose of accounting?
The simple answer is that the purpose of accounting is to provide information for decision making about an Economic Entity.
There are many different types of economic entities in our society. Individuals, businesses, government, charities are all examples of economic entities. An economic entity is a person or organization that can enter into a transaction. A transaction is an exchange of something of value between two different economic entities. For example, when you go to the store to buy milk, there is an exchange of value. You give the store money (something of value) and they give you milk (something of value).
So who are the decision makers? Decision makers can be owners, investors, creditors, basically anyone who has an interest in a business. There are many types of reports that accountants can create for decision making. The scope of this web site will be limited to the Balance Sheet, the Income Statement and the Statement of Owner’s Equity.
A company that is owned by a sole proprietor, may have only one user of the accounting information produced, namely the owner of the business. Since the company is privately held, access to financial information will most likely be tightly controlled by the owner. Publicly traded companies provide financial information on a regular basis to many different users. Those users include shareholders, creditors, potential investors, employees, tax authorities; basically anyone who has an interest in the company.