Accounting
Accounting
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Accounting Definition
Accounting may be defined as the process of identifying, measuring, recording (see Bookkeeping), and communicating economic information about an organization or other entity, in order to permit informed judgments by users of the information.
Introduction
Accounting has a well-defined body of knowledge and rather definitive procedures. Nevertheless, standard setters continue to refine existing techniques and develop new approaches. Such activity is needed in part because of innovative business practices, newly enacted laws, and socioeconomic changes. Better insights, new concepts, and enhanced perceptions have also influenced the development of accounting theory and practices.
Accounting Cycle
Modern accounting entails a seven-step accounting cycle. The first three steps fall under the bookkeeping function—that is, the systematic compiling and recording of financial transactions. (Read about the bookkeeping cycle here).
Step Four
Once bookkeeping procedures have been completed, the accountant prepares certain adjustments to recognize events that, although they did not occur in conventional form, are in substance already completed transactions. The following are the most common circumstances that require adjustments: accrued revenue (for example, interest earned but not yet received); accrued expense (wage cost incurred but not yet paid); unearned revenue (earning subscription revenue that had been collected in advance); prepaid expense (expiration of a prepaid insurance premium); depreciation (recognizing the cost of a machine as expense spread over its useful economic life); inventory (recording the cost of goods sold on the basis of a period's purchases and the change between beginning and ending inventory balances); and receivables (recognizing bad-debt expenses on the basis of expected uncollected amounts).
Steps Five and Six
Once the adjustments are calculated, the accountant prepares an adjusted trial balance—one that combines the original trial balance with the effects of the adjustments (step five). With the balances in all the accounts thus updated, financial statements are then prepared (step six). The balances in the accounts are the data that make up the organization's financial statements.
Step Seven
The final step is to close noncumulative accounts. This procedure involves a series of bookkeeping debits and credits to transfer sums from income-statement accounts into owners' equity accounts. Such transfers reduce to zero the balances of noncumulative accounts so that these accounts can receive new debit and credit amounts that relate to the activity of the next business period.
Accounting Information
Accounting information can be classified into two categories: financial accounting or public information and managerial accounting or private information: Read about Financial Accounting here. Read about Financial Accounting here.
Specialized Accounting
Of the various specialized areas of accounting that exist, the three most important are auditing, income taxation, and nonbusiness organizations. Auditing is the examination, by an independent accountant, of the financial data, accounting records, business documents, and other pertinent documents of an organization in order to attest to the accuracy of its financial statements. Read about Auditing here The second specialized area of accounting is income taxation. Read about income taxation here A third area of specialization is accounting for nonbusiness organizations, such as universities, hospitals, churches, trade and professional associations, and government agencies. Read about accounting for nonbusiness organizations here
Financial Reporting
Traditionally, the function of financial reporting was to provide proprietors with information about the companies that they owned and operated. Read about financial reporting here
Accounting Principles
Accounting as it exists today may be viewed as a system of assumptions, doctrines, tenets, and conventions, all encompassed by the phrase "generally accepted accounting principles."Read about accounting principles here
The Balance Sheet
Of the two traditional types of financial statements, the balance sheet relates to an entity's position, and the income statement relates to its activity. The balance sheet provides information about an organization's assets, liabilities, and owners' equity as of a particular date (such as the last day of the accounting or fiscal period). Read about income balance sheet here
The Income Statement
The traditional activity-oriented financial statement issued by business enterprises is the income statement.
Other Financial Statements
Regulations and Standards in the United States
Until 1973, accounting principles in the United States had traditionally been established by certified public accountants. Read about Accounting Regulations and Standards in the United States Source: "Accounting and Bookkeeping"Microsoft® Encarta® Online Encyclopedia
History of Accounting
According to the Cambridge Dictionary of Classical Civilization: "It has been argued that the absence of double-entry book-keeping was a crucial factor limiting the evolution of rational ECONOMIC management in the ancient world. The non-survival of the vast majority of financial accounts limits our ability to challenge this assertion, but there is ample evidence as early as the classical period of a concern for accurate financial recording
. In Athens, for example, public accounts were displayed in the city. The income and expenditure for a series of 5th-century BC buildings (e.g. the PARTHENON and the Propylaia) and sculptural projects (e.g. the statues of Athena Parthenos and Athena Promachos) were cut onto marble slabs and displayed in public areas such as the ACROPOLIS. These accounts are usually at the macro-scale, suggesting that they summarize payments made elsewhere. For example, quarrying of marble is entered as a block entry. However, in the Erechtheion accounts from the end of the 5th century there are entries for named sculptors working on specific figures in the frieze. Records of the pôlêtai, the officials responsible for public finances, have been recovered during excavations in the Agora. Records of commercial transactions can be found scratched onto the bases of exported Athenian pottery. These can list the size of consignments and their value in drachmai and obols (and occasionally in other currencies such as Persic obols on Cyprus). Work on estate records from Ptolemaic and Roman Egypt has revealed some sophistication in accounting practices. For example, the HERONINOS archive of the Appianus estate in the Fayûm (3rd century AD) consists of monthly accounts compiled by a series of managers. They record cash receipts and offset them with total disbursements, including cash salaries and food payments for estate employees and casual payments for specified tasks, along with other cash expenses and lists of tools and foodstuffs held in the granaries of the estate. These detailed records could have had a primary function of limiting the scope of managers for defrauding absentee landowners
. However, the records also indicate a more advanced economic understanding, for instance in the ability of managers to deal with internal transfers of produce and labour between separate units of the estate, and in the arrangement of transactions by type, not by date. The conclusion is that Greek and Roman accounting, though primitive by modern standards, could nonetheless have allowed the profitability of larger economic enterprises to be assessed."
Literature Review on Ethics and Accounting
In the Encyclopedia of Public Administration and Public Policy, [1] Lorenzo Patelli offers the following summary about the topic of Ethics and Accounting: As a discipline concerned with the provision of information to support users' judgments and decisions, accounting is inherently connected to ethics. This entry examines this connection by providing a descriptive analysis of the most prevalent ethics topics in accounting research. Specifically, the topics are described relative to four fundamental areas of accounting, namely, financial, managerial, tax, and government accounting. Furthermore, the entry presents the major resources that can be used by students, professionals, and policy makers to investigate the ethical issues in accounting. Finally, the entry identifies the forces that influence future directions of accounting research and practice regarding ethics.
Related Fields
Related topics include:
Bookkeeping
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Accounting
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Accounting Ethics
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Public Accountant
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Accounting Principles
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Related Fields
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Income Distribution
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Bankruptcy
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Inequality
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Accounting
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Accounting Ethics
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Public Accountant
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Accounting Principles
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Accounting
Introduction
Accounting
This entry provides an overview of the legal framework of accounting, with a description of the most significant features of accounting at international level.
Related Work and Conclusions
Accounting
Accounting
Accounting
Accounting
Resources
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Change in accounting method
Generally Accepted Accounting Principles
Generally Accepted Auditing Standards
Installment method
Interim statements
Percentage of completion method
Purchase method of accounting
T-Account
Trial (Trial balance)
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Cost (Cost accounting)
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Cash basis accounting
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Accrual basis
Accrue (Taxation)
Resources
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References (Papers)
Buying Teams, Andres Sawicki, Jan 2015
Copyright, Consumerism, And The Cloud: Proposing Standards-Essential Technology To Support First Sale In Digital Copyright, Marco Puccia, Jan 2015
Una Nueva Generación: ¿Por Qué Las Medianas Empresas Deben Reducir Su Dependencia Bancaria Y Apostar Por El Mav?, John Pineda Galarza, Nov 2014
Contingent Consideration, Contingent Liabilities And Indemnities In Acquisitions (Outline), Robert H. Wellen, Nov 2014
Striking Over The Risks Of Retirement Savings, Anne M. Tucker, Oct 2014
A Proposal For An Elective Tax Benefits Transfer System, Ronald W. Blasi, Oct 2014
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Resources
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Further Reading
Information related to accounting in the Max Planck Encyclopedia of International Law(MPEPIL), Germany, United Kingdom
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Notes and References
Entry about Ethics and Accounting in the Encyclopedia of Public Administration and Public Policy (2015, Routledge, Oxford, United Kingdom)
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Further Reading
Global Encyclopedia of Public Administration, Public Policy, and Governance (2018, Springer International Publishing, Germany)
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Further Reading
Johnston, A. W. (1981) Trademarks on Greek Vases; Langdon, M. K. (1991) Poletai records, in G. V. Lalonde et al., Inscriptions: horoi, poletai records, leases of public lands (Athenian Agora, 19) 53–143; Macve, R. H. (1985) Some glosses on ‘Greek and Roman accounting’, in P. A. Cartledge and F. D. Harvey, eds., Crux 233–64; Rathbone, D. (1991) Economic Rationalism and Rural Society in Third-century AD Egypt.
Hierarchical Display of Accounting
Business And Competition > Accounting
Business And Competition > Accounting > Management accounting
Economics > Economic analysis > Economic analysis > Input-output analysis
Economics > National accounts > National accounts
Business And Competition > Management > Financial management > Financial analysis
Education And Communications > Information technology and data processing > Computer systems > Computer applications > Business data processing
Economics > National accounts > National accounts > Regional accounting
Finance > Public finance and budget policy > Public finance > Public accounting
Finance > Budget > Implementation of the budget > Financial year
Business And Competition > Business classification > Branch of activity > Trust company
Economics > National accounts > National accounts > Economic accounts for agriculture
Economics > National accounts > Accounting system
Accounting
Concept of Accounting
See the dictionary definition of Accounting.
Characteristics of Accounting
Resources
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Translation of Accounting
Spanish: Contabilidad
French: Comptabilité
German: Buchführung
Italian: Contabilità
Portuguese: Contabilidade
Polish: Rachunkowość
Thesaurus of Accounting
Business And Competition > Accounting > Accounting
Business And Competition > Accounting > Management accounting > Accounting
Economics > Economic analysis > Economic analysis > Input-output analysis > Accounting
Economics > National accounts > National accounts > Accounting
Business And Competition > Management > Financial management > Financial analysis > Accounting
Education And Communications > Information technology and data processing > Computer systems > Computer applications > Business data processing > Accounting
Economics > National accounts > National accounts > Regional accounting > Accounting
Finance > Public finance and budget policy > Public finance > Public accounting > Accounting
Finance > Budget > Implementation of the budget > Financial year > Accounting
Business And Competition > Business classification > Branch of activity > Trust company > Accounting
Economics > National accounts > National accounts > Economic accounts for agriculture > Accounting
Economics > National accounts > Accounting system > Accounting
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Hierarchical Display of Accounting
Accounting
Concept of Accounting
See the dictionary definition of Accounting.
Characteristics of Accounting
Resources
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Translation of Accounting
Spanish: Gestión contable
French: Gestion comptable
German: Betriebliches Rechnungswesen
Italian: Gestione contabile
Portuguese: Gestão contabilística
Polish: Rachunkowość
Thesaurus of Accounting
Business And Competition > Accounting
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Economist
Economics science researcher
Economics analyst
Business economist