What is accounting?

You may be surprised that this contains six separate accounting references! Most of the terms are so familiar that they are used without thinking where they came from. The origins of accounting can in fact be traced back to ancient times, with the need for accurate records of trading transactions. A logical system of recording financial information, known as double-entry bookkeeping, was in use in medieval Italy, and the first published accounting work, Summa de Alithmetica, Geometria, Proportioni et PropOlTIonalita, was written in 1494 by a Venetian monk, Luca Pacioli. The principles of double-entry bookkeeping are still in use today, even where all financial data is processed by computers. Accounting can be defined simply as the recording, summarising and interpretation of financial information. A more detailed definition is that offered by the American Accounting Association (1966), as follows:

The process of identifying, measuring and communicating economic infOlmation about an OIganisation or other entity, in order to permit informed judgements by users of the information.

The 'key aspects of accounting are therefore identifying, measuring and communicating:

• Identifying the key financial components of an organisation, such as assets, liabilities, capital, revenue, expenses and cash flow.

• Measuring the monetary values of the key financial components in a way which represents a true and fair view of the organisation.

• Communicating the financial information in ways that are useful to the users of that information.