Accounting is thousands of years old, dating back over 7,000 years in Mesopotamia. The Mesopotamians used primitive accounting methods to keep track of their crops and herds of animals. The Mesopotamian equivalent of an accountant was the scribe. The scribe wrote up transactions and ensured that information was properly recorded. Today’s accountant evaluates records and shows the results through financial reporting to reveal the progress or failures of the business and its future limitations or possibilities.
Centuries later, a Tuscan-born mathematician named Fra Luca Pacioli wrote and published the famous book “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” (The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality) which first described the system of double-entry bookkeeping.
Pacioli did not discover accounting, but was the first man to describe the basis of accounting as we know it today. In his book, Pacioli went into detail on the system of debits and credits in journals and ledgers. This book became the accounting handbook for several hundred years after it was published and was translated into several different languages. With this accomplishment, Pacioli became known as “The Father of Accounting.”
The modern-day practice of accounting is far more sophisticated than it was first described in Mesopotamia but the foundation has remained the same with the sole purpose to accurately calculate and keep records of monetary exchanges. Accounting is known as “The Language of Business” because of the basic need of a business entity to find out where it stands financially.
The double-entry system that Pacioli described relied on historical information and traditionally provided financial information 2 weeks after month-end closings. As we know today, information is necessary immediately for businesses. Accounting has evolved into the information age as we know it and we not use software packages like QuickBooks Pro, Peachtree, SAP, etc. Businesses are changing the way they operate with the ongoing information technology changes.
At an instant, financial reports can be generated using any accounting software and provide management with the necessary information needed to maintain the current business or to generate new business.
Companies often use a mix of management and financial accounting in their business operations. Management accounting is used for tracking internal costs and then allocating these costs to costs of good sold. Management accounting can be used to forecast future sales and create budgets. Financial accounting is the process of creating financial statements based on the business’ financial information.
Additionally, it is vital that everyone, not just businesses, acquire an understanding of accounting for personal benefit. People use accounting in their daily lives when they study financial statements to make investment decisions, assess interest rates to pay off their home mortgages, and calculate interest rate for their car payments. In the business world, accounting is utilized in much greater depth, but each individual encounters some activities in his/her everyday life that requires knowledge of accounting principles.Written by: Annie Terracciano TGG Accounting