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Accounting:
The Language of Business
Accounting
has been called the language of business. Throughout our early education we learned the vocabulary
and other basic elements of the English language, or another
language, so that we would be able to communicate effectively.
The purpose is the same for accounting. Most of you will not
become accountants. You may be self-employed or employed by
others in a business (a manager, banker, or investor) and will
use accounting information, whether you know it or not.
In order to understand and to use accounting information most
effectively, you must have a solid grounding in its fundamentals.
The finer points of accounting are things that you will probably
never encounter in your business transactions, but you will
know how to read those important financial statements and how
to effectively use the material that will emanate from your
computerized financial system.
Accounting information has been useful for hundreds of years.
The double-entry framework was first described in a book written
by Luca Pacioli, a fifteenth-century Italian monk and mathematician,
although its origins can be traced back another 300 years.
The formal structure for processing financial transactions
is at least 700 years old.
What
is the definition of accounting? Accounting is the process
of providing quantitative information about economic entities
to aid users in making decisions concerning the allocation
of economic resources. The process of providing such information
necessitates a series of activities leading up to and including
the communication of accounting information. These activities
are: Identifying the information, measuring, recording, retaining
- and then communicating it.
In accounting, "numbers" are numbers
of dollars. Economic entities means not only all types of
businesses, but
also hospitals, charitable organizations, churches and synagogues,
municipalities, governments, and other organizations whether
for profit or not-for-profit. Accounting, as defined here,
applies to all of these.
Decisions concerning the allocation of economic resources
include, among others, whether to buy, sell, or hold investments,
whether to extend credit, and whether to manufacture and sell
a particular product.
The term accounting theory is commonly used, but it has no
unified, standardized definition. Very closely related to the
realm of accounting theory is the area of measurement. Measurement
is concerned with the process of assigning numbers to the attributes
or characteristics of the elements being measured.
In addition to accounting, accountancy has emerged as a profession,
alongside the professions of medicine and law. The study and
practice of accountancy requires a broad understanding of concepts
in such areas as economics, sociology, psychology, and public
administration, as well as in-depth knowledge of specialized
accounting areas. The three main fields of accountancy include
Public accounting, managerial accounting, and governmental
and quasi-governmental accounting. Each of these fields has
several accounting specialty and sub-specialty areas.
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