Accountancy

Accountancy or accounting is the profession that deals with a company's money, books and records. Accountants are persons who perform the accounting work, and also carry out the auditing or checking of a company's books and records. In Britain, this auditing is often carried out by a chartered accountant.

When accountants perform accounting work, they write in the books of account (ledgers) that belong to a company. Every time money is spent or earned, it is written in the ledger. The information in the ledger is mostly used by lenders, managers, investors, tax authorities (people who know a lot about taxes), and other decision makers. These people look at the ledger and make decisions about how to spend money in the future.

Etymology (Where the word "accountant" comes from)

The English word accountant comes from the word accomptant. Accomptant comes from the French word compter. The French word compter comes from the Latin word computare. Even though the letter 'p' is in both of these words, a person cannot hear it when speaking aloud.

The English spelling for the word accountant comes from the sound of the word accomptant. Because the 'p' is silent, both of these words sound similar. The word accountancy comes from the word accountant.

History

Early history

Accountancy is very old. It started when humans first started to farm and form towns and cities. People who thought about economics (keeping track of money and valuable things) thought of a way to write down the sizes and values of crops.

Simple accounting is in the Christian Bible (New Testament) in the Gospel of Matthew, in the Parable (story) of the Talents. Simple accounting is also in the Islamic Quran.

In the twelfth-century A.D., the Arab writer, Ibn Taymiyyah, wrote a book called Hisba. This book has details about accounting systems that were used by Muslims before the mid-seventh century A.D. Muslim accounting was influenced (changed) by Romans and Persians. In his book, Ibn Taymiyyah gives details of a complex governmental accounting system.

Luca Pacioli and modern accountancy

Painting of Luca Pacioli, thought to be painted by Jacopo de' Barbari

Luca Pacioli (1445–1517), also known as Friar Luca dal Borgo, is said to be the person who gave "birth" to accountancy. He wrote a textbook in Latin called Summa de arithmetica, geometrica, proportioni et proportionalita (Summa on arithmetic, geometry, proportions and proportionality, Venice 1494). This textbook was used in the abbaco schools in northern Italy. Sons of merchants and craftsmen were taught in these schools. This textbook was written about math. It has the first printed description of how merchants from Venice kept their accounts. Merchants from Venice used a system called the double-entry bookkeeping system.

Double-entry bookkeeping is where there is a debit and credit entry for every transaction.

Pacioli wrote down this system but he did not invent it, but he is still called the "Father of Accounting". The system he wrote had most of the accounting cycle as it is known today. He wrote about using journals and ledgers, and warned that a person should not got to sleep at night until the debits were the same as the credits. His ledger had accounts for assets (things that have value), liabilities (debts and loans that are to be paid to someone else), capital (money), income and expenses. He showed how to write year-end closing entries and suggested that a trial balance be used to prove that a ledger is balanced. His treatise (long essay) in the book also has info about other topics, such as accounting ethics and cost accounting.

Post-Pacioli

The first book written in the English language on accounting was published in London, England by John Gouge (or Gough) in 1543.

In 1588 John Mellis from Southwark, England wrote a short book of instructions for keeping accounts.

There was another book written in 1635 that was described as The Merchants Mirrour, or directions for the perfect ordering and keeping of his accounts formed by way of Debitor and Creditor. This book was written by Richard Dafforne, who was an accountant. This book has many references to books about accountancy that were written much earlier. One chapter of this book is titled "Opinion of Book-keeping's Antiquity". In this chapter the author says that, according to another author, the bookkeeping he wrote about was used two-hundred years earlier in Venice.

Another writer from the Netherlands wrote that double-entry bookkeeping was done by the Greeks.

There were several editions of Richard Dafforne's book. The second edition was published in 1636. The third edition was published in 1656. Another edition was published in 1684. The book is very complete in how it describes scientific accountancy. It contains a lot of detail and explanation. The science that supports accountancy was liked by many people in the seventeenth century. This is supported by the fact that there were so many editions. Starting at this point in history, there have been many books written about accountancy. Many authors claim to be professional accountants and teachers of accountancy. Because of this, it shows that there were professional accountants who were employed in the seventeenth century.

Types of accounting

• Financial accounting is "a major branch of accounting involving the collection, recording and extraction of financial information, and the summary of it in the form of a periodic profit and loss account, a balance sheet and a cash flow statement in accordance with legal, professional, and capital market requirements".
• Management accounting is a type of accounting where decision-makers see more details.
• Open-book accounting is an accounting principle. This principle tries to make accounting easier for the public to see.
• Tax accounting is a type of accounting that makes sure tax laws are followed.
• Accounting scholarship studies the theory of accountancy.

A financial audit is where an internal audit and an external audit are done. For an external audit, an independent (unrelated) auditor takes a look at financial statements and accounting records. By looking at these records, the auditor can find out if these records are true, fair and follow Generally Accepted Accounting Principles (GAAP), or International Financial Reporting Standards (IFRS). Internal audit tries to get info for management usage, and is done by employees.

Other websites

• Financial Accounting Standards Board Website (FASB)
• Government Accounting Standards Board Website (GASB)
• National Association of State Boards of Accountancy - CPA Exam (NASBA)
• SEC Accounting Bulletins
• SEC Division of Corporate Finance
• CPA Australia
• Institute of Chartered Accountants - Australia
• IFRS or formerly IAS information
• Association Of Chartered Certified Accountants (ACCA)
• Hong Kong Institute of Certified Public Accountants (formerly Hong Kong Society of Accountants)
• Institute of Chartered Accountants in England and Wales (ICAEW)
• Institute of Chartered Accountants of Scotland (ICAS)
• Malaysian Institute of Accountants(MIA)
• Institute of Chartered Accountants of India (ICAI)
• U.S. Securities and Exchange Commission Proposal for First-Time Application of International Financial Reporting Standards by Foreign private issuers registered with the SEC
• Accounting Standards
• International Financial Reporting Standards (IFRS) - Deloitte - Further details on new standards and interpretations

Further reading

• Original texts of IAS/IFRS, SIC and IFRIC adopted by the Commission of the European Communities and published in Official Journal of the European Union http://ec.europa.eu/internal_market/accounting/ias_en.htm#adopted-commission

• International Accounting Standards Board (2007): International Financial Reporting Standards 2007 (including International Accounting Standards (IAS(tm)) and Interpretations as at 1 January 2007), LexisNexis, ISBN 1-4224-1813-8