Accounting

Accounting Mythology:

Every civilization has ancient stories called myths handed over from generation to generation. They were approved by Kings and the Priests that revolve around gods and goddesses who have super human powers. It usually contains answers to questions like creation of Universe and of man. History tells the facts of people. Myths tells the personality of the people. By studying Myths, we can learn about how a culture lived and expressed themselves.

Persian king Thamurath fought against demons. Demons pleaded for their live and in return they taught the King how to write 30 different scripts including Persian, Western, Chinese, and Arabic etc, showing the letters are formed and pronounced.

In Mesopotamia, Nabu is the god of wisdom and writing. He wrote the destiny of every human being on tablets as pronounced by God.

In Egypt, God Throth is a divine book-keeper and god of writing. He questions the sou upon death about their deeds in their life. Their heart will be weighed against a feather of Maat (goddess of Truth).

In India, Yama is the god of justice and his accountant is Chitra Gupt. Chitra Gupt keeps track of every action of individuals classifying it into Good and Evil. Yama decides the fate if soul based on this record. More Good deeds gets a reservation to heaven, else hell.

The underlying fact is: God loves accounting. In all these civilizations, one common thread exists: Record keeping, Writing and Godliness.

Concept

What is accounting?

The word "Accounting" comes from the Latin word "Computare" which means commute. Today the word "Account" denotes "an oral or written description of particular events or situation" and "answer concerning one's conduct, duties". An accountant prepares a report for a period or for a particular date: "an oral or written description of particular events or situation".

Accounting means:

• The systematic and comprehensive recording of financial transactions pertaining to a business and the process of summarizing, analyzing and reporting these transactions.

• A systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. 

• The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

The main purposes of accounting may be summarized as follows.

• To provide a record of the financial value of business transactions, and in doing so to establish financial controls and reduce the risks of fraud.

• To assist with the management of the financial affairs of an entity 

• To provide information - mainly information of a financial nature. 

Accounting information is provided for:

• Management, so that managers have the information they need to run the company

• Other users of information, many of them outside the entity. For example, a company produces accounting information for its shareholders in the form of financial statements, and financial statements are also used by tax authorities, investors, trade union representatives and others.

Business entities operate a system to record business transactions in accounting records. This system is called a book-keeping system. The term entity is used to describe any type of organisation. Business entities include companies,  partnerships business and sole traders (proprietor). All businesses maintain a system of book-keeping and accounting whether such organization is company or partnership or sole trader.

 All large businesses (and many small ones) have a book-keeping system for recording the financial details of their business transactions on a regular basis. The book-keeping records of a business are often referred to as the accounts of the business.It does not matter system is manual or IT-based. In both cases bookkeeping exit.

Accounting covers all aspects of financial information i.e recording, processing, presenting. On the other hand bookkeeping just implies that how the accounting records are kept in safe and secure area. For example accounting decides how to record sales (Revenue) and bookkeeping ensures that records relating to sales are kept in safe place.

The transactions and financial information is processed to prepare financial statements. Financial statements depict financial position and financial performance of a business entity. Investors assess a company through its financial statements.Financial statements of a company are available in stock market and on its website.

Accounting serves two purposes_ internal and external. External purpose is to serve individuals, organizations (outside the entity), tax authorities, regulators, shareholders etc. Internal purpose is to serve management only. Financial accounting serve internally and management accounting serves internally. Hence, two types of accounting are:-

• Financial accounting
• Management accounting