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From Wikipedia


Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable. As long as money consisted of gold or silver coins or was firmly linked to an stable commodity it was the most stable and reliable measure of wealth and there was every justification for normally accounting in money terms but now that free floats have been made to prevail and freely floating fiat money is no measure or unit of wealth; Accountancy is a branch of mathematical science that is useful in discovering the causes of success and failure in business.The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing.

Accountancy is defined by the Oxford English Dictionary (OED) as "the profession or duties of an accountant".

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in the Middle East. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson and the audience for the account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information. This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.

Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.


The basic accounting equation is assets=liabilities+stockholders equity. This is the balance sheet. The foundation for the balance sheet begins with the income statement, which is revenues-expenses=net income or net loss. This is followed by the retained earnings statement, which is beginning retained earnings+net income-dividends=ending retained earnings or beginning retained earnings-net loss-dividends=ending retained earnings.


The word "Accountant" is derived from the French word , which took its origin from the Latin word . The word was formerly written in English as "Accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in pronunciation and in orthography to its present form.


Proof of Beginning of Accounting in Vedas

Vedas are the oldest books of the world and after deep study of these sanskrit books, you can find that accounting was started at India's vedic period. Vikraya is found in the Atharvaveda and the Nirukta denoting ‘sale’. Sulka in the Rig veda clearly means ‘

Accounting equation

The basic accounting equation' is the foundation for thedouble-entry bookkeeping system. For each transaction, the total debits equal the total credits.

Assets = Liabilities + Capital

In a corporation, capital represents the stockholders' equity.

Bold text'[Italic text] ==How it works== For example: A student buys acomputer for $945. This student borrowed $500 from his best friend and spent another $445 earned from his part-time job. Now his assets are worth $945, liabilities are $500, and equity $445.

The formula can be rewritten:

Assets − Liabilities = (Shareholders or Owners equity or Capital)

Now it shows owner's interest is equal to property (assets) minus debts (liabilities). Since in a company owners are shareholders, owner's interest is called shareholder's equity. Every accountingtransaction affects at least one element of the equation, but always balances. Simplest transactions also include:

These are some simple examples, but even the most complicated transactions can be recorded in a similar way. This equation is behind debits, credits, and journal entries.

This equation is part of the transaction analysis model, for which we also write

Owners equity = Contributed Capital + Retained Earnings
Retained Earnings = Net Income − Dividends


Net Income = Income − Expenses

The equation resulting from making these substitutions in the accounting equation may be referred to as the expanded accounting equation, because it yields the breakdown of the equity component of the equation.

Balance sheet

An elaborate form of this equation is presented in a balance sheet which lists all assets, liabilities, and equity, as well as totals to ensure that it balances.


Luca Pacioli is notable for including the first published description of the method of keeping accounts that Venetianmerchants used during the Italian Renaissance, known as the double-entry accounting system. However, recently some historians and experts feel that this was already being used by the Arabs and Muslim traders with whom the Venetians would have had contact. They argue that even though Luca Pacioli formally introduced it to Europe, the credit should still go to Eastern merchants who had been using it years before. This claim is yet to be accepted by the academic community as it forces a rethink of several other aspects in this field.

Accounting identity

In finance and economics, an accounting identity is an equality that must be true regardless of the value of its variables, or a statement that by definition (or construction) must be true. The term is also used in economics to refer to equalities that are by definition or construction true, such as the balance of payments. Where an accounting identity applies, any deviation from the identity signifies an error in formulation, calculation or measurement. The term accounting identity may be used to distinguish between propositions that are theories (which may or may not be true, or relationships that may or may not always hold) and statements that are by definition true. Despite the fact that the statements are by definition true, the underlying figures as measured or estimated may not add up due to measurement error, particularly for certain identities in macroeconomics. Description The most basic identity in accounting is that the balance sheet must balance, that is, that assets must equal liabilities (including equity), or that assets must equal debt plus equity. In its most common formulation it is known as the accounting equation: Assets = Debt + Equity where debt includes non-financial liabilities. Because this accounting identity must always hold, any change to one side of the equation must be balanced by an equal change on the other side of the equation: a change to the total value of the assets of a firm must be reflected in a change to the debt or equity of a firm. For example, if a firm has an (uninsured) asset destroyed by a fire, either the debt of the firm must fall or the equity (in this case, the equity). In most cases, each component of an accounting identity can be broken down into further sub-groups that must also respect the identity. This usage of the term identity is similar to the mathematical definition of an identity. Identities in accounting Accounting has a number of identities in common usage, and since many identities can be decomposed into others, no comprehensive listing is possible. Interperiod identities Accounting identities also apply between accounting periods, such as changes in cash balances. For example: Cash at beginning of period + Changes in cash during period = Cash at end of period Value of an asset Any asset recorded in a firm's balance sheet will have a carrying value. By definition, the carrying value must equal the historic cost (or acquisition cost) of the asset, plus (or minus) any subsequent adjustments in the value of the asset, such as depreciation. Carrying value = Historic cost + Change in value Economics In economics, there are numerous accounting identities. One of the most commonly known is the balance of payments identity, where: Current Account + Capital Account = Change in Official Reserve Account A common problem with the balance of payments identity is that, due to measurement error, the balance of payments may not total correctly. For example, the Economist magazine has noted that "In theory, individual countries’ current-account deficits and surpluses should cancel each other out. But because of statistical errors and omissions they never do." Gross domestic product The basic equation for gross domestic product is also considered an identity, and is sometimes referred to as the National Income Identity: GDP = consumption + investment + (government spending) + (exports − imports)

From Yahoo Answers

Question:I am in my junior year of a bachelors in accounting should i wait till a get done with financial accounting 1 and 2 to look for a job or should i wait to get them out of the way? i know these are the hardest classes in the whole career. thanks in advance

Answers:The classes are not hard. I bet you have done more harder college math classes. Accounting was invented by the same person who invented Algebra. So basically, it an equation. Revenue -expenses =Owner's Equity. You did not specify what type of job you applying for. Accounting related job requires basic knowledge of accounting . So I would get those two classes out of the way. Also, knowledge of basic accounting software will be plus i.e. Quickbooks or Peachtree and Office 2007. The more accounting related skills you have to offer the easier it will be to land that first job. Good Luck!

Question:how to record these: 1.a cash deposit of $2580 was paid by cheque and the balance was to be paid in monthly instalment? 2.transferred cash $2000 from personal account into the company account? 3. sold item with book value $9600 for cash $9600. Cash was banked into the bussiness account?

Answers:first you have left something out here -- and second you need to take you homework quesitons to the homework section!!!

Question:I'm in an accounting class and I'm a bit puzzled by this question on our homework assignment. Could someone please tell me how to calculate the empty fields in the following image? http://img593.imageshack.us/img593/38/63gtcd.png Thanks

Answers:Basic accounting equation Assets = Liabilities + Owner's Equity Additional investments and Net Income increase Equity, Drawings decrease Equity. Craig Cantrell Beginning Equity 10,246 Ending Equity 39,060 10,246 + Additional Investments + 38,957 (net income) - 24,808 = 39,060 Additional Investments (b) = 14,665 Mills Enterprises Beginning Equity 79,951 Ending Equity 134,215 79,951 + 24,653 + 48,783 (net income) - Drawings = 134,215 Drawings (d) = 19,172

Question:Tanya imports sweaters from Peru and sells them from her home. She collects $400,000 in revenue a year, and spends $200,000 on the sweaters and shipping costs, as well as $25,000 on accounting services and utilities. She used to make $100,000 per year working for an advertising agency. Now she works out of the basement of her house, for which she doesn't have any other marketable use. She has no other expenses. Tanya's economic profit is: A. -$25,000 B. $100,000 C. $75,000 D. $175,000 I know that accounting profit is $175,000 and the equation for economic profit is economic profit = accounting profit - opportunity cost. I'm just unsure which counts as opportunity cost bc my answer is not one of the choices >< THANKS! SORRY!! The TITLE of the question is wrong...i meant ECONOMIC PROFIT!

Answers:Tanya would get 100'000 in ad agency as opportunity profit. But she gets 175'000 instead. So just calculate difference 175'000-100'000=75'000 Correct answer is "C" Economic profit is 75'000.

From Youtube

R. Moon: Extraordinary Accounting: The Calculator :The way we account for value ends up designing our lives. Do we value how we spend our attention. Is that calculation in the equation of our lives. In the present accounting system it is one of the buttons the calculator seems to be missing.

Accounting Terms - Accounting Equation :what is accounting equation? more information on accounting terms find on www.bookkeeping-financial-accounting-resources.com