Introduction to Accounting

1 year ago


Google describes accounting as the process or work of keeping financial accounts. In simple words, it is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and owners’ equity. 


The history of accounting or accountancy is thousands of years old and can be traced to ancient civilizations. The early development of accounting dates back to ancient Mesopotamia, and is closely related to developments in writing, counting and money and early auditing systems by the ancient Egyptians and Babylonians. Some of the first accountants were employed around 300 BC in Iran, where tokens and bookkeeping scripts were discovered. Around the first millennium the Phoenicians invented an alphabetic system for bookkeeping, while the ancient Egyptians may have even assigned someone the role of comptroller.

Italian Roots

But the basic of debit and credit of modern accounting as we know it has Italian roots. The father of modern accounting is Italian Luca Pacioli, who in 1494 first described the system of double-entry bookkeeping used by Venetian merchants in his Summa de Arithmetica, Geometria, Proportioni et Proportionalita. While he was not the inventor of accounting, Pacioli was the first to describe the system of debits and credits in journals and ledgers that is still the basis of today’s accounting systems.

With the onset of the industrial revolution in 1760, there was a proliferation of companies and the need for more advanced accounting systems. The development of corporations also created larger groups of investors, and more complex structures of ownership, all requiring accounting systems to adapt.

Scotland modernises accounting

The modern profession also has its roots in Scotland in the mid-1800s when the Institute of Accountants in Glasgow petitioned Queen Victoria for a Royal Charter, so accountants could distinguish themselves from solicitors, as for a long time accountants had belonged to associations of solicitors, which would offer accounting in addition to a firm’s legal services. In 1854 the institute adopted ‘chartered accountant’ for its members, a term and demarcation that still carries legal weight globally today.

The petition was signed by 49 Glaswegian accountants, and it argued that the accounting profession had long existed in Scotland as a distinct profession of great respectability and that the small number of practitioners had been rapidly increasing. The petition further highlighted the varied skills required to be a professional accountant – in addition to mathematical skills, an accountant needed to be acquainted with general legal principles, as they were often employed by the courts to give evidence on financial matters – as they still are today.

Industrial revolution

By the mid-1800s, the industrial revolution in Britain was well underway and London was the financial centre of the world. With the growth of the limited liability company and large-scale manufacturing and logistics, demand surged for more technically proficient accountants capable of handling the growingly complex world of global transactions.

The increasing importance of accountants helped to transform accounting into a profession, first in the UK and then in the US. In 1904 eight people formed the London Association of Accountants to open the profession to a wider audience of people than was available through the UK’s older associations. After several name changes the London Association of Accountants adopted the name the Association of Chartered Certified Accountants (ACCA) in 1996.

Importance of ethics

It’s not all been plain-sailing for the accountancy profession. The 21st century has seen some dubious actions by accountants causing large-scale scandals. The Enron scandals in 2001 shook the accounting industry, for example. Arthur Andersen, one of the world’s largest accounting firms at the time, went out of business. Subsequently, under the newly introduced Sarbanes-Oxley Act, accountants now face harsher restrictions on their consulting engagements. Yet ironically, since Enron and the financial crisis in 2008, accountants have been greatly in demand, as corporate regulations have increased and more expertise is required to fulfil reporting requirements.

Importance of Accounting

The term accounting is very common, especially during tax season. Is its purpose only necessary for determining tax liability? Well, determining tax is only the part of accounting. In reality, accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.  It helps tracks the investors fund during the day to day operation.

There are three key financial statements generated by your records.

  • The income statement provides you with information about the profit and loss
  • The balance sheet gives you a clear picture on the financial position of your business on a particular date.
  • The cash flow statement is a bridge between the income statement and balance sheet and reports the cash generated and spent during a specific period of time.

It is critical you keep your financial records clean and up to date if you want to keep your business afloat. 

Here are just a few of the reasons why it is important for your business, big or small!

  • It Helps in Evaluating the Performance of Business
  • It Ensures Statutory Compliance
  • It Helps to Create Budget and Future Projections
  • It Helps in Filing Financial Statements

If you are interested in a prosperous future from a personal and/or business standpoint, reach out to our team of dedicated specialists. When considering accounting, audits, tax or business consulting, one call can make all the difference. Contact us using our website

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