Accounting Essay

2786 WordsJan 2, 201512 Pages
DEBITS AND CREDITS AND THE LANGUAGE OF ACCOUNTING For the non-accountant, or if this is your first accounting course, the subject matter can be rather overwhelming and confusing, to say the least. The purpose of this lecture is to capture the essence of accounting as a language of business and to characterize the fundamental concepts of accounting as basic given “rules”, like in any language. At the end of this lecture, along with the readings in your text, you should have a clearer understanding of the following objectives: 1. The main purpose of accounting. 2. The basic “rules” of the accounting language: a. Debits and Credits. b. Five Types of Accounts c. Two Primary Accounting Equations d. Four Types of Financial Statements 3. The accounting process and how it captures the transactional flow of a business. Why Accounting? One of the earliest records of accounting use dates back to the Renaissance in 1494 when a mathematics scholar by the name of Luca Pacioli was the first person to describe the double-entry system of accounting. That method known as “the Venetian method” was considered “state of the art” at the time and revolutionized business and economic affairs by describing the use of what we now refer to as “journals and ledgers”; “debits equaling credits”; “trial balance to prove a balanced ledger” and “yearend closing entries” (Smith, 2002). Macve (1996) traces more the historic origins of accounting and Pacioli’s influence from these early Renaissance times to the present. Today, the basic purpose of accounting in a business remains unchanged: to record, measure and summarize the business transactions of an entity in order to understand its financial situation. Your text describes accounting as an information system to “identify”, “record” and “communicate” economic events in the business that would make it

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