Financial Accounting

Introduction to Financial Accounting

What is Accounting? 

Accounting is an information system that identifies records and communicates economic events to the interested users. The purpose of accounting is to identify, record, and communicate the economic events of an organization to interested users.

 

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Brief History of accounting

The origins of accounting are generally attributed to the work of Luca Pacioli.

lLuca Pacioli was an Italian Renaissance mathematician, also was a close friend tutor to Leonardo da Vinchi and a contemporary of Christopher Columbus. 

Luca Pacioli 1446-1517

 

 

Fra Luca Bartolomeo de Pacioli
(1446/7 – 1517) was an Italian mathematician and collaborator with Leonardo da Vinci. In 1494, his first book to be printed, Summa de arithmetica, geometria, proportioni et proportionalita, was published in Venice.

 

It is also notable for including the first published description of the method of bookkeeping known as the double-entry accounting system. This Double Entry System change the history of the business world. That is why he was called the  “Father of Accounting”.

 

Distinguishing between bookkeeping and accounting

lBookkeeping usually involves only the recording of economic events.

laccounting involves the entire process of identifying, recording and communicating economic events. 

 

Who Uses Accounting Data?

There are two broad groups of users of financial information:  internal users and external users.

Internal users are:

(a) Management

(b) Human Resource

(c) Financing and Marketing etc.

External users are:

(a) Investors

(b) Creditors

(c) Tax authority

(d) Share holders

(e) SEC, Labor union, etc.

 

The Building Blocks of Accounting

Ethics In Financial Reporting

Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include:  Enron, World Com, Health South, and others.

Congress passedSarbanes-Oxley Act of 2002. Effective financial reporting depends on sound ethical behavior.