What is Accounting | Origins | Categories | Objectives


What is Accounting

Accounting is the part of finance that studies the different items that reflect the financial movements of a company or entity. It is a key tool to know in what situation and conditions a company are and, with this documentation, to be able to establish the necessary strategies with the aim of improving its economic performance.

Accounting is a resource that is available to manage the expenses and income of a company. Any company in the development of its activity conducts purchase, sale, financing operations as a consequence of those activities its assets vary and it obtains a profit or a loss.

At present, the possibility of a business structure of any magnitude that does not have the adequate management of the accounting parameters is not conceived. This concept involves both the so-called small and medium-sized enterprises ( SMEs)  and the large multinationals; And due to reasons of a financial nature – in terms of ensuring adequate profitability – and to fiscal provisions, due to the pressure of federal, provincial and local tax authorities on each corporate formation.

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Origins of Accounting

Accounting has been present in the lives of men for millions of years, was used more rudimentary in the great civilizations like Egypt or Rome, but accounting as we know it today, began with the publication in Italy of the work  “Summa de Arithmetica, Geometria, Proportioni e Proportionality”  by Luca Pacioli, who devoted himself to describing accounting methods of Venetian merchants, mercantile uses, contracts and practices of interests and change; This document established double entry accounting, the precedent of what is now known as “must and must” in accounting jargon. But since the old Italian republics and microstates were the great promoters of trade in previous centuries,

In this way, if we speak of accounting, we are referring to a science – data that gives knowledge – to a technique – insofar as it works with procedures and systems -, to an information system – given that it can capture, process And offer conclusions about pieces of information – and, finally, a social technology – because it combines knowledge of science to solve concrete problems of life in society.

What are the Categories in Accounting 

But to understand accounting in depth, it is necessary to specify the  three categories  in which it is divided:

  • Public accounting, which takes control of government expenditure
  • The Social Accounting, which manages the obligations that individuals and the State maintain with each other and with the environment in which they live.
  • Business Accounting, which analyzes the business relationships of an individual or an organization. Within the business accounting we find two types of accounting:
    • Financial accounting: this is the area responsible for systematically recording operations by synthesizing them in the financial statements (balance sheet, income statement or profit and loss account, statement of operations, statement of cash flows and statement of changes in equity).
    • The accounting of costs or management:  has an internal informational purpose, to analyze economic movements towards the interior of the institution for decision-making. In addition, in this discipline, there are several measurement criteria, for example, historical cost, current cost, realizable value and current value. And it is in these variables that are based the axes of any fundamental accounting system of business.

What are the Objectives of Accounting

It should also be noted that the fundamental objectives of accounting are, on the one hand, interpret the past to make decisions in the company and satisfy the demand for information from different interest groups (shareholders, lenders or public administrations) and, on the other hand, Record all economic and financial operations. Moreover, if we disaggregate these reasons, we can say that accounting serves to:

  1. Analyze and give part of the economic resources of a company. 
    2. Allow managers to properly plan and manage business transactions. 
    3. Controlling and keeping a record of the managers’ actions and the tax burdens of the company. 
    4. Help predict money flows. 
    5. Collaborate with the necessary information when making a national statistic around economic activities.

Accounting Today

To this day, it should be emphasized that modern computing resources have sharply reversed the conventional approach to accounting.  Thus, the task of the experts in this discipline has been facilitated thanks to spreadsheets and records of heritage or stock, with better control of entries and exits.  

There are numerous programs or accounting software to help companies in their daily accounting tasks, such as SAP, Contaplus, and cash management as XRT.

Accounting harmonization

Accounting harmonization is a process that has been carried out over the last few years to make the annual accounts of companies comparable. This process is key is a globalized and competitive world where companies can not only obtain financing anywhere in the world but are comparable to one another in a simple way for those interest groups, either because they want to invest in it or Simply because you want to work in your organization. International Financial Reporting Standards (IFRS), also known as IFRS, have been created.

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