About Accounting

What is Accounting?
Accounting is involved in the recording, analysing, classifying and interpreting of the financial affairs of a business.  Accounting is a science that is involved in the recording, monitoring and assessment of the financial affairs of a business at any time. 

The History of Accounting
Accounting was developed in ancient times. The system we have today arose from that ancient development. We know that previous communities kept primitive records by way of drawings on rocks or caves or cutting into trees. Later on these records were put onto stone and paper which were a lot easier to use and had a longer life. One of the first editions of complete documentation about how to keep books of accounting was written by a professor of mathematics in Rome. This documentation described the double-entry system of accounting which was used by the Venetian merchants. It was adopted and still used today around the world.

Luca Pacioli was the man who invented double-entry accounting around 1494. This form of double-entry accounting is sometimes known as Italian accounting because it is called after the Venetian people that developed and used it hundreds of years ago. Since that time, accounting has become far more complex and sophisticated but the principle of double-entry that arose from that initial development has never changed.

What is the “Equation” in Accounting?
Accounting is what is known as an equation. This basically means that everything in accounting needs to balance. There is always a debit entry and that must be equal to a corresponding credit entry. This is what is known as double entry accounting and is a very good system because it ensures that there are checks and balances and accuracy is monitored.

For example, if you are paying for a "Wheelbarrow" with cash the 2 entries are:
  • Wheelbarrow (asset) is coming into the business and;
  • Cash is going out of the business
There is a debit entry for the Wheelbarrow and a credit entry for the cash. The debit has a corresponding credit and the total of all transactions showing debits and all transactions showing credits should equal one another. From this we get the term double-entry.
The accounting equation has 2 functions:
  1. Gives us a point of balance which ensures that the calculations in our accounting system are accurate
  2. Allows our system to supply us with the necessary information needed to run our business