what is accounting?
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• Defining Accounting
• Inputs to Accounting
• Outputs of Accounting
• Uses of Financial Reports
What Is Accounting?
Introduction to Accounting > What Is Accounting?
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• Accounting is thousands of years old; the earliest accounting records, which date
back more than 7,000 years, were found in Mesopotamia (Assyrians).
• Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità"
represents the first known printed treatise on bookkeeping; and it is widely
believed to be the forerunner of modern bookkeeping practice.
• Double-entry bookkeeping is defined as any bookkeeping system in which there
was a debit and credit entry for each transaction.
Defining Accounting
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Token Accounting in Mesopotamia
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Introduction to Accounting > What Is Accounting?
• In accounting, a journal entry is a logging of transactions into accounting journal
items.
• The extraction of account balances is called a trial balance.
• The purpose of the trial balance is, at a preliminary stage of the financial
statement preparation process, to ensure the equality of the total debits and
credits.
Inputs to Accounting
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The Balance Sheet
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Introduction to Accounting > What Is Accounting?
• The balance sheet, reports on a company's assets, liabilities, and ownership
equity at a given point in time.
• The income statement is also referred to as profit and loss statement, or a "P&L."
This statement reports on a company's income, expenses, and profits over a
period of time.
• A statement of changes in shareholder's equity explains the changes of the
company's equity throughout the reporting period.
Outputs of Accounting
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A Sample Income Statement
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Introduction to Accounting > What Is Accounting?
• Owners and managers require financial statements to make important business
decisions that affect its continued operations.
• Employees also need these reports in making collective bargaining agreements
with the management, in the case of labor unions or for individuals in discussing
their compensation, promotion, and rankings.
• Although laws differ from country to country, an audit of the financial statements
of a public company is usually required for investment, financing, and tax
purposes.
Uses of Financial Reports
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Auditing Firm
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Introduction to Accounting > What Is Accounting?
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Appendix
Key terms
• auditor A person who audits (reviews and examines) bookkeeping accounts
• bookkeeper A person responsible for keeping records or documents, such as of a business.
• bookkeeping The skill or practice of keeping books or systematic records of financial transactions, e.g., income and expenses.
• creditworthiness The property of being creditworthy, when a person is deemed likely to repay debts and / or has an acceptable credit rating
• debenture A certificate that certifies an amount of money owed to someone; a certificate of indebtedness.
• journal a book or computer file in which monetary transactions are entered the first time they are processed
• journal entry A journal entry, in accounting, is a logging of transactions into accounting journal items.The journal entry can consist of several items, each of which is either a debit or a credit.The total of the debits must equal the total of the credits or the journal entry is said to be "unbalanced." Journal entries can record unique items or recurring items, such as depreciation or bond amortization.
• ledger A collection of accounting entries consisting of credits and debits.
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Introduction to Accounting
A Sample Income StatementExpenses are listed on a company's income statement.
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Introduction to Accounting
Journals to LedgersThe general ledger works as a central repository for accounting data transferred from all sub-ledgers or modules like accounts payable, accounts receivable, cash management, fixed assets, purchasing, and projects.
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Introduction to Accounting
BookkeepingBookkeeping is the recording of financial transactions, includng sales, purchases, income, receipts and payments by an individual or organization.
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Introduction to Accounting
Auditing FirmAuditing firm office building in San Francisco.
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Introduction to Accounting
Token Accounting in MesopotamiaThe invention of a form of bookkeeping using clay tokens represented a huge cognitive leap for mankind.
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Introduction to Accounting
Father of Double-Entry AccountingPortrait of Luca Pacioli, attributed to Jacopo de' Barbari, 1495 (Museo di Capodimonte).
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Introduction to Accounting
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Introduction to Accounting
Accounting, bookkeeping and auditing represent:
A) the three fields of accounting
B) the three divisions of accountancy
C) the three accounting practices
D) the three major branches of accounting
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Introduction to Accounting
Accounting, bookkeeping and auditing represent:
A) the three fields of accounting
B) the three divisions of accountancy
C) the three accounting practices
D) the three major branches of accounting
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Introduction to Accounting
The most common way to communicate financial information about business entities is with:
A) bank statements
B) accountancy
C) financial statements
D) shareholder meetings
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Introduction to Accounting
The most common way to communicate financial information about business entities is with:
A) bank statements
B) accountancy
C) financial statements
D) shareholder meetings
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Introduction to Accounting
Today, accounting is called:
A) the backbone of business
B) the art of business
C) the language of business
D) the guideline for business
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Introduction to Accounting
Today, accounting is called:
A) the backbone of business
B) the art of business
C) the language of business
D) the guideline for business
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Introduction to Accounting
If a journal entry is "unbalanced", what does it mean?
A) debits equal credits
B) there are two credit entries
C) there are two debit entries
D) debits do NOT equal credits
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Introduction to Accounting
If a journal entry is "unbalanced", what does it mean?
A) debits equal credits
B) there are two credit entries
C) there are two debit entries
D) debits do NOT equal credits
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Introduction to Accounting
Statement of financial position and statement of income are derived from:
A) the journal entries
B) the general ledger
C) the financial statements
D) the special journals
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Introduction to Accounting
Statement of financial position and statement of income are derived from:
A) the journal entries
B) the general ledger
C) the financial statements
D) the special journals
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Introduction to Accounting
What is the foundation of the double entry bookkeeping system?
A) credits and debits
B) the T-account
C) the basic accounting equation
D) the general ledger
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Introduction to Accounting
What is the foundation of the double entry bookkeeping system?
A) credits and debits
B) the T-account
C) the basic accounting equation
D) the general ledger
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Introduction to Accounting
What statement would you read if you wanted to know the changes in a company's equity throughout the reporting period?
A) statement of shareholder's equity
B) statement of cash flows
C) income statement
D) balance sheet
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Introduction to Accounting
What statement would you read if you wanted to know the changes in a company's equity throughout the reporting period?
A) statement of shareholder's equity
B) statement of cash flows
C) income statement
D) balance sheet
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Introduction to Accounting
The income statement is also known as:
A) statement of cash flow
B) revenue report
C) statement of cash position
D) the profit and loss statement
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Introduction to Accounting
The income statement is also known as:
A) statement of cash flow
B) revenue report
C) statement of cash position
D) the profit and loss statement
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Introduction to Accounting
The financial statements should be:
A) understandable
B) all of these answers
C) relevant
D) comparable
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Introduction to Accounting
The financial statements should be:
A) understandable
B) all of these answers
C) relevant
D) comparable
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Introduction to Accounting
Which one of these is an example of when employees would use a company's financial statements?
A) before making a collective bargaining agreement
B) before discussing a raise
C) all of these answers
D) before deciding whether to work for a company or not
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Introduction to Accounting
Which one of these is an example of when employees would use a company's financial statements?
A) before making a collective bargaining agreement
B) before discussing a raise
C) all of these answers
D) before deciding whether to work for a company or not
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Introduction to Accounting
Which one of these is NOT an organization that would review the financial reports of a business?
A) potential creditors
B) potential investors
C) current shareholders
D) rival companies
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Introduction to Accounting
Which one of these is NOT an organization that would review the financial reports of a business?
A) potential creditors
B) potential investors
C) current shareholders
D) rival companies
Attribution
• Wikipedia. "Financial statement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Financial_statement
• Wiktionary. "debenture." CC BY-SA 3.0 http://en.wiktionary.org/wiki/debenture
• Wikipedia. "journal entry." CC BY-SA 3.0 http://en.wikipedia.org/wiki/journal%20entry
• Wikipedia. "Accounting equation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounting_equation
• Wikipedia. "Bookkeeping." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Bookkeeping
• Wikipedia. "Journal entry." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Journal_entry
• Wikipedia. "General ledger." CC BY-SA 3.0 http://en.wikipedia.org/wiki/General_ledger
• Wikipedia. "Journal." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Journal
• Wiktionary. "bookkeeper." CC BY-SA 3.0 http://en.wiktionary.org/wiki/bookkeeper
• Wiktionary. "creditworthiness." CC BY-SA 3.0 http://en.wiktionary.org/wiki/creditworthiness
• Wikipedia. "Financial statement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Financial_statement
• Wikipedia. "Accounting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounting
• Wikipedia. "Accounting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounting
• Wikipedia. "Accounting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounting
• Wiktionary. "ledger." CC BY-SA 3.0 http://en.wiktionary.org/wiki/ledger
• Wiktionary. "bookkeeping." CC BY-SA 3.0 http://en.wiktionary.org/wiki/bookkeeping
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Introduction to Accounting