The history of accounting goes back to the ancient times of Vedic ages in the eastern hemisphere and ancient Mesopotamia to about 3500 B.C and the evolution of accounting process refers to the invention of double entry book keeping process that commenced with Luca Pacioli. After the first royal charter was granted to the Society of Accountants in Edinburgh in 1904, the process and techniques of accounting took a jumpstart. Accountancy, as a profession however saw the day light another 50 years back in 1854.
Today, knowledgeable accounting professionals exceed a million around the world with a majority of them coming from United States and United Kingdom.
Accountancy is basically related to maintenance of records relating to property and property rights, wealth, interchange of goods, regulating credit, dealing with the common denominator for exchange, i.e, and money, virtually everything. Accounting basically refers to arithmetic and calculations and balancing the assets and liabilities on one hand while debit and liabilities on the other.
Necessity for a double entry book keeping and accounting process arose when Governments found it necessary to maintain records properly including the receipt and balances. The encyclopedia Britannica defines accounting as “systematic development and analysis of information of an organization”. Accounting has various wings.
The recording of financial transactions that takes place in an organization is called Book Keeping. On the other hand maintaining a record about the assets and liabilities, debits and credits and their comparative analysis in accounting is termed as financial accounting. This part of accounting process is also known as Balance Sheet since it shows the actual balance of the company whether it is incurring loss or profit. When the accounting report indicates loss for an organization it is a negative balance sheet, otherwise it is a positive balance sheet.
An integral part of accountancy is audit which is meant to find out mistakes and irregularities committed in maintenance of accounts and use of resources and this streamlines the use of money and resources acting as a necessary check and balance on wasteful expenditures.
Another important part of accounting process is preparation of the budget and financial statements. The budget indicates the expected income and expected expenses to be incurred by the company and the accounting system examines and finds out whether the budget is a surplus or a deficit one. In accounting process a budget that shows expected expenses to be less than expected income, it is called a surplus budget.
When through this accounting process the income and expenditures are shown to be even, it is called a balanced budget and when the accounting process indicates in a budget that the expenses are more and income is less, it is called a deficit budget.
The important part of the accounting process is to keep the track of investments made and income derived. Finally, the accounting process gives an overall picture of the organization relating to its financial stability.