Accounting in the hand sense of
the term, includes all the business records kept by a business organization or
unit of government, as well as the principles and technique involved in the
establishing and maintaining the records. It covers two general groups: first,
statistics and memorandum relating to production, properties and other
non-monetary quantities; and second, financial records representing investment,
expenditure, receipts, fiscal changes and standing, expressed in monetary
units. In the narrower sense as ordinarily used and as treated in this article,
it relates to the second class of records.
The other records however are of great
business and public importance; they are usually integrated with the more
formal system of accounting dealing with financial categories. A modern
railroad company, for instance, maintains in addition to records of monetary
transaction records of service, physical operations, employees, materials,
locations and changes of properly.
The history of accounting reveals
very clearly the constant interdependence of accounting knowledge and business
requirements. Progress in the science and technique of accounting has made
possible and increase in the size, complexity and territorial scope of business
operations. Conversely, these business changes have spurred the advance in
accounting knowledge and technique. The kind of records that are needed depends
upon the business, but the kind of business that is possible depends upon the
records that can be kept.
Accounting goes back to the earliest
time of doing business. The simplest of commercial transactions, repeated
period after period, required some sort of record. The invention of the system
of double-entry, which is fundamental to complete financial statements, cannot
be definitely credited to any particular person. There is evidence that it was
employed even during Phoenician, Greek and Roman commercial supremacy and it
was extensively developed and applied during the great Italian commercial era
of the fourteenth and fifteenth centuries. After commercial leadership passed
to Holland and England, it was introduced and greatly developed in the
accounting houses of the great trading companies.
The system depended upon
“hand” efforts, and became formalized as to procedure and related books. There
was the “day book” which recorded all the business transactions in
chronological order. From the day book items were restated chronologically in
the “Journal”, and analyzed into “debts” and “credits” by accounts. Finally,
from the journal the items were entered in the “ledger” to individual accounts.
Cross checks and balances were established to maintain accuracy of records.
This mechanical system continued until the expansion of business that followed
in the wake of the industrial revolution.
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