Accountancy
Overview
 
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication
Communication
Communication is the activity of conveying meaningful information. Communication requires a sender, a message, and an intended recipient, although the receiver need not be present or aware of the sender's intent to communicate at the time of communication; thus communication can occur across vast...

 is generally in the form of financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...

 that show in money terms the economic resources
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...

 under the control of management; the art lies in selecting the information that is relevant to the user and is reliable. The principle
Principle
A principle is a law or rule that has to be, or usually is to be followed, or can be desirably followed, or is an inevitable consequence of something, such as the laws observed in nature or the way that a system is constructed...

s of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...

, and auditing.

Accountancy is defined by the Oxford English Dictionary (OED) as "the profession or duties of an accountant".

Accounting is defined by the American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...

 (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia
Mesopotamia
Mesopotamia is a toponym for the area of the Tigris–Euphrates river system, largely corresponding to modern-day Iraq, northeastern Syria, southeastern Turkey and southwestern Iran.Widely considered to be the cradle of civilization, Bronze Age Mesopotamia included Sumer and the...

 (Assyrians).
Unanswered Questions
Encyclopedia
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication
Communication
Communication is the activity of conveying meaningful information. Communication requires a sender, a message, and an intended recipient, although the receiver need not be present or aware of the sender's intent to communicate at the time of communication; thus communication can occur across vast...

 is generally in the form of financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...

 that show in money terms the economic resources
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...

 under the control of management; the art lies in selecting the information that is relevant to the user and is reliable. The principle
Principle
A principle is a law or rule that has to be, or usually is to be followed, or can be desirably followed, or is an inevitable consequence of something, such as the laws observed in nature or the way that a system is constructed...

s of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...

, and auditing.

Accountancy is defined by the Oxford English Dictionary (OED) as "the profession or duties of an accountant".

Accounting is defined by the American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...

 (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia
Mesopotamia
Mesopotamia is a toponym for the area of the Tigris–Euphrates river system, largely corresponding to modern-day Iraq, northeastern Syria, southeastern Turkey and southwestern Iran.Widely considered to be the cradle of civilization, Bronze Age Mesopotamia included Sumer and the...

 (Assyrians). The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson
Businessperson
A businessperson is someone involved in a particular undertaking of activities for the purpose of generating revenue from a combination of human, financial, or physical capital. An entrepreneur is an example of a business person...

 and the audience for the account was the proprietor
Sole proprietorship
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits and has unlimited responsibility for...

 or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....

 than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations
Business operations
Business operations are those ongoing recurring activities involved in the running of a business for the purpose of producing value for the stakeholders...

 relied on accounts to provide the requisite information. This development resulted in a split of accounting systems for internal (i.e. management accounting
Management accounting
Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control...

) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.

Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting
Management accounting
Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control...

 and is used to provide information to employees, managers, owner-managers
Self-employment
Self-employment is working for one's self.Self-employed people can also be referred to as a person who works for himself/herself instead of an employer, but drawing income from a trade or business that they operate personally....

 and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting in a given jurisdiction is called Generally Accepted Accounting Principles
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...

, or GAAP. Other rules include International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....

, or IFRS, or US GAAP.

Theory

The basic accounting equation is assets = liabilities + stockholders' equity. This is the balance sheet. The foundation for the balance sheet begins with the income statement, which is revenues - expenses = net income or net loss. This is followed by the retained earnings statement, which is beginning retained earnings + net income - dividends = ending retained earnings or beginning retained earnings - net loss - dividends = ending retained earnings. The current ratio is current assets divided by current liabilities. The debt to total assets ratio is total assets divided by total liabilities.

Etymology

The word "Accountant
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...

" is derived from the French word , which took its origin from the Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

 word . The word was formerly written in English as "Accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in pronunciation
Pronunciation
Pronunciation refers to the way a word or a language is spoken, or the manner in which someone utters a word. If one is said to have "correct pronunciation", then it refers to both within a particular dialect....

 and in orthography
Orthography
The orthography of a language specifies a standardized way of using a specific writing system to write the language. Where more than one writing system is used for a language, for example Kurdish, Uyghur, Serbian or Inuktitut, there can be more than one orthography...

 to its present form (see also comptroller
Comptroller
A comptroller is a management level position responsible for supervising the quality of accounting and financial reporting of an organization.In British government, the Comptroller General or Comptroller and Auditor General is in most countries the external auditor of the budget execution of the...

).

Token accounting in ancient Mesopotamia

The earliest accounting records were found amongst the ruins of ancient Babylon
Babylon
Babylon was an Akkadian city-state of ancient Mesopotamia, the remains of which are found in present-day Al Hillah, Babil Province, Iraq, about 85 kilometers south of Baghdad...

, Assyria
Assyria
Assyria was a Semitic Akkadian kingdom, extant as a nation state from the mid–23rd century BC to 608 BC centred on the Upper Tigris river, in northern Mesopotamia , that came to rule regional empires a number of times through history. It was named for its original capital, the ancient city of Assur...

 and Sumer
Sumer
Sumer was a civilization and historical region in southern Mesopotamia, modern Iraq during the Chalcolithic and Early Bronze Age....

ia, which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Because there is a natural season to farming and herding, it is easy to count and determine if a surplus
Economic surplus
In mainstream economics, economic surplus refers to two related quantities. Consumer surplus or consumers' surplus is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay...

 had been gained after the crops had been harvested or the young animals weaned.
The invention of a form of bookkeeping
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...

 using clay tokens represented a huge cognitive leap for mankind.

Early Accounting in India

Early references to accounting concepts are found in the Vedas
Vedas
The Vedas are a large body of texts originating in ancient India. Composed in Vedic Sanskrit, the texts constitute the oldest layer of Sanskrit literature and the oldest scriptures of Hinduism....

: Vikraya is found in the Atharvaveda and the Nirukta denoting ‘sale
Sale
Sale may refer to:* Sales * Sale, discounts and allowances in the prices of goods, such as:**Fire sale, a drastic discount in prices**Loan sale, a sale under contract of all or part of the cash stream from a specific loan...

’. Sulka in the Rig veda clearly means ‘price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

’. In the Dharma Sutras it denotes a ‘tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

’.

Accounting in the Roman Empire

The Res Gestae Divi Augusti
Res Gestae Divi Augusti
Res Gestae Divi Augusti, is the funerary inscription of the first Roman emperor, Augustus, giving a first-person record of his life and accomplishments. The Res Gestae is especially significant because it gives an insight into the image Augustus portrayed to the Roman people...

(Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

: "The Deeds of the Divine Augustus") is a remarkable account to the Roman people of the Emperor Augustus
Augustus
Augustus ;23 September 63 BC – 19 August AD 14) is considered the first emperor of the Roman Empire, which he ruled alone from 27 BC until his death in 14 AD.The dates of his rule are contemporary dates; Augustus lived under two calendars, the Roman Republican until 45 BC, and the Julian...

' stewardship. It listed and quantified his public expenditure, which encompassed distributions to the people, grants of land or money to army veterans, subsidies to the aerarium
Aerarium
Aerarium was the name given in Ancient Rome to the public treasury, and in a secondary sense to the public finances....

(treasury), building of temples, religious offerings, and expenditures on theatrical shows and gladiatorial games. It was not an account of state revenue and expenditure, but was designed to demonstrate Augustus' munificence. The significance of the Res Gestae Divi Augusti from an accounting perspective lies in the fact that it illustrates that the executive authority
Executive (government)
Executive branch of Government is the part of government that has sole authority and responsibility for the daily administration of the state bureaucracy. The division of power into separate branches of government is central to the idea of the separation of powers.In many countries, the term...

 had access to detailed financial information, covering a period of some forty years, which was still retrievable after the event. The scope of the accounting information at the emperor's disposal suggests that its purpose encompassed planning and decision-making.

The Roman historians Suetonius
Suetonius
Gaius Suetonius Tranquillus, commonly known as Suetonius , was a Roman historian belonging to the equestrian order in the early Imperial era....

 and Cassius Dio record that in 23 BC
23 BC
Year 23 BC was either a common year starting on Saturday or Sunday or a leap year starting on Friday, Saturday or Sunday of the Julian calendar and a common year starting on Friday of the Proleptic Julian calendar...

, Augustus
Augustus
Augustus ;23 September 63 BC – 19 August AD 14) is considered the first emperor of the Roman Empire, which he ruled alone from 27 BC until his death in 14 AD.The dates of his rule are contemporary dates; Augustus lived under two calendars, the Roman Republican until 45 BC, and the Julian...

  prepared a rationarium (account) which listed public revenues, the amounts of cash in the aerarium (treasury), in the provincial fisci (tax officials), and in the hands of the publicani (public contractors); and that it included the names of the freedmen and slaves from whom a detailed account could be obtained. The closeness of this information to the executive authority of the emperor is attested by Tacitus
Tacitus
Publius Cornelius Tacitus was a senator and a historian of the Roman Empire. The surviving portions of his two major works—the Annals and the Histories—examine the reigns of the Roman Emperors Tiberius, Claudius, Nero and those who reigned in the Year of the Four Emperors...

' statement that it was written out by Augustus himself.

Records of cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

, commodities, and transactions were kept scrupulously by military personnel of the Roman army
Roman army
The Roman army is the generic term for the terrestrial armed forces deployed by the kingdom of Rome , the Roman Republic , the Roman Empire and its successor, the Byzantine empire...

. An account of small cash sums received over a few days at the fort of Vindolanda
Vindolanda
Vindolanda was a Roman auxiliary fort just south of Hadrian's Wall in northern England. Located near the modern village of Bardon Mill, it guarded the Stanegate, the Roman road from the River Tyne to the Solway Firth...

 circa 110
110
Year 110 was a common year starting on Tuesday of the Julian calendar. At the time, it was known as the Year of the Consulship of Priscinus and Scipio...

 CE shows that the fort could compute revenues in cash on a daily basis, perhaps from sales of surplus supplies or goods manufactured in the camp, items dispensed to slaves such as cervesa (beer
Beer
Beer is the world's most widely consumed andprobably oldest alcoholic beverage; it is the third most popular drink overall, after water and tea. It is produced by the brewing and fermentation of sugars, mainly derived from malted cereal grains, most commonly malted barley and malted wheat...

) and clavi caligares (nails for boots), as well as commodities bought by individual soldiers. The basic needs of the fort were met by a mixture of direct production
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...

, purchase and requisition
Requisition
A requisition is a request for something, especially a formal written request on a pre-printed form.An online requisition is an electronic document, which can be originated by the requester and then using the company workflow or hierarchy rules, can be submitted to the subsequent levels, until it...

; in one letter, a request for money to buy 5,000 modii (measures) of braces (a cereal used in brewing) shows that the fort bought provisions for a considerable number of people.

The Heroninos Archive
Heroninos Archive
The Heroninos Archive is a collection of around a thousand papyrus documents, dating to the third century AD, found at the very end of the 19th century at Harit, the site of ancient Theadelphia, in the Faiyum area of Egypt by Bernard Pyne Grenfell and Arthur Surridge Hunt...

 is the name given to a huge collection of papyrus
Papyrus
Papyrus is a thick paper-like material produced from the pith of the papyrus plant, Cyperus papyrus, a wetland sedge that was once abundant in the Nile Delta of Egypt....

 documents, mostly letters, but also including a fair number of accounts, which come from Roman Egypt in 3rd century CE. The bulk of the documents relate to the running of a large, private estate
Estate (house)
An estate comprises the houses and outbuildings and supporting farmland and woods that surround the gardens and grounds of a very large property, such as a country house or mansion. It is the modern term for a manor, but lacks the latter's now abolished jurisdictional authority...

 is named after Heroninos because he was phrontistes (Koine Greek
Koine Greek
Koine Greek is the universal dialect of the Greek language spoken throughout post-Classical antiquity , developing from the Attic dialect, with admixture of elements especially from Ionic....

: manager
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...

) of the estate which had a complex and standarised system of accounting which was followed by all its local farm managers. Each administrator on each sub-division of the estate drew up his own little accounts, for the day-to-day running of the estate, payment of the workforce, production of crops, the sale of produce, the use of animals, and general expenditure on the staff. This information was then summarized as pieces of papyrus scroll
Scroll
A scroll is a roll of parchment, papyrus, or paper, which has been drawn or written upon.Scroll may also refer to:*Scroll , the decoratively curved end of the pegbox of string instruments such as violins...

 into one big yearly account for each particular sub—division of the estate. Entries were arranged by sector, with cash expenses and gains extrapolated from all the different sectors. Accounts of this kind gave the owner the opportunity to take better economic decisions because the information was purposefully selected and arranged.

Simple accounting is mentioned in the Christian Bible (New Testament) in the Book of Matthew, in the Parable of the Talents
Parable of the Talents
The Parable of the talents or minas, , is one of the well known parables of Jesus. It appears in two of the Canonical gospels of the New Testament. The differences between Matthew and the Luke are substantial, and the two parables may not be derived from the same source...

.

Islamic accounting and algebra

In the Qur’an, the word "account" (Arabic: hesab) is used in its generic sense, relating to one's obligation to account to God on all matters pertaining to human endeavour. According to the Qur’an, followers are required to keep records of their indebtedness (Sura 2, ayah
Ayah
Ayah or Aayah is the Arabic word for sign or proof:"These are the Ayat of Allah, which We recite to you with truth...

 282), thus Islam
Islam
Islam . The most common are and .   : Arabic pronunciation varies regionally. The first vowel ranges from ~~. The second vowel ranges from ~~~...

 provides general approval and guidelines for the recording and reporting of transactions.

The Islamic law of inheritance
Islamic inheritance jurisprudence
Islamic Inheritance jurisprudence is a field of Islamic Jurisprudence that deals with inheritance, a topic that is prominently dealt with in the Qur'an. It is often called Mīrāth, and its branch of Islamic law is technically known as ʿulm al-farāʾiḍ...

 (Sura 4, ayah
Ayah
Ayah or Aayah is the Arabic word for sign or proof:"These are the Ayat of Allah, which We recite to you with truth...

 11) defines exactly how the estate is calculated after death of an individual. The power of testamentary disposition
Testamentary disposition
A testamentary disposition is any gift of any property by a testator under the terms of a will.-Types:Types of testamentary dispositions include:* Gift , assets that have been legally transferred from one person to another...

 is basically limited to one-third of the net estate (i.e. the assets remaining after the payment of funeral expenses and debts), providing for every member of the family by allotting fixed shares not only to wives and children, but also to fathers and mothers. The complexity of this law served as an impetus behind the development of algebra
Algebra
Algebra is the branch of mathematics concerning the study of the rules of operations and relations, and the constructions and concepts arising from them, including terms, polynomials, equations and algebraic structures...

 (Arabic
Arabic language
Arabic is a name applied to the descendants of the Classical Arabic language of the 6th century AD, used most prominently in the Quran, the Islamic Holy Book...

: al-jabr) by the Persian
Persian people
The Persian people are part of the Iranian peoples who speak the modern Persian language and closely akin Iranian dialects and languages. The origin of the ethnic Iranian/Persian peoples are traced to the Ancient Iranian peoples, who were part of the ancient Indo-Iranians and themselves part of...

 mathematician Muhammad ibn Mūsā al-Khwārizmī
Muhammad ibn Musa al-Khwarizmi
'There is some confusion in the literature on whether al-Khwārizmī's full name is ' or '. Ibn Khaldun notes in his encyclopedic work: "The first who wrote upon this branch was Abu ʿAbdallah al-Khowarizmi, after whom came Abu Kamil Shojaʿ ibn Aslam." . 'There is some confusion in the literature on...

 and other medieval Islamic mathematicians. Khwārizmī's "The Compendious Book on Calculation by Completion and Balancing
The Compendious Book on Calculation by Completion and Balancing
, also known under a shorter name spelled as Hisab al-jabr w’al-muqabala, Kitab al-Jabr wa-l-Muqabala and other transliterations) is a mathematical book written in Arabic in approximately AD 820 by the Persian (Arabic for "The Compendious Book on Calculation by Completion and Balancing", in...

" (Arabic: Hisab al-jabr w’al-muqabala, Baghdad
Baghdad
Baghdad is the capital of Iraq, as well as the coterminous Baghdad Governorate. The population of Baghdad in 2011 is approximately 7,216,040...

, c. 825
825
Year 825 was a common year starting on Sunday of the Julian calendar.- Europe :* Egbert of Wessex defeats Beornwulf of Mercia at Ellandun. Kent, Surrey, Sussex and Essex submit to Wessex and East Anglia acknowledges Egbert as overlord.* Emperor Louis the Pious of the Franks wars against the Wends...

) devoted a chapter on the solution to the Islamic law of inheritance using linear equation
Linear equation
A linear equation is an algebraic equation in which each term is either a constant or the product of a constant and a single variable....

s. In the 12th century, Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

 translations of al-Khwārizmī's "Book of Addition and Subtraction According to the Hindu Calculation" (Arabic:Kitāb al-Jamʿ wa-l-tafrīq bi-ḥisāb al-Hind) on the use of Indian numerals
Indian numerals
Most of the positional base 10 numeral systems in the world have originated from India, where the concept of positional numeration was first developed...

, introduced the decimal
Decimal
The decimal numeral system has ten as its base. It is the numerical base most widely used by modern civilizations....

 positional number system
Positional notation
Positional notation or place-value notation is a method of representing or encoding numbers. Positional notation is distinguished from other notations for its use of the same symbol for the different orders of magnitude...

 to the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

.
The development of mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...

 and accounting was intertwined during the Renaissance
Renaissance
The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Italy in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historical era, but since the changes of the Renaissance were not...

. Mathematics was in the midst of a period of significant development in the late 15th century. Hindu-Arabic numerals
Hindu-Arabic numeral system
The Hindu–Arabic numeral system or Hindu numeral system is a positional decimal numeral system developed between the 1st and 5th centuries by Indian mathematicians, adopted by Persian and Arab mathematicians , and spread to the western world...

 and algebra
Algebra
Algebra is the branch of mathematics concerning the study of the rules of operations and relations, and the constructions and concepts arising from them, including terms, polynomials, equations and algebraic structures...

 were introduced to Europe from Arab mathematics at the end of the 10th century by the Benedictine monk Gerbert of Aurillac, but it was only after Leonardo Pisano (also known as Fibonacci) put commercial arithmetic
Arithmetic
Arithmetic or arithmetics is the oldest and most elementary branch of mathematics, used by almost everyone, for tasks ranging from simple day-to-day counting to advanced science and business calculations. It involves the study of quantity, especially as the result of combining numbers...

, Hindu-Arabic numerals, and the rules of algebra together in his Liber Abaci
Liber Abaci
Liber Abaci is a historic book on arithmetic by Leonardo of Pisa, known later by his nickname Fibonacci...

 in 1202 that Hindu-Arabic numerals became widely used in Italy.

Luca Pacioli and double-entry bookkeeping

Bartering was the dominant practice for traveling merchants during the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...

. When medieval Europe moved to a monetary economy in the 13th century, sedentary
Sedentism
In evolutionary anthropology and archaeology, sedentism , is a term applied to the transition from nomadic to permanent, year-round settlement.- Requirements for permanent settlements :...

 merchants depended on bookkeeping to oversee multiple simultaneous transactions financed by bank loans. One important breakthrough took place around that time: the introduction of double-entry bookkeeping, which is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form. The historical origin of the use of the words ‘debit’ and ‘credit’ in accounting goes back to the days of single-entry bookkeeping in which the chief objective was to keep track of amounts owed by customers (debtor
Debtor
A debtor is an entity that owes a debt to someone else. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor...

s) and amounts owed to creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...

s. ‘Debit,’ is Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

 for ‘he owes’ and ‘credit’ Latin for ‘he trusts’.

The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300. Giovanno Farolfi & Company were a firm of Florentine merchants whose head office was in Nîmes
Nîmes
Nîmes is the capital of the Gard department in the Languedoc-Roussillon region in southern France. Nîmes has a rich history, dating back to the Roman Empire, and is a popular tourist destination.-History:...

 who also acted as moneylender
Moneylender
A moneylender is a person or group who offers small personal loans at high rates of interest.-See also:* Microfinance - provision of financial services to low-income individuals....

s to the Archbishop of Arles, their most important customer. The oldest discovered record of a complete double-entry system is the Messari (Italian
Italian language
Italian is a Romance language spoken mainly in Europe: Italy, Switzerland, San Marino, Vatican City, by minorities in Malta, Monaco, Croatia, Slovenia, France, Libya, Eritrea, and Somalia, and by immigrant communities in the Americas and Australia...

: Treasurer
Treasurer
A treasurer is the person responsible for running the treasury of an organization. The adjective for a treasurer is normally "tresorial". The adjective "treasurial" normally means pertaining to a treasury, rather than the treasurer.-Government:...

's) accounts of the city of Genoa
Genoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....

 in 1340. The Messari accounts contain debits and credits journalised in a bilateral form, and contains balances carried forward from the preceding year, and therefore enjoy general recognition as a double-entry system.

Luca Pacioli
Luca Pacioli
Fra Luca Bartolomeo de Pacioli was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal contributor to the field now known as accounting...

's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" (Italian: "Review of Arithmetic
Arithmetic
Arithmetic or arithmetics is the oldest and most elementary branch of mathematics, used by almost everyone, for tasks ranging from simple day-to-day counting to advanced science and business calculations. It involves the study of quantity, especially as the result of combining numbers...

, Geometry
Geometry
Geometry arose as the field of knowledge dealing with spatial relationships. Geometry was one of the two fields of pre-modern mathematics, the other being the study of numbers ....

, Ratio
Ratio
In mathematics, a ratio is a relationship between two numbers of the same kind , usually expressed as "a to b" or a:b, sometimes expressed arithmetically as a dimensionless quotient of the two which explicitly indicates how many times the first number contains the second In mathematics, a ratio is...

 and Proportion") was first printed and published in Venice
Venice
Venice is a city in northern Italy which is renowned for the beauty of its setting, its architecture and its artworks. It is the capital of the Veneto region...

 in 1494. It included a 27-page treatise
Treatise
A treatise is a formal and systematic written discourse on some subject, generally longer and treating it in greater depth than an essay, and more concerned with investigating or exposing the principles of the subject.-Noteworthy treatises:...

 on bookkeeping
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...

, "Particularis de Computis et Scripturis" (Italian: "Details of Calculation and Recording"). It was written primarily for, and sold mainly to, merchants who used the book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid the education of their sons. It represents the first known printed treatise on bookkeeping; and it is widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known book printed in Italy to contain algebra
Algebra
Algebra is the branch of mathematics concerning the study of the rules of operations and relations, and the constructions and concepts arising from them, including terms, polynomials, equations and algebraic structures...

.

Although Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise
Treatise
A treatise is a formal and systematic written discourse on some subject, generally longer and treating it in greater depth than an essay, and more concerned with investigating or exposing the principles of the subject.-Noteworthy treatises:...

 on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no originality
Originality
Originality is the aspect of created or invented works by as being new or novel, and thus can be distinguished from reproductions, clones, forgeries, or derivative works....

, it is generally considered as an important work, mainly because of its wide circulation, it was written in the vernacular
Vernacular
A vernacular is the native language or native dialect of a specific population, as opposed to a language of wider communication that is not native to the population, such as a national language or lingua franca.- Etymology :The term is not a recent one...

 Italian language
Italian language
Italian is a Romance language spoken mainly in Europe: Italy, Switzerland, San Marino, Vatican City, by minorities in Malta, Monaco, Croatia, Slovenia, France, Libya, Eritrea, and Somalia, and by immigrant communities in the Americas and Australia...

, and it was a printed book.

According to Pacioli, accounting is an ad hoc ordering system devised by the merchant. Its regular use provides the merchant with continued information about his business, and allows him to evaluate how things are going and to act accordingly. Pacioli recommends the Venetian method of double-entry bookkeeping above all others. Three major books of account are at the direct basis of this system: the memoriale (Italian: memorandum
Memorandum
A memorandum is from the Latin verbal phrase memorandum est, the gerundive form of the verb memoro, "to mention, call to mind, recount, relate", which means "It must be remembered ..."...

), the giornale (Journal), and the quaderno (ledger
Ledger
A ledger is the principal book or computer file for recording and totaling monetary transactions by account, with debits and credits in separate columns and a beginning balance and ending balance for each account. The ledger is a permanent summary of all amounts entered in supporting journals which...

). The ledger is considered as the central one and is accompanied by an alphabetical index
Index (publishing)
An index is a list of words or phrases and associated pointers to where useful material relating to that heading can be found in a document...

.

Pacioli's treatise gave instructions in how to record barter transactions and transactions in a variety of currencies – both being far more commonplace than they are today. It also enabled merchants to audit their own books and to ensure that the entries in the accounting records made by their bookkeepers complied with the method he described. Without such a system, all merchants who did not maintain their own records were at greater risk of theft by their employees and agents: it is not by accident that the first and last items described in his treatise concern maintenance of an accurate inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

.

The nature of double-entry can be grasped by recognizing that this system of bookkeeping did not simply record the things merchants traded so that they could keep track of assets or calculate profits and losses; instead as a system of writing, double-entry produced effects that exceeded transcription and calculation. One of its social effects was to proclaim the honesty of merchants as a group; one of its epistemological effects was to make its formal precision based on a rule bound system
Rule-based system
In computer science, rule-based systems are used as a way to store and manipulate knowledge to interpret information in a useful way. They are often used in artificial intelligence applications and research.-Applications:...

 of arithmetic
Arithmetic
Arithmetic or arithmetics is the oldest and most elementary branch of mathematics, used by almost everyone, for tasks ranging from simple day-to-day counting to advanced science and business calculations. It involves the study of quantity, especially as the result of combining numbers...

 seem to guarantee the accuracy
Accuracy and precision
In the fields of science, engineering, industry and statistics, the accuracy of a measurement system is the degree of closeness of measurements of a quantity to that quantity's actual value. The precision of a measurement system, also called reproducibility or repeatability, is the degree to which...

 of the details it recorded. Even though the information recorded in the books of account was not necessarily accurate, the combination of the double entry system's precision and the normalizing
Normalization (sociology)
Normalization refers to social processes through which ideas and actions come to be seen as "normal" and become taken-for-granted or 'natural' in everyday life. In sociological theory normalization appears in two forms....

 effect that precision tended to create, produced the impression that books of account were not only precise, but accurate as well. Instead of gaining prestige from numbers, double entry bookkeeping helped confer cultural authority on numbers.

Double entry accounting means that each transaction requires the use of at least two accounts.

Accounting in the internet era

In the IETF RFCs
Request for Comments
In computer network engineering, a Request for Comments is a memorandum published by the Internet Engineering Task Force describing methods, behaviors, research, or innovations applicable to the working of the Internet and Internet-connected systems.Through the Internet Society, engineers and...

 the act of accounting is usually defined as the act of collecting information on resource usage for the purpose of trend analysis, auditing, billing, or cost allocation.

For example when a user uses a connectivity service paid with a pay-per-view
Pay-per-view
Pay-per-view provides a service by which a television audience can purchase events to view via private telecast. The broadcaster shows the event at the same time to everyone ordering it...

 approach the accounting process is based on a metering of the resource usage by the user (usually time spent with an active connection or the amount of data tranferred using that connection).
The accounting is hence the recording of this connectivity service consumption for subsequent charging of the service itself.

Accounting scandals

The year 2001 witnessed a series of financial information frauds involving Enron Corporation, auditing firm Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...

, the telecommunications company WorldCom, Qwest
Qwest
Qwest Communications International, Inc. was a large United States telecommunications carrier. Qwest provided local service in 14 western U.S. states: Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming.On April...

 and Sunbeam
Jarden
Jarden Corporation, is an America conglomerate of many well-known consumer product brands in the areas of kitchen electronics, kitchen cookware, kitchen tools, gaming, arts & crafts, home storage, and clothing. In 2006, it was ranked #585 on the Fortune 1000...

, among other well-known corporations. These problems highlighted the need to review the effectiveness of accounting standards
Standard accounting practice
Standard accounting practices require publicly-traded companies to follow certain accounting rules when presenting financial statements so that the readers of the statements can easily compare different companies...

, auditing regulations and corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

 principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.

The Enron scandal
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...

 deeply influenced the development of new regulations to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms.

In addition to being the largest bankruptcy reorganization in American history, the Enron scandal
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...

 undoubtedly is the biggest audit failure. The scandal caused the dissolution of Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...

, which at the time was one of the five largest accounting firms in the world. It involved a financial scandal of Enron Corporation
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...

 and their auditors Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...

, which was revealed in late 2001. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for Chapter 11 bankruptcy protection in December 2001.

One consequence of these events was the passage of Sarbanes-Oxley Act
Sarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...

 in 2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for securities fraud
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws....

, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.

Another example of corporate fraud was the case of Australian telecommunications company One-tel. The financial manager, Jodee Rich was subsequently charged with fraud and spent several years in jail after fraudulently stating the companies financial position, to encourage investment by some of Australia's richest people including James Packer and Lachlan Murdoch.When it collapsed in 2001, One-tel lost its shareholders in excess of 920 million dollars.
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