Accounting and the accounting system
1. Introduction
Accounting is the basis on which management decisions and therefore financial decisions are based. There is no economic activity outside the registration and involvement of accounting science techniques. From the smallest economic activity to the economic transactions of large corporations, accounting science brings a wealth of knowledge, which requires that it be applied by highly trained public accounting professionals.
Accounting is a system adapted to classify the economic events that occur in a business. In such a way that, it becomes the central axis to carry out various procedures that will lead to obtaining the maximum economic performance involved in setting up a specific company.
Thus, this work contains an introductory view around the historical review of accounting, its definition, objectives, importance, accounting procedures, among other aspects related to the topic discussed.
2. Accounting Concept
Accounting is a business tool that allows the systematic registration and control of all operations carried out in the company, therefore there is no specific definition of accounting although all these definitions have something in common.
Below are several meanings of accounting that have been defined by different authors and collegiate bodies of the accounting profession:
"Accounting is the art of recording, classifying and summarizing in a meaningful way and in terms of money, operations and events that are at least of a financial nature, as well as interpreting their results" (American Institute of Certified Public Accountants)
"Accounting is the system that measures business activities, processes that information into reports and communicates these findings to decision makers" (Horngren & Harrison. 1991)
"Accounting is the art of interpreting, measuring and describing economic activity" (Meigs, Robert., 1992)
"Accounting is the language that entrepreneurs use to be able to measure and present the results obtained in the financial year, the financial situation of the companies, the changes in the financial position and / or in the cash flow" (Catacora, Fernando, 1998)
"Accounting has various functions, but its main objective is to provide, when required or on specified dates, reasoned information, based on technical records, of the operations carried out by a public or private entity" (Redondo, A., 2001)
Accounting is a technique that deals with recording, classifying and summarizing the mercantile operations of a business in order to interpret its results, so that managers through it can guide themselves on the course that their business follows through accounting data; Thus allowing to know the stability, the solvency of the company and the financial capacity of the company.
3. Evolution of accounting and its main contributions.
Accounting dates back to ancient times, when man was forced to keep records and controls of his properties because his memory was not enough to store the required information. It has been shown through various historians that in times such as the Egyptian or Roman, accounting techniques derived from commercial exchange were used.
Double entry bookkeeping started in Italian commercial cities; the oldest accounting books that are preserved come from the city of Genoa, they date from the year 1340, and show that, by that time, accounting techniques were already very advanced. The development in China of the first forms of treasury and of the abacuses, during the first centuries of our era, allowed the progress of accounting techniques in the East.
The beginning of accounting literature is limited to the work of the Venetian monk Luca Pacioli entitled: »The Summa of Arithmetic, Geometry Proportioni et Proportionalitá» where the concept of double entry is considered for the first time. Despite the fact that Pacioli's work, rather than creating, was limited to disseminating knowledge of accounting, his books synthesized accounting principles that have lasted to this day. Fray Luca Pacioli, who in 1494, established the foundations of all accounting theory. Among one of the several merits that this monk had, was that of having explained in detail the procedures that should be applied for the management of the accounts, which is known until today as the theory of double entry or theory of the position and the fertilizer.
The value of the principles established by the monk Fray Luca Pacioli has transcended to this day, in the sense that all businesses resort in some way to recording their operations through the double entry theory.
The Industrial Revolution caused the need to adopt accounting techniques in order to reflect the increasing mechanization of processes, typical factory operations and the mass production of goods and services. With the emergence, in the mid-nineteenth century, of industrial corporations, owned by anonymous shareholders, the role of accounting became even more important.
Bookkeeping, an essential part of any system, has been computerized since the second half of the twentieth century, so that, increasingly, it is up to computers to perform these tasks. The widespread use of computer equipment made it possible to take greater advantage of accounting, often using the term data processing, currently the concept of accounting has fallen into disuse.
Accounting as it is known today is the product of a large number of dissimilar commercial practices that have required, over the years, to improve the quality of financial information in companies.
Accounting towards the 21st century is influenced by three variables:
• Technology.
• Complexity and globalization of business.
• Training and education.
Technology through the impact generated by the increase in the speed with which financial transactions are generated, through the INTERNET phenomenon. The second variable of complexity and globalization of business requires that accounting establish new methods for the treatment and presentation of financial information. The last variable related to training and education requires that future managers master the language of business.
Accounting Information System Concept
An accounting information system comprises the methods, procedures and resources used by an entity to keep track of financial activities and summarize them in a useful way for decision making.
Accounting information can be classified into two broad categories: financial accounting or external accounting and cost accounting or internal accounting. Financial accounting shows the information that is provided to the general public, and that does not participate in the administration of the company, such as shareholders, creditors, clients, suppliers, financial analysts, among others, although this information also It is of great interest to the administrators and managers of the company. This accounting allows obtaining information on the financial position of the company, its degree of liquidity and on the profitability of the company.
Cost accounting studies the cost-benefit-volume of production relationships, the degree of efficiency and productivity, and allows planning and control of production, decision-making on prices, budgets and capital policy. This information is not usually released to the public. While financial accounting has the generic objective of providing the public with information about the economic - financial situation of the company; and cost accounting is essentially intended to provide information to different departments, managers and planners so that they can carry out their functions.
Purpose and nature of accounting information
The purpose of accounting is to provide financial information about an economic entity. Those who make administrative decisions need this financial information from the company to carry out good planning and control of the organization's activities.
The role of the organization's accounting system is to develop and communicate this information. To achieve these objectives, computers can be used, as well as manual records and printed reports.
4. Structure of an accounting system
An accounting information system follows a basic model and a well-designed information system, thus offering control, compatibility, flexibility and an acceptable cost / benefit ratio.
The accounting system of any company regardless of the accounting system that I used, three basic steps must be executed using related to financial activities; The data must be recorded, classified and summarized, however the accounting process involves communication to those who are interested and the interpretation of accounting information to help in making business decisions.
1. Record of financial activity: an accounting system must keep a systematic record of daily business activity in economic terms. In a company all kinds of transactions are carried out that can be expressed in monetary terms and that must be recorded in the accounting books. A transaction refers to a completed action rather than a possible future action. Certainly not all business events can be objectively measured and described in monetary terms.
2. Information classification - A complete record of all business activities commonly involves a large volume of data, too large and diverse to be useful to decision-makers. Therefore, the information must be classified into groups or categories. Those transactions through which money is received or paid should be grouped.
3. Summary of information: for the accounting information used by decision-makers, it must be summarized. For example, a full account of the sales transactions of a company like Mars would be too long for anyone to read. Employees responsible for purchasing merchandise need summary sales information by product. Warehouse managers will need the sales information summarized by department, while Mars senior management will need the sales information summarized by warehouse.
These three steps that have been described: registration, classification and summary constitute the means used to create the accounting information. However, the accounting process includes more than the creation of information, it also involves the communication of this information to those who are interested and the interpretation of the accounting information to help in making business decisions. An accounting system must provide information to managers and also to various external users who have an interest in the financial activities of the company.
Use of Accounting Information
Accounting goes beyond the process of creating records and reports. The ultimate goal of accounting is the use of this information, its analysis and interpretation. Accountants are concerned with understanding the meaning of the amounts they obtain. They look for the relationship between business events and financial results; they study the effect of different alternatives, for example the purchase or lease of a new building; and they look for significant trends that suggest what may happen in the future.
If managers, investors, creditors, or government employees are to make effective use of accounting information, they must also have an understanding of how they obtained those figures and what they mean. An important part of this understanding is clear recognition of the limitations of accounting reports. A business manager or other person in a decision-making position who lacks accounting skills will probably not appreciate the extent to which accounting information is based on estimates rather than precise and accurate measurements.
Characteristics of an effective accounting information system.
A well-designed information system offers control, compatibility, flexibility, and an acceptable cost / benefit ratio.
Control: a good accounting system gives management control over the operations of the business. Internal controls are the methods and procedures that a business uses to authorize operations, protect its assets, and ensure the accuracy of its accounting records.
Compatibility: an information system meets the compatibility guideline when it operates smoothly with the structure, personnel, and special characteristics of a particular business.
5. Objectives of accounting information
Based on the bibliographic review carried out around the central theme of this work, Accounting, it can be concluded that, since memorable times, man has insisted on keeping an exhaustive control of all financial movements that are executed in his small, medium or large companies. Consequently, it has supported itself in various ways to achieve its end. At first, I did it in very simple processes based on the approaches presented by the monk Fray Luca Paciolo, however, as time passed, technological advancement and business demands, accounting processes and techniques have evolved. Currently it can be said that the process of counting and recording financial data is developed in a simpler and easier way with the support of the accountant, but,It is necessary to clarify that they are still governed by the principles established to execute business accounting.
Accounting information, and therefore accounting, is not an exact language, neither because of the nature of the facts it records nor because of the lack of a single, complete and mandatory accounting code. There is, therefore, a legitimate, fair and honest margin of discretion in the recording, interpretation and use of the data you provide.
Summary
Accounting is a technique that deals with recording, classifying and summarizing the mercantile operations of a business in order to interpret its results, so that managers can guide themselves on the course of their business; thus allowing to know the stability, solvency and financial capacity of the company. Accounting dates back to ancient times, when man was forced to keep records and controls of his properties. The beginning of accounting literature is limited to the work of the Venetian monk Luca Pacioli entitled: »The Summa of Arithmetic, Geometry Proportioni et Proportionalitá»; one of the merits that this monk had,was the one to have explained in detail the procedures that should be applied for the management of the accounts, which is known until today as the theory of double entry or the theory of charge and credit. Accounting as it is known today is the product of a large number of dissimilar commercial practices that have required, over the years, to improve the quality of financial information in companies. Accounting towards the XXI century is influenced by three variables Technology, Complexity and globalization of business, Training and education. An accounting information system comprises the methods, procedures and resources used by an entity to keep track of financial activities and summarize them in a useful way for decision making.A well-designed information system offers control, compatibility, flexibility, and an acceptable cost / benefit ratio. The importance of accounting is recognized and accepted by any private or governmental entity, who are fully convinced that in order to obtain greater productivity and use of their assets, as well as for any information of a legal nature, the services provided by accounting are essential. The administration of an estate, to be efficient, will require the help of accounting, which provides all the data required for decision-making in a company based on technical and reasoned information. Accounting is equally essential to the successful operation of a business, university, community, social program, or city.All citizens need some knowledge of accounting if they want to act smart and accept challenges imposed by society.
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