Page 24 - Encyclopedia of Business and Finance

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ACCOUNTING Early histories of business identify the bookkeeper as
a valuable staff member. As businesses became more com-
Accounting is a field of specialization critical to the func-
plex, the need for more astute review and interpretation of
tioning of all types of organizations. Accounting often is
financial information was met with the development of a
referred to as “the language of business” because of its role new profession—public accounting. In the United States,
in maintaining and processing all relevant financial infor-
public accounting began in the latter part of the nine-
mation that an entity requires for its managing and
teenth century. The first organization was established in
reporting purposes.
1887; the first professional examination was administered
Accountants often have a specific subspecialization in December 1896.
and function at one of several levels. Preparation for the
In the early days of the twentieth century, numerous
field is provided by secondary schools, postsecondary states established licensing requirements and began to
business schools, community colleges, and four-year col- administer examinations. During the first century of pub-
leges and universities. lic accounting in the United States, the American Institute
of Certified Public Accountants (and its predecessor
WHAT IS ACCOUNTING? organizations) provided strong leadership to meet the
changing needs of business, not-for-profit, and govern-
Accounting is a body of principles and conventions as well
as an established general process for capturing financial mental entities.
information related to an entity’s resources and their use
Generally Accepted Accounting Principles (GAAP). No
in meeting the entity’s goals. Accounting is a service func-
single source provides principles for handling all transac-
tion that provides information of value to all operating
units and to other service functions, such as the headquar- tions and events. Over time, conventional rules have
developed that continue to be relevant. Additionally,
ters offices of a large corporation.
groups have been authorized to establish accounting stan-
dards. The Financial Accounting Standards Board (FASB)
Origin of Accounting. Modern accounting is traced to assumed responsibility for accounting standards and prin-
the work of an Italian monk, Luca Pacioli, whose publica- ciples in 1973. It is authorized to amend existing rules and
tion in 1494 C.E. described the double-entry system, establish new ones. In 1992, the Auditing Standards
which continues to be the fundamental structure for con- Board established the GAAP hierarchy. At the highest
temporary accounting systems in all types of entities. level of the hierarchy are FASB statements and interpreta-
When double-entry accounting is used, the balance sheet tions; APB opinions were issued from 1959 to 1973 by
identifies both the resources controlled by the entity and the Accounting Principles Board (APB), and Accounting
those parties who have claims to those assets. Research Bulletins, issued until 1959 by the Committee

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