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what is accounting?

Accounting is defined by the American Institute of Certified Public Accountants (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

Etymology

The word "Accountant" is derived from the French word Compter, which took its origin from the Latin word Computare. 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 and in orthography to its present form

History of accounting

The earliest accounting records were found amongst the ruins of ancient Babylon, Assyria and Sumeria, 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 had been gained after the crops had been harvested or the young animals weaned

Islamic accounting

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 282), thus Islam thus provides general approval and guidelines for the recording and reporting of transactions

Accounting systems

Accounting systems are becoming increasingly granular. Early accounting systems would record access to specific computing systems. Modern accounting systems are able to record access to specific menu items or database cells.

25 Okt 2010

Accounting Information System

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An accounting information
system is designed to record all
transactions of a business. An
accounting clerk enters all
business transactions into the
program and the transactions
automatically are posted to the
corresponding accounts. This is
important because any time
information is needed, it can
found on the computer and is
organized.
Accounts Payable
An accounting information
system allows for easier
payments made on accounts
payable. Many systems are
designed to pay all bills due with
a click of a button. A date is
selected and checks are
automatically made out for all
bills due. Most systems allow a
clerk to unselect certain bills if a
company is not ready to pay a
specific bill.
Accounts Receivable
This type of system also allows
for easier billing. Information is
recorded on the system and a
clerk chooses when to print bills.
This is done daily, weekly or
monthly, depending on the
business. The system generates
all bills efficiently and easily for
the clerk.
Financial Statements
An accounting information
system generates all financial
reports without the clerk
calculating anything. The dates
for the reports are entered into
the system and the computer
generates reports for that
specific period. This comes in
handy when a report from a
different period is needed
immediately. The system has the
capability of producing reports
for any period that the
information was recorded for.
Year-End Closing
Year-end closing is often a
tedious process for an
accountant. An unadjusted trial
balance is created, adjusting
entries are made and recorded,
an adjusted trial balance is
calculated, closing entries are
made, and, finally, a post-closing
trial balance is generated. This
process is complicated and time
consuming, but with an
accounting information system,
the computer does most of the
work on its own.

23 Okt 2010

Value Product

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The value product (VP) is an
economic concept formulated by
Karl Marx in his critique of
political economy during the
1860s, and used in Marxian
social accounting theory for
capitalist economies. Its annual
monetary value is approximately
equal to the netted sum of six
flows of income generated by
production:
wages & salaries of employees.
profit including distributed and
undistributed profit.
interest paid by producing
enterprises from current gross
income
rent paid by producing
enterprises from current gross
income, including land rents.
tax on the production of new
value, including income tax and
indirect tax on producers.
fees paid by producing
enterprises from current gross
income, including royalties,
certain honorariums and
corporate officers' fees, and
certain leasing fees incurred in
production and paid from
current gross income.
The last five money-incomes are
components of realized surplus
value. In principle, the value
product also includes unsold
inventories of new outputs.
Marx's concept corresponds
roughly with the concept of
value added in national
accounts, with some important
differences (see below) and with
the proviso that it applies only to
the net output of capitalist
production, not to the valuation
of all production in a society,
part of which may of course not
be commercial production at all.

Value added

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Value add refers to "extra"
feature(s) of an item of interest
(product, service, person, etc.)
that go beyond the standard
expectations and provide
something "more" while adding
little or nothing to its cost. Value
added features give competitive
edges to companies with
otherwise more expensive
products.
In economics, the difference
between the sale price of a
product and the cost of
materials and outside services to
produce it is the value added
per unit. Summing value added
per unit over all units sold is
total value added. Total value
added is equivalent to Revenue
less Outside Purchases (of
materials and services). Value
Added is a higher portion of
Revenue for integrated
companies, e.g., manufacturing
companies, and a lower portion
of Revenue for less integrated
companies, e.g., retail
companies. Total value added is
very closely approximated by
Total Labor Expense (including
wages, salaries, and benefits)
plus "Cash" Operating Profit
(defined as Operating Profit plus
Depreciation Expense, i.e.,
Operating Profit before
Depreciation). The first
component (Total Labor
Expense) is a return to labor and
the second component
(Operating Profit before
Depreciation) is a return to
capital (including capital goods,
land, and other property). In
national accounts used in
macroeconomics, it refers to the
contribution of the factors of
production, i.e., land, labour,
and capital goods, to raising the
value of a product and
corresponds to the incomes
received by the owners of these
factors. The national value
added is shared between capital
and labor (as the factors of
production), and this sharing
gives rise to issues of distribution.

Double counting

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Double-counting in accounting
is an error whereby a transaction
is counted more than once, for
whatever reason. But in social
accounting it also refers to a
conceptual problem in social
accounting practice, when the
attempt is made to estimate the
new value added by Gross
Output, or the value of total
investments.

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Statistical effects of ownership relations on the boundary between intermediate consumption and value-added

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The statistical boundary between
intermediate consumption and
value added is affected by
ownership relations.
If, for example, an enterprise
buys services from other
enterprises, instead of producing
them in-house, its own value
added will be reduced, and its
intermediate consumption will be
increased.
But because in-house production
itself has intermediate inputs, the
value of the increase in
intermediate consumption that
results from in-house production
is likely to be less than the value
of equivalent services purchased
from another enterprise.
Thus, the sizes of total value
added and intermediate
consumption are affected by the
degree to which ancillary
activities are either produced in-
house by an enterprise, or
bought from other enterprises
within the domestic economy.
Likewise, rentals paid by a
business on buildings or
equipment under an operating
lease are recorded in national
accounts as intermediate
consumption, and are excluded
from its value-added.
Yet, if an enterprise owns its own
buildings, machinery and
equipment, most of the costs
associated with their use are not
recorded under intermediate
consumption; depreciation
charges are included in gross
value added, and interest costs,
both actual and implicit, are
included in net operating
surplus. Only the expenses of
materials needed for physical
maintenance and repairs to
buildings and equipment appear
under intermediate consumption.
Consequently, if businesses
decide for economic reasons to
rent more physical assets, or
alternatively buy more physical
assets, this can independently
affect the size of GDP
components and the size of
intermediate consumption. If
they buy, this boosts GDP; if they
rent or lease, this lowers GDP.

Included in intermediate consumption in the UNSNA system

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Operating expenses such as the
rentals paid on the use of fixed
assets leased, and also fees,
commissions, royalties, etc.,
payable under licensing
arrangements.
The value of goods or services
used as inputs into ancillary
activities such as purchasing,
sales, marketing, accounting,
data processing, transportation,
storage, maintenance, security,
etc.
The ordinary, regular
maintenance and repair of
fixed assets used in production.
Expenditures on durable
producer goods which are
small, inexpensive and used to
perform relatively simple
ongoing operations.
Expenditures on research and
development, staff training,
market research and similar
activities.
all goods except dwellings
acquired by governmental
establishments engaged in the
production of defence services,
including expenditures by the
military on weapons of
destruction and the equipment
needed to deliver them.
Rentals paid on buildings or
equipment under an operating
lease.