Accounting oraccountancy is the measurement, processing and communication of financial information abouteconomic entities.[1][2] The modern field was established by the Italian mathematicianLuca Pacioli in 1494.[3]Accounting, which has been called the "language of business",[4] measures the results of an organization's economic activities and conveys this information to a variety of users, includinginvestors, creditors,management, andregulators.[5] Practitioners of accounting are known asaccountants. The terms 'accounting' and 'financial reporting' are often used as synonyms.
Accounting can be divided into several fields includingfinancial accounting,management accounting,auditing, and tax accounting.[6]Accounting information systems are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation offinancial statements, to external users of the information, such asinvestors, regulators andsuppliers;[7] and management accounting focuses on the measurement, analysis and reporting of information for internal use by management.[1][7]The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.[8]
Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statementsare usually audited by accounting firms,[9] and are prepared in accordance with generally accepted accounting principles (GAAP).[7]GAAP is set by various standard-setting organizations such as theFinancial Accounting Standards Board (FASB) in the United States[1] and the Financial Reporting Council in the United Kingdom. As of 2012, "all major economies" have plans to converge towards or adopt theInternational Financial Reporting Standards (IFRS).[10]
The history of accounting is thousands of years old and can be traced to ancientcivilizations.[11][12][13] The early development of accounting dates back to ancient Mesopotamia, and is closely related to developments in writing,counting and money;[11]there is also evidence for early forms of bookkeepingin ancient Iran,[14][15] and early auditing systems by the ancient Egyptians and Babylonians.[12] By the time of the EmperorAugustus, the Roman government had access to detailed financial information.[16]
Double-entry bookkeeping developed in medieval Europe,[17] and accounting split into financial accounting and management accountingwith the development of joint-stock companies. The first work on adouble-entry bookkeeping system was published in Italy, by Luca Pacioli.[18] Accounting began to transition into an organized profession in the nineteenth century,[19] with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880.[20]