BUSINESS AND ACCOUNTING

Business is the exchange of goods, services, and money, that results in mutual benefit or profit for both parties involved. An individual engages in business because he or she believes that the rewards, or possible future benefits, of business are greater than the risks, or possible future sacrifices, of business.

For as long as there have been people who engaged in buying and selling goods, there has been a need for ways to hold other people accountable for their actions—to provide some assurance that they will behave or perform as expected. In the broadest sense, accountability is responsibility. When we hold someone accountable for his or her actions, we assume that the individual is responsible or answerable for certain actions.

This need for accountability has evolved over time into the need for accounting systems that provide information to hold people and, therefore, businesses accountable for the resources entrusted to them by others. An accounting system is a set of methods, plans, and procedures used to identify, analyze, measure, record, summarize, and communicate relevant economic information to interested parties.

For example, if you were a merchant 1,000 years ago and needed goods to sell, you might send a trusted friend to make a trade for you and to arrange for the delivery of the traded goods. In order to protect your investment in these goods, you would need a way to determine how much you have invested, who has control of the goods you are trading, and how much you are receiving in return for your investment. Likewise, your trusted friend needs a way to determine the amount of goods traded and how much is received in trade. Finally, the person with whom you are trading needs a way to indicate how much they received in the trade as well as what they have given to you. A system that protects these business parties by providing the economic information necessary to evaluate and control business transactions is called an accounting system.

Accounting systems have evolved over many centuries as the needs for information about business have changed. It is important to understand the evolution of accounting because accounting is not a science such as physics. Rather accounting is a discipline that changes as the needs of its users change. The accounting systems used hundreds of years ago are not adequate today. Likewise, today's accounting systems will be inadequate at some point in the future.

To understand the evolution of accounting we will travel back in time to consider important business and accounting eras. This will illustrate the changes that have occurred in business and accounting.

Date: 2015-01-02; view: 1058