1.1 Basic Accounting Process

Historically, accounting was considered as a branch of mathematics. Accounting started to evolve because people needed to:

●Record business transactions;

●Know how much they owned and how much they owed.

One of the earliest books published on Accounting was written by an Italian mathematician and teacher named Luca Pacioli (c. 1446/7-1517). His bookkeeping treatise had been translated into many languages and was acknowledged as the chief reason why we maintain accounts in the way we do today. Until about one hundred years ago, records of all accounting data were kept manually in books. This is the reason why the part of accounting that is concerned with recording data is often known as bookkeeping. Bookkeeping is the process of recording data relating to accounting transactions in the accounting books. Nowadays, although handwritten books may sometimes be used (particularly by very small business entities), most accounting data are recorded and stored electronically. Financial accounting is then concerned with how accountants use the bookkeeping data.

Nowadays, accounting has already developed into a whole new science. It has got a totally different definition from that of mathematics. Accounting is fairly and properly defined as a process of recording, analysing and summarising financial data into financial information, and permitting informed judgements and decisions by users of that information. Financial data is the name given to the actual transactions carried out by a business (e.g. sales of goods, purchases of goods, or payments of expenses). These transactions are recorded in books of prime entry. The transactions are analysed in the books of prime entry and the totals are posted in the ledger accounts. Finally, the transactions are summarised in the financial statements. The flowchart can be shown in Exhibit 1.1.

Exhibit 1.1 Purpose of Financial Accounting

Our book will explain the processes of recording, analysing and summarising in the chapters illustrated as follows:

●Recording transactions from source documents to books of prime entry is covered in Chapter 4;

●The aggregating and analysing of transactions in the accounting system are covered in Chapter 5;

●The summarising of transactions in the financial statements is covered in Chapter 6.