Cathy Lee, age 16, of Watertown, N.Y., for her question:
WHEN DID WE START BOOKKEEPING AND ACCOUNTING?
Bookkeeping and accounting are the processes of identifying, measuring, recording and communicating economic information about an organization or other entity, in order to permit informed judgments by users of the information. Record keeping methods, created in response to the development of trade and commerce, are preserved from ancient and medieval sources.
Double entry bookkeeping began in the commercial city states of medieval Italy and was well developed by the time of the earliest preserved double entry books, from 1340 in Genoa.
The first published accounting work was written in 1494 by a Venetian monk named Luca Pacioli. Although it disseminated rather than created knowledge about double entry bookkeeping, Pacioli's work summarized principles that have remained essentially unchanged.
In a double entry record system each transaction is recorded on the basis of its dual impact on the organization's financial position or operating results or both. Information relating to the financial position is on a balance sheet. Operating results are on an income statement.
Additional accounting works were published during the 16th century in Italian, French, German, Dutch and English, and these works included early formulations of the concept of assets, liabilities and income.
The Industrial Revolution created a need for accounting techniques that were adequate to handle mechanization, factory manufacturing operations and the mass production of goods and services. With the emergence in the mid 19th century of large, publicly held business corporations, owned by absentee stockholders and administered by professional managers, the role of accounting was further redefined.
Bookkeeping, which is a vital part of all accounting systems, was by the mid 20th century increasingly carried out by machines. The widespread use of computers broadened the scope of bookkeeping and the term "data processing" now frequently encompasses bookkeeping.
Accounting information can be classified into two categories: financial accounting or public information and managerial accounting or private information.
Financial accounting includes information disseminated to parties that are not part of the enterprise proper stockholders, creditors, customers, suppliers, regulatory commissions, financial analysts and trade associations although the information is also of interest to the company's officers and managers.
Managerial accounting deals with cost profit volume relationships, efficiency and productivity, planning and control, pricing decisions, capital budgeting and similar matters.
Of the various specialized areas of accounting that exist, one of the most important is auditing.
Auditing is the examination, by an independent accountant, of the financial data, accounting records, business documents and other pertinent documents of an organization in order to attest to the accuracy of the financial statements.
Large private and public enterprises sometimes maintain an internal audit staff to conduct auditlike examinations, including some that are more concerned with operating efficiency and managerial effectiveness than with the accuracy of the accounting data.