Reading: Introduction to Accounting

Luca Pacioli, an Italian Renaissance mathematician, is known as the "Father of Accounting".  He was born sometime during 1446 and 1448.   Even though he was called the Father of Accounting, he did not invent the system.  He published what is said to be the first accounting textbook. It was a mathematics booked called "Everything about Arithmetic, Geometry, and Proportions".  This book served as the accounting textbook until around the 16th century. The accounting section of his book described the double-entry system with the use of journals and ledgers.  He further developed the system by introducing the trial balance.  He is noted for saying that no one should end the working day until the debits equal the credits.   

The Financial Accounting Standards Board (FASB) is the primary board that sets the standards for accounting. The "standards" that they develop are known as "generally accepted accounting principles (GAAP).  How can the information being provided be trusted?  GAAP uses Measurement principles and Assumptions. 

One of the main assumptions is the economic entity assumption.  The definition of an entity is "a thing with distinct and independent existence".  An entity can be an individual, sole proprietorship, partnership, corporation or government agency.  It is extremely important to keep financial records of entities separate from its owners.  If an owner has more than one business, each business should have its own set of accounting records and be separate from the owner's personal record keeping system. 

Accounting is divided into financial accounting and managerial accounting. External decision makers use financial accounting to determine the health of a business.  They use reports called financial statements.  Managerial accounting is used by internal decision makers.