Accounting

Jakob Fugger with his main accountant M. Schwarz. As a background the files appear with the names of the branches of the Fugger House: Russia, Venice, Krakow, Lisbon, Innsbruck, Nuremberg, etc.

Accounting is a discipline that is in charge of studying, measuring and analyzing the patrimony, the economic and financial patrimonial situation of a company or organization, in order to facilitate decision-making in the within it and external control, presenting the information, previously registered, in a systematic and useful way for the different interested parties.

Accounting is a technical discipline that, based on the processing of data on the composition and evolution of the assets of an entity, the assets owned by third parties in its possession and certain contingencies, produces information for decision-making by administrators and third parties interested parties and for monitoring the resources and obligations of the entity.

The purpose of accounting is to provide information at a given moment of the results obtained during a period of time, which is useful for decision-making, both for the control of past management, and for the estimates of the future results, endowing such decisions with rationality and efficiency.

There are currently discussions on the table that try to define an ontological status of accounting, in which there are great disagreements about whether it has achieved a scientific status, that is, if it can be called science or, failing that, art, language, or simply technique. To avoid this discussion, many times it is chosen to refer to accounting as a "discipline", however, some authors have made an effort to argue their position regarding this issue.

One of the ontological definitions that seems to have the greatest ability to argue from the conceptions of the history of science and epistemology, is the one that calls it a technology of an immaterial nature or "soft technology". This does not mean abandoning the scientific character of the accounting profession, on the contrary, it shifts the focus of attention to the point of defining a certain scientific nature of the accounting profession, from the tool (accounting) to the actor and operator of said tool Accountant. In this sense, the accountant would be the subject, who can acquire scientific status by using a socially developed tool (accounting), capable of being calibrated under the rules of different "accounting standards" to reasonably measure the exchanges of resources in an organization, be it a private or public company, a department or a country.

Also, it should be recognized that in most scientific publications, the word "science" It is the most used to refer to accounting, however, lacking arguments that support the use of the word. Likewise, the use of the word "discipline" It constitutes a neutral option in this discussion since it brings together the aspects related to the accounting exercise without first having to define its scientific status. Accounting helps us keep our accounts balanced

History

This section is an excerpt from Accounting History.[chuckles]edit]

Portrait of Luca Pacioliattributed to Jacopo de' Barbari, 1495, (Museo di Capodimonte).

The accounting or accounting history spans thousands of years and can be observed in ancient civilizations.Date Error: Tag invalid; invalid names, e.g. too many

The accounting concept goes back to Ancient Greece and Mesopotamia, and is closely related to the advances in writing, counting the money and the first audit systems used by the ancient Egyptians and Babylonians. At the time of the Roman Empire, the government had access to detailed financial information.

In India Chanakia wrote a manuscript similar to a book of financial administration during the period of the Maurya Empire. His book "Arthasthra" contains some detailed aspects of how to keep books of accounts for a sovereign state.

The Italian Luca Pacioli, recognized as The Father of Accounting and Books was the first person to publish a work about the double game, and introduced this discipline in Italy.

The modern profession of the collegiate counter originated in Scotland in the nineteenth century. The accountants often belonged to the same associations as lawyers, who used to offer accounting services to their clients. Early modern accounting had similarities to which today is known as forensic accounting. Accounting began to become an organized profession in the 19th century, with local professional bodies in England that merged to form the Institute of College Accountants in England and Wales in 1880.

Types of accounting

Accounting can be classified into two branches, depending on the division criteria used. According to the type of economic unit to which the generated accounting information refers, the following classification can be made:

It is a discipline that follows the method to generate and then apply certain theory and also processes, which are:

• Accounting theory: set of rules, standards, principles, techniques, procedures, criteria and instruments that are the basis of accounting.

• Accounting process: set of steps that are part of development for the fulfilment of the goals that an entity has, which are: systematization, valuation, processing, evaluation and finally the result information.

Macroaccounting

National accounting provides a systematic numerical representation of a country's economic activity during a given period. It is prepared by the States, provides useful information that guides the economic policy of the country.

Microaccounting

It is the accounting of small economic units. Its objective is to provide information that will be used in decision making. Within microaccounting, a public accounting is distinguished, executed by the different public administrations and a private accounting, oriented to the company.

Within business accounting, users of accounting information can be divided into two users, internal and external. The group of internal users includes all those people or bodies that use the information from within the company to make appropriate decisions in its management. On the other hand, external users use accounting for the management of the company covered by the information, and include all those entities that do not participate in the management, such as shareholders, creditors, lenders, customers, investors, employees and the public administration., especially the tax administration, and who basically need accounting information to also make decisions and control the company from multiple points of view. Depending on the users of accounting, a distinction is made between financial accounting and executive or management accounting:

1. Financial accounting (external): provides the essential information of the operation and financial status of the company to all interested economic agents (clients, investors, suppliers, public administrations, etc.). The legislation of most countries regulates financial accounting standards to homogenize the resulting information and to give it greater reliability and comparability. Financial accounting usually has little detail because it contains very aggregated information.
2. Management accounting or management accounting (intern): it encompasses cost accounting. It is the accounting developed for an internal or self-consumption purpose in the company itself and is used for the calculation of the costs, economic and productive states within the company that will serve to make decisions regarding production, organization, marketing, etc. It is characterized by being more flexible, since it is based on self-regulation, it is subject only to rules that self-impose the company itself and not to legal standards, it is usually more detailed than financial accounting and is also more immediate than this, because it is to serve for very close decisions. For its part, cost accounting is a very useful tool for the internal use of business managers for the development of planning, control and decision-making functions. In short, cost accounting is a very useful tool for company management, and can have a very important impact on the strategic decision-making process. On the other hand, financial accounting is very important because it has the objective of providing information to individuals or entities outside the society on the situation of the company, public administration, investors, market governing entities, etc.

Basics

They are each of the assets, rights and obligations that are part of the assets of companies. The conceptual framework of the International Accounting Standards Board (IASB) defines five basic elements that make up accounting:

• Active.
• Passive.
• Capital.
• Expenditure (degree).
• Income.

All these must follow a logical itinerary for proper accounting, the steps of which are reflected in the financial statements:

• Definition.
• Recognition
• Measurement.

Equity masses

The assets of a company are the set of assets, rights and obligations related to a company that constitute the economic and financial means through which it can meet its objectives.

The patrimony is made up of a multitude of elements of a very different nature, which is why, as already mentioned, each of the assets, rights and obligations that are part of the company is called a patrimonial element.

For the purposes of its valuation, equity is made up of a positive part (assets), made up of goods (material elements), as well as rights (intangible elements), derived from legal relations of the company and a part Negative (passive), formed by obligations. The algebraic sum of the positive value of assets and rights, along with the negative value of obligations would result in the value of net worth.

The fundamental equity equation states that it is fulfilled when the sum of the value of assets (goods and rights) is equal to the sum of the value of liabilities and net worth (capital).

(1)ACTIVE=PASIVO+PATRIMONIO NETO{displaystyle {mbox{mbox}}={mbox{mbox}{mbox{mbox}{mbox}}{,}

Balance Sheet Structure

ACCOUNTING EQUATION WITH NUMERICAL EXAMPLE

Active

The asset is the set of goods (material elements) and rights (intangible elements) economically controlled by the company, derived from legal relations of property, possession, use, credit, etc. Which is divided into current , fixed and deferred .

• Current or circulating assets: it is that liquid asset at the end of the exercise, or convertible into money within the next twelve months. In addition, currents are considered to those assets applied for the cancellation of a current liability, or that avoid erogations during the exercise. With greater thermal precision, we could say that the "current asset" or "current asset" refers to those resources of the entity that have high rotation or mobility. The basic components of the circulating asset are stocks, debtors, short-term financial investments and treasury.

• Fixed, or non-current assets: are those goods that do not vary during the company's operating cycle (or fiscal year). For example, the building where a factory produces its products is a fixed asset because it remains in the company throughout the process of manufacturing and selling the products. A same good may have different nature according to the company in question, for example, a computer for a bank is an element of its fixed asset because it stays for several exercises in the company throughout the manufacturing process; instead a computer, for a company dedicated to the sale of computer equipment, is a product framed within the goods and not within its fixed asset. However the computers used by this company for example to carry its accounting system, if they have the nature of fixed assets.

• Deferred assets: The balance of the deferred assets accounts is made up of expenses paid in advance, on which a profitable service is entitled, both in the same period and beyond.

Liabilities and Net Worth (PN)

• The liability consists of obligations to third parties, originated by the assumption of legal responsibilities to give, do or consent. It can be divided into current and non-current.

• The own funds, also called capital or net assets, because they are the difference between the asset and the required liability, are therefore the net accounting value of the company, since it represents the value of the goods and rights that the company should no one, constitutes the grouping of property elements that represent the contributions of the owners to the company and which constitutes the whole of the sources of own financing.

This item can be calculated as the difference between assets and liabilities. Thus, the accounting equation is fulfilled: Total assets = Total liabilities + Net worth (Capital); or what is the same, Total assets − Total liabilities = Equity (Capital), being then Total assets − Current liabilities − Non-current liabilities = Net worth. It can also be calculated by the grouping or direct sum of the elements that basically make up capital plus reserves plus results for the year.

Accounting methodology

Accounting, as a science, uses a method called accounting, which consists of four steps:

• Coverage of the facts of economic content that may be accounted for.
• Quantification of accounting facts.
• Representation by recording the facts in accounting accounts (conceptual instruments) recorded in accounting books (material instruments).
• Attachment of recorded information presented in synthesized form in the financial statements (annual accounts).

The accounts

The accounts are the instruments of representation and measurement of each patrimonial element. Each one consists of a denomination and a numerical code, which uniquely identifies it. These identifying elements are the representation of the reality of the heritage elements, written on paper or in an electronic record. Therefore, there are as many accounts as assets the company has. Accounting regulation usually establishes the freedom for each entity to provide the accounts that it will use in its accounting process and the degree of detail of its information, although there are laws (such as France, Mexico, Spain or Peru) that establish plans or guidance manuals of accounts to be used by companies and although the accounting legislation regarding the number and name of accounts is not usually mandatory, it is habitually used in a homogeneous way by companies in the same country. The accounting plan of a company is the codification of the set of accounts used by a company, it includes all the accounts and their groupings.

It is where the increases or decreases of each item generated by a business transaction are recorded and the entire accounting system has a separate account for each class of assets, liabilities, capital, income and expenses. Each account has a section to record increases and another for decreases. The account has two basic columns to record business operations. These columns record increases and decreases, which are called movements. The columns are identified with the name debit and credit, or charge and credit.

According to this, for example, it is common for there to be accounts for real estate, furniture and fixed assets of a company, merchandise, raw materials, customer debts and credits with suppliers, accounts and bank loans, as well as accounts for the different existing expenses and income, such as personnel, financial expenses, and services received. Each company also has the degree of development that it wants to use in its accounting system and the accounts are usually grouped into different items or groups that reflect the same concepts of goods or expenses.

Graphically they are drawn as a letter "T", where the left side is called "debit" or "must" and on the right side "credit"or "credit", without these terms having any other meaning other than indicating a mere physical situation within the account (the debit is the left part of the account and the credit is the right part of the account, and do not represent anything else as the different meanings of these words may indicate). There are two types of account: equity and management or results. Equity accounts will appear on the balance sheet and may form part of the assets or liabilities (and within this, the liability or capital, also called own funds or net worth). The management or income accounts are those that reflect income or expenses and will appear in the Profit and Loss account.

Regardless of whether the accounts are equity or income, it is also said that by their nature they are debtors or creditors. Accounts are debtors when, being equity, they refer to an asset or, being management, they refer to an expense; and they are creditors when, being equity, they refer to a liability or a capital account, or when, being management, they refer to income.

Debit and payment agreement and double entry system

Charge or debit an account is to make a notation on the debit, while Credit or credit a account is to make an entry on the credit. In asset accounts, when it increases, they are debited, and when it decreases, they are credited. In the liability and capital accounts, when it increases, they are credited, and when it decreases, they are charged.

Regarding the effect that commercial transactions have without altering the equity equation, although each transaction affects the balance, it changes the values in equity, but without altering the equality of the equation. In each of these transactions, at least two accounts are involved. There are seven types of transactions that follow the debit and credit theory.

Double entry system

The double-entry system consists in that, in each accounting event, there must be at least one debit in one account and one credit in another, and the The sum of the charges must be equal to the sum of the credits made; In other words, all the resources that exist in a company are the result of the application of resources that had a defined source.

The n#34;double entry#34; As an accounting technique, it meets the following criteria:

1. Correspondence: who receives is debtor, who delivers is creditor;
2. Reciprocity: there is no debtor without creditor and vice versa;
3. Equivalence: any value you enter must be equal to the value that comes out;
4. Consistency: any value you enter on an account must go on the same account;
5. Confrontability: losses are debited, earnings are credited.

Balance

The balance of an account is the difference between debits (entries made in the debit of an account) and credits (entries made in the credit of an account). When the debits are greater than the credits it will be a debit balance, however when the credits are greater than the debits it will be a credit balance. When the debits are equal to the credits, it will be understood that the account is settled, balanced or without balance.

Preparation of the balance sheet and income statement

When all the accounting entries have been made in the journal, the balance of each one of the accounts is calculated and a transitory statement called balance of verification or balances is prepared, which is a list of all open accounts with their balance. The sum of the credit balances must be equal to the sum of the debit balances, due to the mentioned double entry system.

Based on the balance of sums and balances, the so-called regularization entry is made in which all the income and expense accounts are regularized and the profit and loss account appears. The balance sheet is thus obtained after regularizing the trial balance.

The accounting books

The accounting books are the documents that support and reflect the facts with transcendence in the economic reality of the company over a period of time. The mercantile legislation establishes which are the obligatory accounting books for the companies. The main ledgers are:

Daily Book

General Ledger

This section is a major book extract.[chuckles]edit]

Example of a general major book.

In accounting, the major book is a record in which each page is intended for each of the accounts of a company. Each page is divided and consists of 5 columns: the first column is for the date, the second is for the concept, the third is the one of the must, the fourth is the one of the having and the last column is the one of the balance. The book is used to carry strict management of the revenues and daily incomes that the company obtains.

It is called Major because it takes the total motion of the sub-accounts. For example, the different providers that would be carried in the auxiliary books each separately, are concentrated in a single account: suppliers in the Major and the header of the page will say: suppliers and so for each of the accounts: customers, banks no matter how many sub-accounts conform to each of the accounts. In the Major only the amount of the account is mentioned for a given period, usually a month. Following the example of the supplier account, in the column of having the total amount billed by all suppliers in the month and in the column of the must the total amount paid to all suppliers during that same period, and the difference between these two will give the remaining balance at the end of the month of each of the accounts, without detailing how much is due to each of the suppliers, that will be in the Auxiliary Books.

Balance Book

This section is a general Balance extract.[chuckles]edit]

Example of General Balance

The overall balance, status balance or state of state of property is a financial accounting report that reflects the economic and financial situation of a company at a given time.

The financial status is structured through three heritage concepts, assets, liabilities and net assets, each developed in groups of accounts representing the different criminal elements.

The asset includes all accounts that reflect the values available to the entity. All elements of the asset are susceptible to bringing money to the company in the future, either by use, sale or change. On the contrary, the liability: shows all the specific obligations of the entity and the contingencies that must be recorded. These obligations are naturally economical: loans, purchases with deferred payment, among others

The net assets can be calculated as the less passive asset and represents the contributions of the owners or shareholders plus the undistributed results. Similarly, when negative results (losses) occur, they will reduce the Neto Heritage. The net assets or accounting capital also shows the ability of the self-financing company.

Conservation

From a legal point of view, the law usually establishes the period during which businessmen must keep their mandatory books (daily, inventories and annual accounts) and non-mandatory ones (greater, value added tax records, auxiliary, etc), as well as the documentation and supporting documents that support the entries recorded in the books. In Spain, this conservation period is set at six years. Mandatory books must be kept on a paper material support and in a suitable binding.

Accounting standards

The operation of accounting is regulated by accounting standards, which due to differences of a fiscal, cultural, economic and political nature, present differences between countries, which makes it difficult to compare the information published by companies in different countries.. These standards can be legally approved or can be regulated by private entities of a professional nature. Its content includes the principles, rules and practices necessary to prepare the financial statements.

Financial statements or annual accounts

The so-called financial statements or annual accounts are the reports that show in a synthesized way, the fundamental data of the accounting process of an exercise, their formulation is carried out once a year, after the end of the fiscal year. The documents that compose them must be clear and express the faithful image of the patrimony, the financial situation and the results of the company to which they refer.

Although each country regulates the mandatory content of financial statements, they usually consist of the following elements:

• The balance sheet (also referred to as a state of financial situation or state of property situation). The balance shows the company's assets on a certain date.
• The statement of results (also called the loss and profits account) provides an orderly and detailed account of the profits or losses of the company during a financial period.
• The status of changes in net assets (state of evolution of net assets), provides information on the amount of net assets.
• The cash flow state.
• Memory (also called supplementary information or notes). Memory expands and details the information contained in previous documents.

Financial statements provide reports that institutions can use to report the economic and financial situation and the changes it experiences at a given date or period. This information is useful for administrators, managers, regulators and other types of stakeholders such as shareholders, creditors or owners.

The measurement criteria

According to the conceptual framework for the preparation and presentation of financial statements, there are four measurement criteria:

Historical record

Assets are recorded for the amount of cash or cash equivalents paid, or for the fair value of the asset delivered to change at the time of acquisition. Liabilities are recorded for the value of the product received in exchange for incurring the obligation or, in some circumstances (for example, income tax payable) for the amounts of cash or cash equivalents that are expected to be paid to extinguish the corresponding obligation. obligation.

Current Cost

Assets are recorded for the amount of cash, or cash equivalents, that would have to be paid if the same asset or another with similar characteristics were currently acquired. Liabilities are recorded at the amount of cash or cash equivalent required to settle the obligation at the present time.

Reasonable value

Assets are recorded for the amount of cash or cash equivalents that could be obtained, at present, in their unforced sale. Liabilities are recorded at their settlement values, that is, the undiscounted amounts of cash or cash equivalents that are expected to be paid for the obligations in the normal course of operations.

Current value

Assets are recorded at current value, discounting future net cash inflows that are expected to be generated by the item in the normal course of business. Liabilities are recorded at present value, discounting the net cash outflows that will be needed to pay the obligations, in the normal course of operations.

Accounting packages

Although accounting can be done manually, the use of computer applications that facilitate accounting work is currently widespread. Accounting software is called computer applications that are intended to systematize and simplify these tasks in the company. The applications can be limited to accounting or be integrated with the rest of the company's computer system, such as billing, payroll, inventory, etc.

By countries

Mexico

In Mexico, the legal framework that determines the obligation to keep reason and account of business is found in the Commercial Code in its article 33, as well as in the General Law of Mercantile Companies, Fiscal Code of the Federation, Income Tax Law, Value Added Tax Law and finally in the regulation of the latter.

• First stage: it refers to the accounting of the sixteenth century at the end of the nineteenth century, where the main norm was "The Ordinances of Bilbao"which were approved and made by Don Felipe V (1737) and Don Fernando VII (1814).
  

  Bilbao ordinances.
• Second stage: it is between 1890 and 1959, where accounting was based on the "Third Mexican Trade Code"which was issued during the presidency of Porfirio Díaz.
• Third phase: begins in 1959 with the creation of the "Junta de Principios de Contabilidad" in the United States of America and years later in Mexico with the Commission of Principles of Accounting of the Mexican Institute of Public Accountants, which was responsible for issuing the first newsletters of Principles of Accounting (1969).