Business ownership can be in the form of a sole proprietorshippartnershipor a corporation. For a corporation, the owner's equity portion usually shows common stockand retained earnings earnings kept in the company. Retained earnings come from the retained earnings statement, prepared prior to the balance sheet. It shows how the distribution of income and transfer of dividends affects the wealth of shareholders in the company.
Companies often generate several pieces of financial information from business transactions, and compile this information into general ledgers and journals. Historically, accounting was a manual process using paper books and documents for financial information.
Business technology has created significant advances in the area of financial management and accounting software.
History Accounting is several centuries old. Luca Pacioli, an Italian friar from San Sepulcro, is generally known as the father of accounting. His system included ledgers and journals where financial information was kept relating to business transactions.
Facts Manual accounting uses several paper ledgers and journals where accountants record financial information. The general ledger includes miscellaneous transactions and the aggregate balance of all subsidiary ledgers and journals.
Manual accounting is very detailed, since accountants must carefully enter information into physical books. Computerized accounting uses software programs designed from traditional manual accounting systems.
Computerized accounting involves the use of computers, spreadsheets and programs designed to record and report financial information electronically. Features Computerized accounting often requires individuals to manually input financial information into the program.
Financial reports and statements often contain a default feature to ensure all information is accurate and valid prior to creating financial reports. Simple mistakes such as transposing numbers or entering information into the incorrect column could create significant errors.
Computerized accounting systems allow accountants to process more information than before by creating easier review processes. Accountants can potentially spend less time looking for errors and more time analyzing information for decision purposes.
Misconceptions Computerized accounting is by no means a be-all, end-all solution. Accounting software can create difficult situations for accountants needing to correct data entry errors. Instead of erasing numbers and entering them into the correct column, accountants must carefully prepare adjusting journal entries to correct information.
Creating additional errors requires accountants to spend more time correcting financial information.
References 1 "Accounting"; Charles T.The traditional accounting practice of resolving uncertainty by choosing the solution that leads to the lower amount of income being recognized in the current accounting period. This concept is designed to avoid overstatement of financial strength and earnings.
Oct 17, · Traditionally, accountants have focused primarily on an organization’s journal entries and ledgers, and how the organization’s information flows through those ledgers. Traditional manual accounting was a tedious process requiring accountants to spend copious amounts of time mathematically checking numbers in the company’s accounting information.
Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors, regulators and suppliers; and management accounting focuses on the measurement, analysis and reporting of information for internal use by management.
Topic: Accounting Concepts 5. Balance sheets have traditionally recorded amounts in terms of market values. FALSE AACSB: Communication Abilities Blooms: Knowledge Difficulty: 1 Easy Learning Objective: Interpret the information contained in the balance sheet; income statement; and statement of cash flows.
Topic: The Balance Sheet 6. All items in the common-size balance sheet are 95%(40). Many controls are put in place to help the manager keep track of the employees, workflow, purchases, and expenditures, but the manager might need more information than what is traditionally recorded in the production schedules, purchasing reports, receiving reports, and vendor invoices.