What you’ll learn to do: define accounting

What we think of as accounting can be divided into two distinct functions: bookkeeping, and accounting. The bookkeeping function, recording transactions, is as old as commerce itself, having arisen as a necessity of recording for taxes, business, and investments. In fact, Luca Pacioli, and Italian mathematician who collaborated with Leonardo da Vinci, mentions double entry booking in his 1494 “Summa de Arithmetica, Geometria, Proportioni et Proportionalita.”

As the world of business grew and expanded, so did the complexity and variety of accounting practices, and so did the opportunity for profits and losses for investors. Today, accounting is the application of theoretical principles to the books and records of the company in order to produce useful information for decision-making, by following, in the U.S., Generally Accepted Accounting Principles (GAAP).

In this section, we’ll define accounting, examine the financial standards, and describe the importance of ethics in accounting.