Introduction to Accounting Defined

What you’ll learn to do: define accounting and explain its history

You may have heard someone say in conversation, “How do you account for the fact that . . . ?” They are asking for an explanation. In business, accounting is an explanation of how the business is doing, and specifically, in financial accounting, the explanation is focused on money.

Worm's-eye view of four skyscrapers.

Imagine running a business, and your employees, customers, and even your family rely on that business for their livelihood. How important is it for you to have a clear financial picture of how your business is doing and where it is headed? What if you go to the bank for a loan to buy new equipment? What kind of information do you think the bank would want in order to grant (or deny) your application for a loan? What if you are quite successful and you want to take on a new partner or investors? What kind of information would your new business associates want to see, and how would they know it was accurate?

Accounting answers all of these questions. It is a process that has developed over a long period of time that has accepted practices and forms of reporting. Let’s move ahead so that you can gain a more detailed understanding of the importance of accounting in the business world and how it has evolved into the practice it is today.