What is Accounting?

accountant going over paperwork


Accounting has been called “the language of business”. We vaguely understand what accounting is; we hire accountants to take a look at our financial transactions, to help us understand the tax code, and to help establish permanent systems for recording transactions. What is accounting, exactly? The question is somewhat hard to answer because it can mean so many different things.


A (Very) Brief History

Accounting in some form or another has existed for millennia; in some sense, anytime a business is engaged in financial transactions, accounting has occurred. Let’s say you buy goods, and then you sell them for a higher profit, and you record all of this into ledgers; that’s accounting. In the early Middle Ages, Jewish bookkeepers invented the double bookkeeping system, where everything had to be recorded into two accounts; a debit in one account is always recorded as a credit in another. This system is founded on an equation literally known as The Accounting Equation: Assets = Liabilities + Equity. Double bookkeeping has remained one of the most important parts of modern accounting, though things have gotten more complicated since the introduction of the stock market. Self-regulating accounting associations began to emerge in the 19th century, all the way to the practice we have today.


Kinds of Accounting

There are a plethora of different types of accounting that can be done. Tax accounting, which most people are familiar with, helps people and businesses navigate the tax code. Tax accountants can help you guide your purchasing behaviour, reduce the taxes on your assets, and increase the number of liabilities you can write off. Financial accountants work for businesses, ensuring that their ledgers are suitable for reporting to potential creditors or stakeholders; this means financial accountants must ensure all statements follow the appropriate accounting standard. Management accounting, conversely, attempts to help managers and business owners conduct accurate cost-benefit analyses, in order to find the best way to grow their business. Cost accounting is the process of figuring out how much the production of a particular product or service will cost a business, so they can better assess how to price it when it hits the market.


The Future of Accounting

There could be big changes on the horizon for accounting. One of the biggest “disruptors” you can see in the world of finance right now is the blockchain. The power of the blockchain lies in the evolution of the ledger; instead of a double bookkeeping system, the blockchain uses a distributed ledger, so all transactions are recorded by a multitude of parties at all times. This creates what some have called a trust-free system; in other words, you don’t need to trust any parties to keep accurate records, because the recording system is so inherently trustworthy in and of itself. New, better electronic systems continue to make accounting more efficient and accurate. In other words, accounting’s future looks bright and bold. Finding an accountant in Winnipeg is a great idea for business owners who want access to pertinent information, and for non-business owners who want to get their finances in order.