by Peter Baskerville

Created on: December 31, 2008   Last Updated: January 04, 2009

Accounting is actually a very simple maths made complicated only by centuries old concepts and language. Still, these aspects are enough to make even the most intelligent members of our general community reach for the dummies' articles and books for help in translating this mysterious language into the common vernacular.

Now either way you look at it, you are going to need a certain amount of smarts to understand the science, the art and the numerology that is accounting. For instance, it has been humorosly quoted concerning accounting for tax: "It takes a significant amount of intelligence to keep accurate personal tax accounts, but a great deal more to keep inaccurate ones."

Now the good news is, accounting can be completely understood, but only if you build your understanding layer by layer by starting with the basic concepts.

Today I teach accounting to aspiring aboriginal business students and international students studying business in my home country, Australia. I take great delight in explaining accounting concepts in the language of this age. Now I say this age because archaeological evidence points to the existence of accounting systems dating back 10,000 years. Whilst we don't still use these exact systems today, most of our current accounting concepts are at least a few hundred years old. The most fundamental one of these is called, 'double entry bookkeeping', which was first published in 1494 by the Venetian monk, Luca Pacioli. That's 514 years ago!

Now I won't try to explain that particular concept just yet, because it is not a good start-point for your accounting education. I think the best start-point rests with the definition of accounting. i.e. "What is the reason for the existence of accounting"? Maybe, like many other definitions, it is often easier to ask the question in the negative with "What would happen if we did not have any accounting systems at all".

Well, how do you think you would survive if you were never told how much money you had in the bank? How would you know if you could afford a loan repayment without an accounting calculation? Not very well I would suspect and that's just you. What about governments with raising taxes and businesses with their need for profit reports.

We are beginning to understand why we need an accounting system - It helps us make decisions regarding financial matters. Bingo! Start point. So, accounting is not an end in itself, but it is rather an information system that provides the most relevant and reliable

• 1
• 2
• Next Page >>