Corporate Accounting

Corporate accounting is the measurement, summary, and interpretation of financial information and events pertaining to a company or organization. More than just bookkeeping, the key word in corporate accounting is the account of the name—the tale it tells, the explanation of the numbers.

The core of accounting is the double-entry bookkeeping system, which originated with Luca Pacioli, a Franciscan friar in 15th-century Venice who taught mathematics to Leonardo da Vinci. Pacioli streamlined the system in use among Italian merchants, and included it in his seminal mathematics textbook, from which it was quickly adopted across Europe. In double-entry bookkeeping, every transaction leaves a record in two (or more) accounts—the debit account from which money is leaving, and the credit account to which it is going. Balancing a personal checkbook, by contrast, is usually done according to a single-entry bookkeeping system.

Double-entry bookkeeping involves multiple copies of the same information. Sales transactions generate receipts for both parties. Deposit slips are collected after making bank deposits. These source documents are saved, with their information recorded into daybooks, of which there are usually multiple types for different types of data—a sales journal, a tax journal, and so on. After a set period of time—usually monthly, weekly, or quarterly—the figures from each journal are tallied to provide a financial picture of the period. Those tallies are further recorded—a process called posting, in accounting terminology—in the book of accounts (or ledger), and balanced to make sure that debits and credits are equal.

Double-checking the ledger is done by producing an unadjusted trial balance, an accounting document usually made in three columns, the first of which contains the names of accounts with non-zero balances. Debit balances are recorded in column two, credit balances in column three. If the respective totals of the two columns aren't the same, an error has either been made during the posting process or revealed by it. Once any such errors have been taken care of, the balance is adjusted according to the needs of the business—typically correcting for inventory amounts—and an adjusted trial balance is produced and used as the basis for a variety of financial statements. Those statements include the P&L—the profit and loss statement—the statement of retained earnings, the balance sheet, and the cash flow statement.

In preparing financial statements, accountants in the United States are bound by Generally Accepted Accounting Principles (GAAP); other countries have other terms for their standards, and an international set of standards is of increasing importance. Common law countries—like the United States and the United Kingdom—do not specifically set their standards in law, though there is growing sentiment that they would benefit from doing so. It is part of the body of common law, required of publicly traded companies by the SEC, set by the Governmental Accounting Standards Board and the Financial Accounting Standards Board according to the type of accounting. The SEC has announced that by 2016, it expects the accounting standards followed by public companies [Page 398]to adhere to those of the International Accounting Standards Board (IASB), reflecting the increasingly global nature of doing business.

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