Accounting: Why accounting and finance is important

Accounting is a field that started many many many years ago. It is commonly believed that the first roots

of accounting appeared more than 7000 years ago in Mesopotamia when things like writing, counting 

and money started. The career of an accountant can be traced back to the years 300 BC of which proof 

was found when tokens and scripts of bookkeeping were discovered in Iran. If you are interested in the 

full history of accounting you can read it where Rob Browne has recorded it on the website of G2. 

In 1494 father of modern accounting, Luca Pacioli described a principle that forms the basis of modern 

accounting. He invented the double-entry principle which is the basis of the debit and credit entry 

systems that is still used in ledgers and journals every day. 

Why is accounting important?

Accounting is a system that helps businesses, individuals and any organisation keep track of their 

finances and help them to record, organize, analyze and interpret their finances in ways that can help 

them make important financial decisions.

Where is accounting used?

Different types of accounting are used for different goals.

• Financial accounting is used in a business so that the business’ creditors and investors can see 

  how the business works with their money and whether it will be wise to invest in or allow credit 

  transactions with the specific business.

• Managerial accounting helps managers and owners of businesses make important business 

  decisions as well as help them to make sure that the business has a healthy cash flow.

• Tax accounting focuses on the tax implications of an individual or business’ finances.

• Forensic accounting focuses on finances that can be investigated by a court of law.

• There are other types of accounting too, e.g. political campaign accounting that has unique 

  purposes. 

Accounting principles

Accounting has a number General Accepted Accounting Principles that students learn about and anyone 

working in the accounting field will follow to ensure that their financial statements and documents are 

truthful, relevant, not fraudulent and to reduce all chances of illegal financial activities taking place. The 

principles as listed on the Freshbooks website are:

• Principle of Regularity

• Principle of Consistency

• Principle of Sincerity

• Principle of Permanence of Method

• Principle of Non-Compensation

• Principle of Prudence

• Principle of Continuity

• Principle of Periodicity

• Principle of Full Disclosure

• Principle of Utmost Good Faith

 

What analogies do I sometimes use in accounting lessons? 

• Double entry system/ Debit- credit system:

• I like to compare this with an old scale where one had the two sides one had to put 

  weight on. For this scale to balance one has to put the exact same weight on both sides. 

  Now let the one side of the scale be the debit side and the other credit side. One has to 

  make an entry of the same monetary value on both sides, else it won’t be balanced.

• Accounting equation:

• I also like to compare this with an old scale where one had the two sides one had to put 

  weight on. For this scale to balance one has to put the exact same weight on both sides. 

  Now let the one side of the scale be the Assets and the other Owner’s Equity and 

  Liabilities. One has to make an entry of the same monetary value on both sides, else it 

  won’t be balanced.   

• Determining if something should be treated as an account payable or receivable:

• Use the image of a person with a gun who demands their money/ money back. If we can 

  do that, we have an account receivable. If it can be done to us, we have an account 

  payable.

   

  Photo credit: Elena Mozhvilo on Unsplash.com

Jobs in the Accounting field:

When one is interested in accounting as a career there are many different jobs one can consider. In 

each of the types of accounting, there are many different positions. UNISA has a whole list of different 

accounting careers on its website.

Pros and Cons of an Accounting Career

Just like with any other career an accounting career also has pros and cons. 

Rasmussen University shares some of these in their blog on this topic. I will list 3 pros and 3 cons:

Pros:

• Accounting is a growing and stable career field

• It is a profession whose services are needed everywhere in the world and it is thus easy to work 

  where you want to work

• Accounting is a field in which it is easy to start your own business

Cons:

• To keep up with the latest developments and to stay relevant one has to keep up with the latest 

  laws and has to commit to lifelong learning

• It can  be a very stressful career

• It is not a glamorous career

Bookkeeping vs accounting

Many students have asked me what the difference is between bookkeeping and accounting. 

Bookkeeping is the first couple of steps or the base or foundation of accounting. Bookkeepers usually 

record the transactions into the journals and can complete the first steps of the accounting cycle usually 

up to the pre-adjustment trial balance. Accountants use these records and to draw up statements like 

that of the statement of  financial position, they also analyze and interpret and make recommendations

Is accounting easy or hard?

The shortest and safest answer would probably be that it depends. However, just like with any other 

subjects when doesn’t understand it, it will naturally be difficult, but the moment one starts to understand

 it, it will be much easier and even enjoyable. Some people have an easier time grasping accounting 

than others. I have found that most students struggle with understanding when to debit and when to 

credit accounts,where in practice one deals with more complex transactions and has to keep all 

changes in laws pertaining to finances in mind. When one understand the basics of accounting, it isn’t 

hard at all.

 

Keep well,

 

Till next time