History and Evolution of Accounting

Accounting's history can be traced back thousands of years to the cradle of civilisation in Mesopotamia and is said to have developed alongside writing, counting and money. The early Egyptians and Babylonians created auditing systems, while the Romans collated detailed financial information.

Definition of Accounting

Accounting can be defined as a process of reporting, recording, interpreting and summarising economic data. The introduction of accounting helps the decision-makers of a company to make effective choices, by providing information on the financial status of the business.

Accounting reports provide insight into your business's financial well-being. There are some reports you need to pay particularly close attention to.

• Accounting reports show the financial health of your business.
• Cash flow statements, profit and loss statements, and balance sheets are among the most popular types of accounting reports.
• Accounting reports are used by company leaders, as well as outside accountants, lenders and insurance providers.
• This article is for business owners who want to learn more about what accounting reports are and what they used for.

To understand the financial status of your business, it is critical that you keep accurate records. Having solid, easy-to-understand accounting reports when you need them is a good step toward ensuring you always know the current financial state of your business. The best accounting software generates dozens of reports, so it is important to know which ones you should be paying close attention to.

Why accounting reports are important

For most of use, when we think of accounting reports, we immediately think of taxes. And, sure, taxes are always a consideration when reviewing a company’s financials. But these reports are much more impactful and much more commonly used for other purposes. Most notably, these reports are used by management within a company to get insight into what’s happening in the various segments of a business and make decisions about its operation – how to generate revenue and grow profits.
Some other situations where accounting reports are especially significant include:

• Conducting a business valuation
• Getting prequalified for a small business loan
• Determining business insurance types and coverage requirements

For larger companies, accounting reports are also important for presenting the company’s financial condition to shareholders, so they know what’s happening within the company. These reports provide key insights into the financial status of a company and the results of its recent operations.
https://www.google.com/url?.co.za%2Fblog%2Fhistory-of-accounting%2F&usg=AOvVaw2vw6aBJFwpqB-p6_mNbxlP

Types of accounting reports

There are many different types of accounting reports that are used to reflect various aspects of a company’s financial status. However, there are four or five core types of accounting reports that are used by most small businesses. All of these are available from most small business accounting software packages.

• Balance sheet: A company’s balance sheet is a snapshot at a particular point in time of its assets, liabilities and shareholder equity. The statement is essentially a list of the assets, debts and net value of the company, each broken out by category (long-term vs. short-term debts, for example).
• Statement of profit and loss (P&L): A P&L statement shows a company’s income and expenses by category over a set period of time. It’s used for showing the strongest and weakest areas of a business, and is also used to compare a company’s recent performance to the same period in previous years to measure change.
• Statement of free cash flow: This report shows how much cash is available to pay creditors or pay dividends to investors. To determine that amount, you take the total sales revenue and subtract your costs and operating expenses. This statement helps the company manage cash flow that isn’t required to continue operating the business.
• Statement of shareholder equity: A statement of owner’s equity breaks down the net book value of a company into various categories to show shareholders exactly how much their investment is worth on paper (if the company were to be liquidated).
• Accounts receivable aging: Companies that invoice use accounts receivable aging to show how long any receivables have been outstanding. Though some also use accounts payable aging to show how long any payables have been outstanding, for most businesses, it’s more important to account for the money you’re owed. What you owe appears in the liabilities section of a balance sheet, even if it’s past due.
• Dock Treece
• Business News Daily Contributing Writer
• Updated Jun 29, 2022

Source : Google