Accounting can be defined as the process of collecting, recording, presenting,

analyzing & interpreting financial information to the users of financial

statements.

Accounting is one of the oldest professions in human history. It could also be

described as the process of consolidating financial information to make it
clear and understandable for all stakeholders.

The main goal of accounting is to record and report a company’s financial

transactions, financial performance, and cash flows

Branches of Accounting

Accounting is a broad field of study which is divided into different branches,

some of which include;

• Financial accounting.
• Cost accounting.
• Auditing.
• Managerial accounting.
•Accounting information systems.
•Tax accounting.
•Forensic accounting.
• Fiduciary accounting

Historical background of accounting

The history of accounting can be traced back thousands of years to the

ancient civilization 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.
The Italian Luca Pacioli, recognized as the father of accounting and
bookkeeping was the first person to publish a work on double-entry
bookkeeping, and introduced the field in Italy.

The recording of transactions in books of accounts in line with double entry

principle dates back to the 14th century, when Italian merchants began to use
the double-entry system to record their transactions.

The earliest known double entry records are the account of steward of the
Commune of Genoa for the year 1340. An Italian monk, Luca Pacioli,
published the first known text on double entry accounting in his book
“Summa di Aritmetica Geometria Proportionalita” (meaning everything
about Arithmetic, Geometry and Proportion) the book was published in 1494.

The modern profession of the chartered accountant originated in Scotland in

the nineteenth century. Accountants often belonged to the same associations
as solicitors, who often offered accounting services to their clients. Early
modern accounting had similarities to today's forensic accounting.

Accounting began to transition into an organized profession in the nineteenth

century, with local professional bodies in England merging to form the
Institute of Chartered Accountants in England and Wales in 1880.

However, for the purpose of this lesson, we will concern ourselves more on
financial accounting.

Classification of Accounts

There are two broad classifications of accounts.

These are personal accounts and impersonal accounts.

Personal Accounts

Personal accounts are the accounts that are used to record transactions
relating to individual persons, firms, companies, or other organizations.
Examples of such accounts include an individual’s accounts (e.g., Mr.
Zelensky), the accounts held by modern enterprises, and unity bank accounts.

Impersonal Accounts

Impersonal accounts are those that do not relate to persons. There are two
types:

1. Real accounts (or permanent accounts)

2. Nominal accounts (or temporary accounts)

Real Accounts

Real accounts exist even after the end of accounting period. For the next
accounting period, these accounts start with a non-zero balance, which is
carried forward from the previous accounting period.

Examples of such accounts include machinery accounts, land accounts,

furniture accounts, cash accounts, and accounts payable accounts.

Usually, real accounts are listed in the statement of financial position

(balance sheet) of the business.

Nominal Accounts

Nominal Accounts are the accounts relating to the expenses, losses, incomes,
and gains. Nominal accounts are closed at the end of the accounting period.
For the next account period, these accounts start with a zero balance.

Normally, nominal accounts are used to accumulate income and expense

data. In turn, these data can be used to prepare income statements or trading
and profit and loss accounts. For this reason, nominal accounts are sometimes
referred to as income statement accounts.

Examples of nominal accounts include sales, purchases, gains on asset sales,

wages paid, and rent paid.
pictorial representation of account types