Chapter 2: Processing Economic Events
To be able to later read and understand accounting information – either in an accounting-specific role, or in any business role – it is important to understand the fundamentals of how that accounting information was generated. You may have heard many talk about accounting in terms of ‘debits’ and ‘credits’. These are terms used in the technical recording of accounting transactions and have their origins in the work of Luca Pacioli (Pacioli 1494). If you’d like to read more about father of accounting – The Life and Works of Luca Pacioli (1446/7 – 1517), Humanist Educator by Professor Alan Sangster is recommended.
Just the mention of debits and credits can instill fear in the hearts of many accounting students – so in this textbook, we don’t use them. Instead we take a more of an overview approach to understanding accounting – you’ll be able to understand the financial statements of a business and use accounting information to conduct analysis for decision making, however this book is not teaching you the technical intricacies of accounting. The book Accounting, Business and Society comes AFTER this one and will introduce debits, credits and some more technical aspects of accounting.
In this chapter, we will cover
- Accounting summarised in the financial statements
- The process of accounting
- Methods for measuring value in accounting
- The assumptions and principles used in accounting
- The accounting equation
- Expanding the accounting equation
- Analysing and recording business transactions
Listen to the audiobook for this chapter on Soundcloud – Chapter 2 audiobook [57 minutes] (opens link in new tab)