Page 83 - merged.pdf

•Six Greatest Financial Necessities of Business Life 63

Idea 41 – Keeping score positively

The South Sea Bubble Idea 79 stayed in the mind of business people for many years,

and the concept of stewardship followed the invention of the joint stock company to

allay the fears of would-be investors. Stewardship involves the orderly recording of

business transactions and the presentation of summary reports. This is pejoratively

known as bean counting, but can be of great value to the people running the busi-

ness.

The main principles of what became double-entry book-keeping emerged in

Italy at the time of the renaissance. They were based on a treatise by Luca Paciolito

and reflected the growing complexity of business life. The development of book-

keeping and accountancy reflects the history of commerce.

It has three main purposes: Nowadays

accountants

1 as a check against fraud and error can and do

2 to assist managers with the information they need to make decisions play a most

3 as the basis for the accounting practices that give rise to the audit. constructive

role in the

Whilst book-keeping can become highly complex, basically there are two management

types of books used in the book-keeping process: journals and ledgers. A of businesses.

journal contains the daily transactions (sales, purchases and so on) and At least the

the ledger keeps the record of individual accounts. enlightened

From that basis each month the income statement presents the changes ones do; the

that have occurred over the period in question, while the balance sheet others just keep

shows the financial state of a company at a point in time in terms of assets, the score.

liabilities and the ownership equity.

Nowadays accountants can and do play a most constructive role in the manage-

ment of businesses. At least the enlightened ones do; the others just keep the score.