William A. Paton a professor of accounting About Basic Accounting Principles

William A. Paton a professor of accounting About Basic Accounting Principles

William A. Paton, a professor of accounting at the University of Michigan, defines accounting as having one fundamental function: "Facilitating the management of economic activity. This function has two closely related phases: 1) measuring and organizing economic data; 2) Communicate the results of this process to interested parties.”

For example, a company's accountants regularly measure profit and loss for a month, quarter, or fiscal year and publish these results in a profit and loss statement called a profit and loss statement. These reports include items such as accounts receivable (what the company owes) and accounts payable (what the company owes). Things like retained earnings and accelerated amortization can also get pretty complicated. This is in higher level accounting and organization.

However, most accounting also involves basic bookkeeping. This is the process of recording every transaction; every bill paid, every penny owed, every dollar and penny spent and accumulated.

But the owners of the company, which may be individual owners or millions, are most concerned with the summaries of these transactions included in the financial statements. Financial statements summarize a company's assets. The value of an asset is its cost when it was first acquired. The annual financial statement also records the source of the assets. Some assets are loans that must be repaid. Profits are also company assets.

Liabilities are also aggregated in so-called double-entry bookkeeping. Clearly, companies want to report more assets to offset liabilities and report profits. Managing these two elements is the essence of bookkeeping.