In modern accounting this is done usingdebits andcreditswithin the accounting equation, assets = liabilities + equity. Theaccounting equation serves as a kind of error-detection system: if, at anypoint, the sum of debits does not equal the corresponding sum of credits,then an error has occurred.Since there are several different types of errors that can occur which resultin equal sums for debits and credits, double-entry accounting is not aguarantee that no errors exist. However, it is still useful. Timeline
551-479BCEConfuciusis described, bySima Qianand other sources, as havingendured a poverty-stricken and humiliating youth and been forced,upon reaching manhood, to undertake such petty jobsasaccountingand caring forlivestock.
This section requiresexpansion.Double-entry bookkeeping has been considered a fundamental innovationand a cornerstone of Capitalismby such thinkers asWernerSombartandMax Weber, Sombart writing in "Medieval and ModernCommercial Enterprise" that."
is derived from this way of looking atthings; one can say that
capital, as a category, did not exist beforedouble-entry bookkeeping.
Capital can be defined as that amount of
wealth which is used in making profits and which enters into theaccounts."
An accounting system records, retains and reproduces financialinformation relating to financial transaction flows and financial position.Financial Transaction Flows primarily encompass inflows on account of incomes and outflows on account of expenses. Elements of financialposition, including property, money received, or money spent, areassigned to one of the primary groups i.e.assets,liabilities, andequity.Within these primary groups each distinctive asset, liability, income andexpense is represented by its respective "account". An account is simplya record of financial inflows and outflows in relation to the respectiveasset, liability, income or expense. Income and expense accounts areconsidered temporary accounts, since they only represent the inflowsand outflows which are absorbed in the financial position elements oncompletion of the time period.