Back to the Basics: Accounting for IT in Business Performance

Not so long ago, many considered speed to be the primary tactic for blocking competition and
increasing market share. Companies rushed to field a dot-com strategy or some innovative
application of IT that was going to secure their role in the new economy. As a result, many firms
under-analyzed or over-invested in IT in pursuit of market dominance. ROI was a fruit thought
certain to be enjoyed down the road.
Today, it's back to the basics. Companies are serious about using technology as a competitive
advantage. They are learning that IT purchases tied to a company's business strategy have the
most clear-cut business value, as expressed in traditional financial terms like Net Present Value
(NPV) and payback. Moreover, when IT solutions and business strategy are woven together,
companies are finding that business benefits are often broader and deeper than expected.
Indeed, firms should think twice about what their strategic needs are before they make a
particular IT investment, cautions Donald Koscheka, a senior consultant at Microsoft. Not
knowing what benefits to expect is a sure-fire way of capping those benefits. A company should
take a two-step approach in determining the business impact of any technology it is considering,
he says. First, it must know which business processes it needs to stay in the money — for
example, the flows of information and decisions that must be made to process an insurance
claim, prepare a case for litigation, or make a new drug. Then the company must map technology
to those processes and decide whether the investment will have positive or negative impact.
Pretty basic.
Companies should find an appropriate measure of the benefits that technology can deliver.
Koscheka gives the example of a pharmaceutical company in Pennsylvania. The drug company
wanted to improve the productivity of its research scientists but couldn't settle on the right metric
to use. Ultimately, it defined productivity as the number of chemical trials that test positive for a
certain disease model. If a drug company is looking for a cure for, say, Parkinson's, he notes, it
might have to screen a few hundred thousand chemicals to find one that has a positive effect on
the disease model. "You can't predict success by the number of chemicals tested, but we were
able to increase the number of chemicals the research department could screen for a disease
model, and therefore increase the probability of finding the right chemical," he says. "We
measured the productivity of scientists by the amount of data they could analyze rather than by
what they produced."
Just as IT can speed up a process basic to the business objective of a company, the right
technology investment has the potential to catalyze or alter a company's strategy—as long as
senior management is willing to make the necessary changes to the organization.

Accountancy is the process of communicating financial information about a business entity to

users such as shareholders and managers. The communication is generally in the form of
financial statements that show in money terms the economic resources under the control of
management; the art lies in selecting the information that is relevant to the user and is reliable.

Accountancy is a branch of mathematical science that is useful in discovering the causes of

success and failure in business.The principles of accountancy are applied to business entities in
three divisions of practical art, named accounting, bookkeeping, and auditing.
Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as
"the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least, of financial character, and interpreting
the results thereof."

Accounting is thousands of years old; the earliest accounting records, which date back more than
7,000 years, were found in the Middle East. The people of that time relied on primitive
accounting methods to record the growth of crops and herds. Accounting evolved, improving
over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson and the audience for
the account was the proprietor or record keeper alone. Cruder forms of accounting were
inadequate for the problems created by a business entity involving multiple investors, so double-
entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures
began to require more capital than a single individual was able to invest. The development of
joint stock companies created wider audiences for accounts, as investors without firsthand
knowledge of their operations relied on accounts to provide the requisite information. This
development resulted in a split of accounting systems for internal (i.e. management accounting)
and external (i.e. financial accounting) purposes, and subsequently also in accounting and
disclosure regulations and a growing need for independent attestation of external accounts by
auditors.

Today, accounting is called "the language of business" because it is the vehicle for reporting
financial information about a business entity to many different groups of people. Accounting that
concentrates on reporting to people inside the business entity is called management accounting
and is used to provide information to employees, managers, owner-managers and auditors.
Management accounting is concerned primarily with providing a basis for making management
or operating decisions. Accounting that provides information to people outside the business
entity is called financial accounting and provides information to present and potential
shareholders, creditors such as banks or vendors, financial analysts, economists, and government
agencies. Because these users have different needs, the presentation of financial accounts is very
structured and subject to many more rules than management accounting. The body of rules that
governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.

Accountancy is the process of communicating financial information about a business entity to

users such as shareholders and managers. The communication is generally in the form of
financial statements that show in money terms the economic resources under the control of
management; the art lies in selecting the information that is relevant to the user and is reliable.

Accountancy is a branch of mathematical science that is useful in discovering the causes of

success and failure in business.The principles of accountancy are applied to business entities in
three divisions of practical art, named accounting, bookkeeping, and auditing.

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as

"the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least, of financial character, and interpreting
the results thereof."

Accounting is thousands of years old; the earliest accounting records, which date back more than
7,000 years, were found in the Middle East. The people of that time relied on primitive
accounting methods to record the growth of crops and herds. Accounting evolved, improving
over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson and the audience for
the account was the proprietor or record keeper alone. Cruder forms of accounting were
inadequate for the problems created by a business entity involving multiple investors, so double-
entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures
began to require more capital than a single individual was able to invest. The development of
joint stock companies created wider audiences for accounts, as investors without firsthand
knowledge of their operations relied on accounts to provide the requisite information. This
development resulted in a split of accounting systems for internal (i.e. management accounting)
and external (i.e. financial accounting) purposes, and subsequently also in accounting and
disclosure regulations and a growing need for independent attestation of external accounts by
auditors.

Today, accounting is called "the language of business" because it is the vehicle for reporting
financial information about a business entity to many different groups of people. Accounting that
concentrates on reporting to people inside the business entity is called management accounting
and is used to provide information to employees, managers, owner-managers and auditors.
Management accounting is concerned primarily with providing a basis for making management
or operating decisions. Accounting that provides information to people outside the business
entity is called financial accounting and provides information to present and potential
shareholders, creditors such as banks or vendors, financial analysts, economists, and government
agencies. Because these users have different needs, the presentation of financial accounts is very
structured and subject to many more rules than management accounting. The body of rules that
governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.

Etymology
The word "Accountant" is derived from the French word Compter, which took its origin from the
Latin word Computare. The word was formerly written in English as "Accomptant", but in
process of time the word, which was always pronounced by dropping the "p", became gradually
changed both in pronunciation and in orthography to its present form.
History
Map of the Middle East showing the Fertile Cresent circa. 3rd millennium BC

The earliest accounting records were found amongst the ruins of ancient Babylon, Assyria and
Sumeria, which date back more than 7,000 years. The people of that time relied on primitive
accounting methods to record the growth of crops and herds. Because there is a natural season to
farming and herding, it is easy to count and determine if a surplus had been gained after the
crops had been harvested or the young animals weaned.

Accounting tokens made of clay, from Susa, Uruk period, cira 3500 BCE. Department of Oriental
Antiquities, Louvre.

The invention of a form of bookkeeping using clay tokens represented a huge cognitive leap for
mankind.

Globular token envelope with a cluster of accounting tokens. Clay, Susa, Uruk period (4000 to 3100 BCE).
Department of Oriental Antiquities, Louvre.

Economic tablet with numeric signs. Proto-Elamite script in clay, Susa, Uruk period (3200 BC to 2700
BCE). Department of Oriental Antiquities, Louvre.

Balance (accounting)

In banking and accountancy, the outstanding balance is the amount of money owed, (or due), that
remains in a deposit account (or a loan account) at a given date, after all past remittances,
payments and withdrawal have been accounted for. It can be positive (then, in the balance sheet
of a firm, it is an asset) or negative (a liability).

Importance of Accounting

There are various importance of accounting information to a business entity. Getting to know
what an accounting information is and the importance (need) of it is a great step to improving
one's capital base, both from the finance aspect to the resources (raw materials) an organisation
uses in carrying out its objectives.

An accounting information is simply the data which an organisation/business entity is able to

make known to its users. It should be taken note that these users of accounting are of various
sections - to which a business entity is one of.

A business entity will require an accounting information so as to enable it manage and control its
finances and resources. It also needs it for it to be able to improve on its level of profit earning,
should it realises it is declining in its profitability level. It also needs to for it know the
differences between its marginal liability and its marginal assets.

There are so many importance of a business information to a business enterprise, but the little
I've been able to highlight above are some of the vital needs of an organisation's need of an
accounting information.

Cash flow statement

In financial accounting, a cash flow statement, also known as statement of cash flows or funds
flow statement, is a financial statement that shows how changes in balance sheet accounts and
income affect cash and cash equivalents, and breaks the analysis down to operating, investing,
and financing activities. Essentially, the cash flow statement is concerned with the flow of cash
in and cash out of the business. The statement captures both the current operating results and the
accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is
useful in determining the short-term viability of a company, particularly its ability to pay bills.
International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals
with cash flow statements.

People and groups interested in cash flow statements include:

 Accounting personnel, who need to know whether the organization will be able to cover payroll
and other immediate expenses
 Potential lenders or creditors, who want a clear picture of a company's ability to repay
 Potential investors, who need to judge whether the company is financially sound
 Potential employees or contractors, who need to know whether the company will be able to
afford compensation
 Shareholders of the business.