HISTORY OF ACCOUNTING
Traced as far as 8500 BC in Mesopotamia through the use of clay like:
a. Record for paid wages
b. Record purposes, as general
Pyramids in Egypt, for the costs of structures
Other places like China, Babylon, and Greece
More formal account-keeping methods were developed by the merchants and banks. Double-entry records first appeared in Genoa in 1340 AD.
First accounting book was written by Contrugli in Naples
Summa de Arithmetica, Geometria, Proportionis, et Proportionalita by Fr. Luca Pacioli about double-entry bookkeeping. (1494) Active flow of trade in and out of the ports of Europe
Industrial Revolution & Corporate Organization (19th Century) Emergence of complex business
Problem of costing for a large volume of products
Special field of accounting emerged to meet this need for the analysis of the various costs. Information Age
Clerical tasks that were done manually can be done automatically with speed, consistency, precision, and reliability. Emergence of accounting applications to suit the businesses’ various needs. (Quickbooks, Peachtree, MYOB, JDE, Navision, SAP, Oracle, etc.) Limitation: professional judgment
“...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 a financial character, and interpreting the results thereof.” - AICPA “...process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information.” - AAA
Current Definition of Accounting:
Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.
Phases of Accounting
1. Recording- also “journalizing”. It involves systematic and chronological recording of business transactions or events. 2. Classifying- similar items are grouped or sorted under the same names. 3. Summarizing- periodical reporting of the status of the business. 4. Interpreting- further explanation for the users
Accounting and Business
Business: An economic unit that controls resources and engages in buying and selling goods or services. Bottom-line of the business: PROFIT
Accounting keeps tracks of the activities and resources and prepares reports informing readers of its financial position and result of operation. The need to keep records: “What is my financial status? Have I already earned enough?” Reason of users of accounting information: DECISION MAKING
Accounting is the language of business because it is a system that measures business activities, processes these information into reports, and communicates the results to users.
Specialized Fields in Accounting
Financial Accounting and Management Accounting (user-oriented) Budgeting- setting sales and profit goals
Cost Accounting- measuring costs and controlling expenses. Price setting Information Systems Design- identifying internal and external information needs. (flowcharts and manuals) Internal Auditing- performed by company’s own accountants. Operating efficiency and compliance. Tax Accounting- tax laws compliance and minimizing the tax through legal means
Users of Accounting Information
Internal users: managers, officers, employees
External users: users of financial information to facilitate decision making- investors, creditors, suppliers, customers, and government agencies
DESCRIPTION AND INFORMATION NEEDS
One who puts his money in a business in the hope of receiving a return on his investment. He considers the risks involved in the investment and he wants to determine the economic worth of the business. For these reasons, he wants to assess the financial reports of the business. MANAGER
Responsible for planning, directing, and controlling...
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