Fundamentals of Accountancy Business and Management

Definition and History of Accounting

Accounting

It is the process of IDENTIFYING, RECORDING, and COMMUNICATING economic events of an organization to interested users.

Accounting

It s a systematic recording of financial transactions and the presentation of the related information to appropriate persons.

Accounting as Service Activity

Accounting provides assistance to decision makers by providing them financial reports that will guide them in coming up with sound decisions.

Accounting as Process

A process refers to the method of performing any specific job step by step according to the objectives or targets.

IDENTIFYING

This involves selecting economic events that are relevant to a particular business transaction. The economic events of an organization are referred to as transactions.

RECORDING

This involves keeping a chronological diary of events that are measured in pesos. The diary referred to in the definition are the journals and ledgers which will be discussed in future chapters.

COMMUNICATING

Occurs through the preparation and distribution of financial and other accounting reports.

Craddle of Civilization

The oldest evidence of this practice was the “clay tablet” of Mesopotamia which dealt with commercial transactions at the time such as listing of accounts receivable and accounts payable.

14th Century - Double Entry Bookkeeping

The most important event in accounting history is generally considered to be the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of Accounting’) in 14th century Italy. Pacioli was much revered in his day, and was a friend and contemporary of Leonardo da Vinci. The Italians of the 14th to 16th centuries are widely acknowledged as the fathers of modern accounting and were the first to commonly use Arabic numerals, rather than Roman, for tracking business accounts. Luca Pacioli wrote Summa de Arithmetica, the first book published that contained a detailed chapter on double-entry bookkeeping.

French Revolution

The thorough study of accounting and development of accounting theory began during this period. Social upheavals affecting government, finances, laws, customs and business had greatly influenced the development of accounting.

Industrial Revolution

Mass production and the great importance of fixed assets were given attention during this period.

19th Century

The Beginnings of Modern Accounting in Europe and America

The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria granted a Royal Charter to the Institute of Accountants in Glasgow, creating the profession of the Chartered Accountant (CA). In the late 1800s, chartered accountants from Scotland and Britain came to the U.S. to audit British investments. Some of these accountants stayed in the U.S., setting up accounting practices and becoming the origins of several U.S. accounting firms. The first national U.S. accounting society was set up in 1887. The American Association of Public Accountants was the forerunner to the current American Institute of Certified Public Accountants (AICPA).

The Present

The Development of Modern Accounting Standards and Commerce

The accounting profession in the 20th century developed around state requirements for financial statement audits. Beyond the industry's self-regulation, the government also sets accounting standards, through laws and agencies such as the Securities and Exchange Commission (SEC). As economies worldwide continued to globalize, accounting regulatory bodies required accounting practitioners to observe International Accounting Standards. This is to assure transparency and reliability, and to obtain greater confidence on accounting information used by global investors. Nowadays, investors seek investment opportunities all over the world. To remain competitive, businesses everywhere feel the need to operate globally. The trend now for accounting professionals is to observe one single set of global accounting standards in order to have greater transparency and comparability of financial data across borders.