JIO TIMOTHY R.

UGANG
MBA 2008B

EVOLUTION OF ACCOUNTING

In 8500 B.C., archaeologists have discovered certain clay tokens such as cones,

disks, spheres and pellets found in Mesopotamia. These tokens represented

commodities such as sheep, jugs of oil, bread or clothing and were used in the Middle

East to keep records. The tokens were often sealed with clay balls called bullae and

became the first bills of lading to be checked against the invoice. Later, symbols

impressed on wet clay tablets replaced the tokens. During the 1st dynasty of Babylonia

(2286-2242 B.C.), its law, which was based on the Code of Hammurabi, requires

merchants trading goods to give buyers a sealed memorandum containing the agreed

price before it can be considered enforceable. The agreed transaction was recorded by

the scribe on a small mound of clay with the parties affixing their signatures on it. At

around 3600 B.C. in Babylonia, clay tablets also recorded payments of wages.

Because of the crusades from the 11th to the 12th centuries, Northern Italy’s

literature has become widespread. Arabic numerals were also being used as a result of

trade with the Near East allowing columns and numbers to be added and subtracted.

The Inca Empire, which spanned the west coast of South America throughout the 11th

to 14th centuries, used knotted cords of different lengths and colors called quipu to keep

accounting records.
 It was in the 14th century when Amanito Manucci, a partner of merchant

partnership, created a recording system where there's at least one account debited and

one account credited and where the total of debits equals the total of credits. Notice that

this system of recording is the system of double-entry bookkeeping. Thus, Manucci was

tagged as the inventor of double-entry bookkeeping. It was said that Amanito Manucci

called Giovanni Farolfe & Company in Florence, introduced the Florentine Approach.

The records kept by Mannuci for the firm are the oldest evidence that demonstrated or

reflected the use of the double-entry bookkeeping system.

In Venetian Approach of reporting, the merchants are described as they kept

their records in bilateral form, where the debits are recorded on the left side of the page

across the credits. This method is further described as an evolved system, using

several books which are carefully cross-indexed and coordinated so that the contents

are viewed in a coherent whole. Observed that this approach is the so-called ledger

postings in our time. The Venetian Method was introduced in the books of the merchant

Andrea Bargarigo. Luca Pacioli, the father of modern accounting, published in 1494 the

Venetian method in his book entitled Summa de Arithmetica. Pacioli explained the use

of books. It was described that each transaction was first noted in the memorandum

book then listed the transaction in debit and credit form in the journal, and finally posted

the entries in the ledger.

Napoleon Bonaparte's codification of France's Civil Law, namely the "Code of

Napoleon" was imposed on March 21, 1804. In 1807, the "Code de Commerce" was
passed to supplement the Code of Napoleon. Code de Commerce regulated

commercial transactions, laws of business, bankruptcies, and the jurisdictions of the

courts and procedures dealing with these subjects. Though the Code of Commerce

does not provide valuation rules, it gives in notes and examples of inventory where it

described that the assets must be carried at their market value on the day inventory and

not on the basis of historical cost.

The revolution that occurred in England from the mid 18th to the mid 19th century

changed the method of producing goods from the handcraft method to the factory

system. The specialized field of cost accounting emerged to meet this need for the

analysis of various costs. The growth of the corporations spurred the development of

accounting. Men then engaged in accounting not only made simple accounts but also

found it financially necessary to act as auctioneers, appraisers, agents and debt

collectors. Railroads were the first american firms to issue balance sheets to absentee

creditors. In the early 192os, the German Professor Eugen Schmalenbach was

frustrated again and again by the failure of his own efforts and those of his students to

compare meaningfully the financial data made available by different companies. This

led to concentrated research on the problem and resulted in the publication of a book by

Schmalenbach entitled The Model Chart of Accounts.' With this book Schmalenbach

laid the foundation for all subsequent developments in uniform accounting in Germany.

It also became the basis for corresponding efforts in other European countries.
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 decisions, in making reasoned choices among alternative

courses of action. (Accounting Standards Council)

Accounting is 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. (AICPA)

Accounting is the process of identifying, measuring, and communicating

economic information to permit informed judgments and decisions by the users of the

information. (AAA)

Accountant’s primary task is to supply financial information to statement users so

that they can make informed judgment and better decisions.

BRANCHES OF ACCOUNTING

Bookkeeping - is a mechanical task involving the collection of basic financial data. The

data are first entered in the accounting records or the books of accounts, and then

extracted, classified and summarized in the form of income statement, balance sheet

and cash flows statement.

Financial accounting is focused on the recording of business transactions and the

periodic preparation of reports on results of operation, changes in equity, financial

position and cash flows.

Management accounting is a profession that involves partnering in management

decision making, devising planning and performance management systems, and

providing expertise in financial reporting and control to assist management in the

formulation and implementation of an organization’s strategy.

Cost accounting is the collection, allocation, and control of the costs to produce or

supply a product or service.

Financial management can be defined as the management of the finances of an

organization to achieve the financial objectives of the entity.

Government accounting encompasses the processes of analyzing, recording,

classifying, summarizing and communicating all transactions involving the receipt and

disposition of government funds and property, and interpreting the results thereof.

Auditing is a systematic process of objectively obtaining and evaluating evidence

regarding assertions about economic actions and events to ascertain the degree of

correspondence between those assertions and establish criteria and communicating the

results to interested users.

Taxation is the process or means by which the sovereign, through its lawmaking body,

raises income to defray the necessary expenses of the government.

Accounting Education is teaching the undergrad courses related to accounting.

Accountancy Research is the systematic process of collecting and analyzing information

to increase one's understanding of the functions of a professional accountant and

contribute to the solution of the problems besetting the practice of the profession.

Forensic accounting includes fraud detection, fraud prevention, litigation support,

business valuations, expert witness services and other investigative services. In

addition to public accounting and consulting firms, forensic accountants also work for

investment and insurance companies, banks, law firms, law-enforcement agencies and

other organizations.
International accounting is the study of standards, guidelines and rules of accounting,

auditing and taxation that exist within each country as well as comparison of those items

across countries.

AREAS OF ACCOUNTING PRACTICE

Practice of Public Accountancy

Accountants who render services on a fee basis and staff accountant employed

by them are engaged in public practice. Accountants should be Certified Public

Accountants (CPA). Their work includes auditing, taxation and management advisory

services. Sample entry-level jobs: Audit Staff, Tax Staff, Consulting Staff; Middle-level

positions: Audit Manager, Tax Manager, Consulting Manager; Advanced Position:

Partner, Senior Partner, Senior Consultant

Practice in Commerce and Industry

Accountants employed in this area vary widely in their scope of activities and

responsibilities. Samply entry-level jobs: Financial Accounting and Reporting Staff,

Management Accounting Staff, Tax Accounting Staff; Middle-level positions:

Comptroller, Senior Information Systems Auditor, Senior Fraud Examiner; Advance

positions: Chief Financial Officer, Chief Information Officer.

Practice in Education / Academe

The primary goal of accounting education is to produce competent professional

accountants capable of making a positive contribution over their lifetimes to the

profession and society in which they work. Sample entry-level jobs: Accounting

Instructor; Middle-level positions: Senior Faculty, Accounting Department Chair;

Advance positions: Vice President of Academic Affairs, Dean.

Practice in Government

Accountants may be hired by the following: Congress of the Philippines,

Commission an Audit, Department of Finance, Department of Budget and Management,

Bangko Sentral ng Pilipinas, Bureau of Internal Revenue, Bureau of Treasury and local

government units. Sample Entry-level jobs: State Accounting Examiner, State

Accountant, LGU accountant, Revenue officer; Middle-level positions: State Accountant

V, Director III, and Director IV, Government Accountancy and Audit; Advanced

positions: National Treasurer, Vice President for Finance/CFO, Commissioner,

Associate Commissioner.
ELEMENTS OF ACCOUNTING

Asset - It is a present economic resource controlled by the entity as a result of past

events. An economic resource is the right that has the potential to produce economic

benefits.

Liability - It is a present obligation of the entity to transfer and economic resource as a

result of past events. For our liability to exist, the following criteria should be satisfied:

(a) entity has an obligation (b) the obligation is to transfer an economic resource; and

(c) obligation is a present obligation that exists as a result of past events.

Equity - It is the residual interest in the assets of the enterprise after deducting all its

liabilities. In other words, they are claims against the entity that do not need the

definition of a liability.

Expenses - These are decreases in assets, or increases in liabilities, that result in

decreases in equity, other than those relating to distributions to holders of equity claims.

Income - These are increases in assets, or decreases in liabilities, that result in

increases in equity, other than those relating to distributions to holders of equity claims.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Accounting practices follow certain guidelines. The set of guidelines and procedures
that constitute acceptable accounting practices at the given time is the generally
accepted accounting principles. Accountants rely upon the following principles:

Objectivity principle - accounting records and statements are based on the most reliable
data available so that they will be as accurate and as useful as possible.

Historical cost - this principle states that acquired assets should be recorded at their
actual cost and not at what management thinks they are worth as at reporting date.

Revenue recognition principle - revenue is to be recognized in the accounting period

when goods are delivered, or services are rendered or performed.

Expense recognition principle - expenses should be recognized in the accounting period

in which goods and services are used up to produce revenue and not when the entity
pays for those goods and services.

Adequate disclosure - requires that all relevant information that would affect the user’s
understanding and assessment of the accounting entity be disclosed in the financial
statements.
Materiality - Financial reporting is only concerned with information that is significant
enough to affect evaluations and decisions.

Consistency principle - the firms should use the same accounting method from period to
period to achieve comparability overtime with a single enterprise. However, changes are
permitted if justifiable and disclosed in the financial statements.

REFERENCES:
Ballada, Win. Fundamentals of Accountancy Business & Management 1. 2nd ed.,

DomDane Publishers, 2020.