CHAPTER 1 (Part 1)

INTRODUCTION

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 Accounting

• Accounting is the systematic and

comprehensive recording of financial
transactions pertaining to a business.
• Accounting also refers to the process
of recording, summarizing, analyzing
and reporting these transactions.

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 Accounting History
• The history of accounting or accountancy is thousands of years old and can
be traced to ancient (from a long time ago) civilizations. Civilization is an
advanced stage of human society, where people live with a reasonable
degree of organization and comfort and can think about things like art and
education.
• The early development of accounting dates back to ancient Mesopotamia
(region of southwest Asia in the Tigris and Euphrates river) approx. 6,000 years
ago, and is closely related to developments in writing, counting and money
and early auditing systems by the ancient Egyptians and Babylonians
(southeastern Mesopotamia between the Tigris and Euphrates rivers (modern
southern Iraq from around Baghdad). By the time of the Roman Empire, the
government had access to detailed financial information.
• The Italian Luca Pacioli, recognized as The Father of accounting and
bookkeeping was the first person to publish a work on double-entry
bookkeeping, and introduced the field in Italy.
• The modern profession of the chartered accountant originated in Scotland in
the nineteenth century. Accountants often belonged to the same
associations as solicitors, who often offered accounting services to their
clients.
• [From Wikipedia]

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 The importance of Accounting History
The importance of accounting history to accounting
pedagogy, policy & practice:

• Pedagogy (the art, science, or profession of

teaching) (theory of teaching) – accounting history
can very helpful to a better understanding and
appreciation of the field of accounting and its
evolution as a social science

• Policy – accounting history is instrumental to a

better understanding of the accounting problems
and their institutional contexts as well as the
formulation of public policy

• Practice – accounting history could provide a

better assessment of the existing practices by a
comparison with methods used in the past 6
 Bookkeeping
• Relationship with accounting – bookkeeping is part
of the process of accounting in business.
• Bookkeeping is the recording, on a day-to-day
basis, of the financial transactions and information
pertaining to a business.
• It ensures that records of the individual financial
transactions are correct, up-to-date and
comprehensive. Accuracy is therefore vital to the
process.
• Bookkeeping is the systematic recording and
organising of financial transactions in a company

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 Early Development of Double Entry
Bookkeeping and Accounting
Early history of Accounting:
• The Chaldean-Babylonian, Assyrian & Sumerian civilizations
are among the first organized government in the world, some
of the oldest written languages and oldest surviving business
records (dating back 3000 BC)
• The Egyptian civilization, where scribes (a person who copied
out documents) formed “the pivots on which the whole
machinery of the treasury and others departments turned”
• The Chinese civilization, with government accounting playing
a key & sophisticated role during Chao Dynasty (1112 – 256
BC)
• The Greek civilization, where Zenon (a manager of great
estate) introduced an elaborate system of responsibility
accounting (256BC)The Roman civilization, with laws requiring
taxpayers to prepare statement of financial position and civil
rights depending on the level of property declared by the
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 Early Development of Double Entry
Bookkeeping and Accounting
• Factors attributed to the presence of bookkeeping including in the ancient world:
– The invention of writing
– The introduction of Arabic numerals & of the decimal system
– The diffusion (the state of being spread out) of knowledge of Algebra (represent
numbers and quantities in formulae and equations)
– The presence of inexpensive writing materials
– The rise of literacy
– The existence of a standard medium of exchange
• A.C Littleton lists seven preconditions for the emergence of systematic bookkeeping
(bkk):
– The art of writing (bkk is first of all a record)
– Arithmetic (the mechanical aspect of bkk consists of sequence of simple
computations)
– Private property (bkk concerned with recording facts about property and
property rights)
– Money (bkk reduces all transactions in properties or property rights to this
common denominator)
– Credit (bkk records incomplete transactions)
– Commerce (bkk importance due to volume of business)
– Capital (without capital commerce would be trivial (of little value or 10
importance) and credit would be inconceivable (not capable of being
imagined)
 Early Development of Double Entry
Bookkeeping and Accounting
The Italian Method

• Dating back from the year 1340, development of

commercial republic of Italy, used double entry
bookkeeping method

• Medieval (relating to middle ages) accounting -

tools for management control as describes by
Raymond de Rover;
 Balancing of the books as primary objective
 Developing of cost accounting
 Introducing reserves
 Various modes of adjustments (accruals & differed items)
 Audit of balance sheets
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 But little progress in analysis of financial statements
 Early Development of Double Entry
Bookkeeping and Accounting
Luca Pacoli’s Contribution
• Franciscan monk, 1494 wrote the 1St book, Summa de
Arithmetica Geomatrica, Proportioni et Proportionalita (Review
of Arithmetic, Geometry & Propotions) (he didn’t invent double-
entry bookkeeping)
• 2 chapters, de Computis et Scripturis, describing double entry
bookkeeping,
• Know as “the method of Venice” or “the Italian method”
• He stated;
– “purpose of bookkeeping was to give the trader without
delay information as to his assets & liabilities”
– “All entries has to be double entries, that is, if you make one
creditor, you must make someone debtor”
– Debit (adebeo) and credit (credito) were used for the
entries to secure a double entry
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Early Development of Double Entry
Bookkeeping and Accounting

– “Not only was the name of buyer or seller recorded, as well

as the description of the goods with its weight, size or
measurement, price and term of payment”
– The receive or disburse, the record was shown of the kind
of currency and its converted value.

• He advised the computation of periodic profit

and the closing of the book. His advice was:
“it is always good to close the book each year,
especially if you are in a partnership with others.
Frequent accounting makes for long friendship”
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