Development Double Entry

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GROUP MEMBER:


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Accounting history is defined asthe studyof the evolution in accounting thoughts,practices and institutions in response to

changes in the environment and socialneeds. It also considers the effect thatthisevolution has worked on the environment

(Belkoui, 1983).


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SCENARIOS

PRESENCERECORDKEEPING

CHALDEAN -

BABYLONLAN,ASSYRIAN,AND

SUMERIAN CIVILIZATIONS

EGYPTIAN

CIVILIZATION

CHINESE

CIVILIZATION

GRECK

CIVILIZATION

ROMAN

CIVILIZATION

- Producers of the first organizedgov in the world,some of the oldestwritten languange,oldest survivingbiz records.

- Scribes formed the pivotson which the whole machineryof treasury and other

departnment turned.

Gov accounting playing a keyand sophisticated role duringchinese civilization.

Where zenon,manager ofgreat estate ofAppolonius,introduced in256 BC an elaborate systemof responsibility accounting

Law requiring

taxpayers toprepare statementof their financialposition.


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The presence of bookeeping in the ancient has been attributed to variousfactor :

- invention of writing

- the introduction of Arabic numerals- diffusion of knowledge algebra- presence of inexpensive writing material- the rise of literacy-the existence of standard medium exchange

The first double entry books known to exist are those of Massari ofGenoa,dating back from year 1340.This double entry bookeeping precededPaciolo by some two hundred years.

It also fair to mention that a rudimentary form of double entryaccounting existed among the ancient Incas 1577.


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LUCA PACIOLIS AND DOUBLE ENTRY BOOKEEPING

IN 1494, he published his book, "Summa de Arithmetica, Geometria,

Proportioni et Proportionalitwhich include two chapter- de computis etScripturis decribing double entry bookeeping.

He did not invent double entry bookeeping ,but described what wasbeing practiced at the time .The purpose bookeeping to give the trader

without delay information as to his assets and liabilities .

All entries have to be double entries,that is, if you make one creditor,youmust make someone debtor

He suggest not only was the name of the buyer o seller recorded,as well asdescription of the goods with its weight,size and term of payment werealso shown.

He also advise close the books each year and frequent acounting makesfor long friendship


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1) Sixteenth century introduction of specific journals for the recording ofdiiferent type of transaction .Use of specialized subsidiarytransaction and types of expenditure.Purpose-keep detail out of the journal and also the ledger

to avoid filling them up too quickly.

2)Sixteenth & seventeenth - evolution of the practice of period financialstatement,personification of all account and transactionto rationalize debit and credit rules that are applied to Iimpersonal and abstract account.

3) Seventeenth century - application of the double entry system was extended toother types of organization .

4)Seventeenth century - separate inventory accounts for diiferent types ofgoods.Example: various good account together with othergoods consignment account, good in partnership andvoyage account.


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5) Seventeenth century - beginning with East India Company followingindustrial revolution ,characterized by neeed for costaccounting and a reliance on concepts of continuity,periodicity and accrual.

6) Eighteenth century - method of treating fixed asset:a) asset carried forward original cost,diiference

between revenue payment and receipts ,entered inasset a/c ,being tranfered to profit &loss accout atbalance date.

b) asset account close at balacing date.diiferencebetween total debit and total credit is carriedforward as the account balance.

c) asset is revalued,the revised value carried forwardin the account and balancing difference is carriedto profit and loss account.

7)Nineteenth century - depreciating property was accounted for as unsoldmerchandise.While still not heavily used ,there is eevidence by Sailero in 1915,the existence ofdepreciation method;straight line,reducingmethod,sinking fund and annuity method.


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8) Nineteenth century - Cost accounting emerged as a product of the industrialrevolution.Before industrial revolution,accounting wasmainly record of external relation of one bussiness unit

with other business unit,so record determine inmarket.But,large scale operation ,so use accountingrecords as administrative control.So,appear costaccounting in manufacturing.

9)Nineteenth century - development technique of accounting for prepaymentsand accruals ,allow computation of periodic profit.

10)Nineteenth &twentieth- development of funds statement.

11)Twentieth century - development accounting method for complex issues ,from computation eps, accounting for businesscomputation, accounting for inflation and etc.


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DEVELOPMENT OF

ACCOUNTINGTHEORY


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PRE-THEORY

PRAGMATIC ACCOUNTING

NORMATIVE ACCOUNTING

POSITIVE ACCOUNTING


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DEVELOPMENT OF ACCOUNTING THEORY

Pre-theoryBefore the double-entry system wasformalized in the 1400s, very little waswritten about the theory underlyingaccounting practices.

During the developmental period of thedouble entry system, the main emphasiswas on practice. It was not until 1494when Pacioli wrote the first book to

document the double entry accountingsystem.

r 300 years following Paciolis 1494treatise, developments in accounting

concentrated on refining practice.


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Until the 1930s, developments in

accounting theory were ratherrandom and ill-defined, evolvingas they were needed to justifyparticular practices.

Developments in the 1800s led tothe formalization of existing

practices in textbooks andteaching methods.


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Pragmatic Accounting The period 1800-1955 is often referred to as the general scientific

period. The emphasis was on providing an overall framework toexplain why accountants account as they do, that is based uponobservation of practice.

In 1936 the American Accounting Association (AAA) released A

Tentative Statement Of Accounting Principles Affecting CorporateReports; in 1938 the American Institute of Certified PracticingAccountants (AICPA) made an independent review of accountingprinciples and released A Statement of Accounitng Principles(authored by Sanders, Hatfiled and Moore)

In the same year, the AICPA established the Accounting Procedures

Committee, which published a series of accounitng research bulletins Overall this period focused on the existing practical viewpoint of

accounting and, as research gained momentum over the period, thetheories promulgated to explain practice became more detailed andcomplex


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Normative Accounting

The period 1956-70 is labeled the normative period becauseis was a period when accounting theorists attempted toestablished norms for best accounting practice.

The normative period was one of significant debate. It

degenerated into a battle between competing viewpoints onthe ideal approach to measuring and reporting accountinginformation.

However the end result was no clear choice for changingpractice to one ideal system of (inflation or price adjusted)accounting, leading to the continued use of the historical cost

method. Normative theories are distinguished because they adopt an

objective (ideal) stance and the specify the means ofachieving the stated objective. The provide prescriptions forwhat should occur to achieve their stated objective.


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The normative period began drawing to an end in the early1970s, and was replaced by the specific scientific theoryperiod, or the positive era (1970). The two main factorsthat prompted the demise of the normative period were :

I. The unlikelihood of acceptance of any one particularnormative theory

II. The application of financial economic principles,increased supply of data and testing methods.

Henderson, Peirson and Brown outline the two majorcriticisms of normative theories in the early 1970s :

I. Normative theories do not necessarily involve empirical

hypothesis testingII. Normative theories are based on value judgement.


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Positive theory sought to provide a framework for explainingthe practices which were being observed; whether whatpracticing accountants produced had a decision usefulnessobjective, whether it filled other roles, and whether it wasinferior or superior to proposed alternatives.

The objective of positive accounting theory is to explain and

predict accounting practices. E.g. bonus plan hypothesis. Watts and Zimmerman consider that positive theory has given

order to the apparent confusion associated with the choice ofaccounting techniques. They argue that positive accountingtheory helps predict the reactions of investors in the market

to the actions of management and to reported accountinginformation.

The problem with this approach is that wealth maximizationbecame the answer to every question


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Recent Development

Both academic and professional interests in theory development have

tended to be aligned in the past. In recent times, academic andprofessional developments in accounting theory have taken somewhatdifferent approaches.

Whereas the academic research emphasis remains in the area of capitalmarket, agency theory, and behavioural impacts, the profession haspursued a more normative approach.

The profession has sought normative theories to unify accountingpractice and make it more homogeneous, whereas academic researchershave sought to better understand the role and impact of differentforms of accounting information.

The need for a single set of international accounting standards was

acknowledge by the accounting profession in Australia with the adoptionof IFRS in January 2005.

This approach aims to eliminate accounting disclosures and techniquesspecific to one or a small group of countries which subsequently affectsthe comparability or integration of information, for multinational andlisted corporation.

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Development Double Entry