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“TOPIC 1: History of Accounting”
Accounting is the systematic process of measuring and reporting relevant financial information about the
activities of an economic organization or unit. Its underlying purpose is to provide financial information. It is
capable of being expressed in monetary terms.
American Institute of Certified Public Accountants (AICPA) defines accounting as the art of recording,
classifying, and summarizing in a significant manner and in terms of money, transaction, and events, which
are in part at least of a financial character, and interpreting the result thereof. (Ong, 2016)
American Accounting Association defines accounting as “the process of identifying, measuring, and
communicating economic information to permit informed judgements and decisions by the users of the
information. (Floredo, 2016)
Philippine Institute of Certified Public Accountants (PICPA) defines accounting as 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. (Ong,2016)
Ancient Accounting in Egypt, Mesopotamia. Greece and Rome
The history of accounting dates back to ancient times. The abacus which functioned as a calculator in the
ancient times, was developed by the Sumerians in 5,000 BCE followed by the papyrus which was developed by ancient
Egyptians in 4,000 BCE. In Egypt, archaeologist Dr. Gunter Dreyer of the German Institute of Archaeology unearthed
clay tablets considered among the oldest written tax accounting records. In the tomb of King Scorpion I in Egypt, he
discovered old stone labels believed to date back to 3,000 BCE. These old stone labels were complete with marks
representing accounts of oil and linens which were believed to be paid to the king as taxes.
Mesopotamia had clay tokens and clay tablets to record their loans, herds, crops, and system of trade. The
scribe who performed extensive duties in writing and recording in the Mesopotamian civilization are the equivalent
of present day accountants.
The Greeks also made a significant contributions to the development of accounting. In 600 BCE, they
introduced money in the form of coins. Moreover, they adopted the Phoenician writing system and invented a Greek
alphabet which they used to facilitate record keeping. It was the same with Rome where accounting helped establish
their finance and legal system, they also introduced the use of an annual budget which coordinated estimated
revenues and taxes paid by the citizen in relation to the nation’s expenditures. A cash books was maintained by house
holds for their expenses.
In England, William the Conqueror took possession of all properties in the name of the king upon his
invasions. In 1086, the Domesday Book contained al the real state surveyed by William the conqueror and the
taxes due to them. To date, the Pipe Roll or the Great Roll of the Exchequer is the most ancient surviving
accounting record in the English language. It contains the yearly accounting of rents, fines and taxes due to the
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King of England, from 1130 to 1830.
Century The birth of Double Entry Bookkeeping
Luca Pacioli of Italy, otherwise known as Friar Luca Dal Borgo, a mathematician and considered to be the
“Father of Accounting” wrote summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything about
Atrithmetic, Geometry and Proportion). It is composed of 36 short chapters that describe bookkeeping. The
accounting cycle, similar to the modern day accounting cycle is also included in the book. The book also explains
the extensively used balance sheet of today.
Pacioli credited Benedetto Cotrugli, for the original idea of the double-entry bookkeeping. Cotrugli’s
manuscript of Della Mercatura et del Mercante perfetto. (Of Trading and The perfect Trader), which contains a
brief description of the double entry of bookkeeping, was never printed.
Century The dawn of Modern Accounting in Europe and America
In England, the Industrial Revolution which replaced hand tools with machine or power tools, otherwise
known as the factory system, transformed accounting into an actual profession. Businesses continued to expand
requiring the expertise of accountants to gain corporate control of their flourishing businesses.
In Scotland, Queen Victoria granted a royal charter to the Institute of Accountants in Glasgow on July 6,
1854, thereby creating the profession of chartered accountant (CA). Thus, accounting became a formal profession.
In the latter partner of the 19
century, because large amount of British capital were invested in flourishing
industries in the United States, Scottish or British chartered accountants were sent to the United States to audit
British investments.
The year 1887 saw the birth of the first national US accounting society. The American Association of Public
Accountants which provided a formal certification process for accountants was the predecessor of the present
American Institute of Certified Public Accountants (AICPA)
Century The Evolution of Modern Accounting Standards
The American Institute of Certified Public Accountants (AICPA), the first national professional association
for Certified Public Accountants (CPA), was formed in the young but prosperous nation of the United States.
Because of the economic depression, the Securities and Exchange Commission (SEC) was formed. Period reports
vouched by certified public accountants were filed by the all publicly-traded companies who had to register with
the SEC before selling their securities to the public. Thus, the AICPA was tasked to set the accounting and auditing
standards for these reports until the establishment of the Financial Accounting Standards Board (FASB) in 1973.
The Information Age
This is also known as the computer age, Digital age or new media age. It has brought about the significant
change in the work load of accountants. Manual, tedious and time- consuming tasks were replaced by faster and
more accurate computer methods. Transactions can be consummated online with the help of the internet. Various
software applications in accounting have been developed to expedite procedures and accommodate the
numerous needs and demands of the different businesses.
Century Accounting in the Modern times
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The 21
century opened with the replacement of the International Accounting Standards Committee
(IASC) by the International Accounting Standard Board (IASB) established in January 2001. In the same year, the
Eron Scandal, the greatest corporate fraud case recorded in American history, cause Arthur Andersen, one of the
top audit firms in the United States to close business. In order to protect investors from corporate misinformation,
the Sarbanes-Oxley Act was passed by the US Congress in 2002. This imposed tougher restrictions on accountants
conducting consultancy services.
With the constant developments in modern technology and the globalization of businesses, accountants
continue to cope up with the changing trends. Many countries including the Philippines have adopted the
International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) in order to support
comparability and understanding of financial statement across the globe. As a result, the accountants of today
face greater and more complicated responsibilities. In addition, technology today reduces, the time, effort and
cost of recordkeeping, minimizes errors as well as processes, and summarized large volumes of data input. As
such, accountants must always be updated with the latest innovations affecting their profession.
The diagram below shows that accounting is a language that communicates vital information to users for decision
making purposes. The firms transacts business every day and keeps tract of these through pertinent documents which are
analyzed, measured, recorded and summarized into financial reports by the accountant.
Accumulates accounting
information through its various
Processes the financial
information and prepares the
Review the reports and make
Figure 1.3 Accounting as the Language of Business
Accounting information and decision making are interactive in nature. Decisions made by the statement users will
affect the activities of the business which in turn will affect the resulting accounting information after repeating the
process of accumulation and communication. For these information to be effective, the users must have a sound
knowledge of accounting to understand the message embedded in the reports which usually uses terms and symbols.
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