Atp Notes History

8/2/2019 Atp Notes History

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WHAT IS ACCOUNTING THEORY

Accounting theory is concerned with;

The study of the history and development of accountingsystems in the context of their socio-economic

environments; (accounting history) The study of the development of conceptual frameworks

for accounting and financial reporting standards.

The critical analysis and interpretation of accounting and

financial reporting standards and Generally AcceptedAccounting Practices (GAAPs).


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THE ORIGINS OF ACCOUNTING THEORY

We need to examine the origins of accounting

theory because of two major reasons:

To identify similarities and differences betweenancient and modern recording accountingsystems.

To examine whether there is a relationship

between socio-economic environments and thecorresponding accounting systems existing atany particular point in time.


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ANCIENT ACCOUNTING SYSTEMS

Ancient accounting systems were characterized by thenotion of the stewardship concept of accounting andthe recording of both physical and monetary resources.However, there was absence of income measurementand decision making techniques

The Mesopotamian (Iraq)

Early civilizations existed along the Tigris-Euphratesrivers between 4500BC and 500BC.

The civilizations were sufficiently complex tonecessitate a system of record keeping to account forthe ownership of property and transactions betweenparties through the use of clay tablets to recordtransaction in grain.


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Economic tablet with numeric signs. Proto-Elamite script in clay, (3200 BCto 2700 BC). Department of Oriental Antiquities, Louvre. The

Mesopotamian civilization emerged during the period 37002900
http://en.wikipedia.org/wiki/Proto-Elamitehttp://en.wikipedia.org/wiki/Louvrehttp://en.wikipedia.org/wiki/Mesopotamianhttp://en.wikipedia.org/wiki/37th_century_BChttp://en.wikipedia.org/wiki/29th_century_BChttp://en.wikipedia.org/wiki/29th_century_BChttp://en.wikipedia.org/wiki/37th_century_BChttp://en.wikipedia.org/wiki/Mesopotamianhttp://en.wikipedia.org/wiki/Louvrehttp://en.wikipedia.org/wiki/Proto-Elamitehttp://en.wikipedia.org/wiki/Proto-Elamitehttp://en.wikipedia.org/wiki/Proto-Elamite


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Complex accounting tokens made of clay, from, circa 3500

BC. Department of Oriental Antiquities, Louvre.
http://en.wikipedia.org/wiki/Louvrehttp://en.wikipedia.org/wiki/Louvre


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Globular token envelope with a cluster of accounting tokens. Clay,(4000 to 3100 BC). Department of Oriental Antiquities, Louvre.
http://en.wikipedia.org/wiki/Louvrehttp://en.wikipedia.org/wiki/Louvre


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ANCIENT ACCOUNTING SYSTEMS CONTD

Greece and Roman

The Greeks invented coinage (money as a medium of exchange) inabout 630BC and systems of used in parts of the Athenian Empire

primarily to detect fraud and inefficiency. The Romans modified the Greek system and introduced the use of

ledgers as we know them today.Chinese Influence

The Chinese system had a public sector focus responding to thefeudal system that existed during the Chou dynasty during 122-

125BC as compared to the Greek and Roman Systems that had aprivate sector focus and were concerned with record keeping formerchants, temples and estates. The system allowed for largedistances, several hierarchies of officials and the need to collecttaxes in the form of goods by the imperial government.


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ANCIENT ACCOUNTING SYSTEMSCONTD

Medieval Manorial Accounting Systems

This was a system of record keeping used in England during theMiddle Ages (12th century). The feudal estate or manor was the major

social and economic unit administered by stewards who reported tothe landlord on how the manor had been managed during theaccounting period (monthly, quarterly, half yearly etc.)

The system went close to the double entry and was known as thecharge and discharge made of two parts

Arrears (expected income from property rentals and farm

produce)=(Total=The Charge) Expenses (money delivered)=(Total=The Discharge) and the balance The system lasted from the 12th to the 19th century and was largely in

single entry form.


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MODERN DEVELOPMENTS(DOUBLE ENTRY BOOKKEEPING)

Luca Pacioli was a mathematician who publishedseveral books in mathematics. He was born in 1446 inBorgo San Sepolcro, a small Tuscan town and died atthe age of 70 on 19th June 1517. Although Luca

Pacioli codified rather than invented this system, he iswidely regarded as the "Father of Accounting".

The system he published in the book Summa dearithmetica, geometria, proportioni et proportionalita

(Venice 1494), a textbook used in the schools ofNorthern Italy included most of the accounting cycle aswe know it today.
http://en.wikipedia.org/wiki/Borgo_San_Sepolcrohttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Borgo_San_Sepolcrohttp://en.wikipedia.org/wiki/Borgo_San_Sepolcrohttp://en.wikipedia.org/wiki/Borgo_San_Sepolcrohttp://en.wikipedia.org/wiki/Borgo_San_Sepolcrohttp://en.wikipedia.org/wiki/Borgo_San_Sepolcro


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LUCA PACIOLITHE FATHER OF ACCOUNTING


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It was a synthesis of the mathematicalknowledge of his time It is also notable forincluding the first published description of the

method of bookkeeping that Venetian merchantsused during the Italian Renaissance, known asthe double-entry accounting system.

He described the use of journals and ledgers,

and warned that the accounts could not beconsidered to have balanced until the debitsequalled the credits.
http://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_systemhttp://en.wikipedia.org/wiki/Double-entry_accounting_system


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His ledger had accounts for assets (includingreceivables and inventories), liabilities, capital,income, and expenses the account categories

that are reported on an organization's balancesheet and income statement, respectively.

He demonstrated year-end closing entries andproposed that a trial balance be used to prove a

balanced ledger. Also, his treatise touches on awide range of related topics from accountingethics to cost accounting
http://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Accounting_ethicshttp://en.wikipedia.org/wiki/Accounting_ethicshttp://en.wikipedia.org/wiki/Accounting_ethicshttp://en.wikipedia.org/wiki/Accounting_ethicshttp://en.wikipedia.org/wiki/Accounting_ethicshttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheet


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Luca Pacioli's "Summa de Arithmetica,Geometria, Proportioni et Proportionalit"(Italian: "Review of Arithmetic, Geometry, Ratioand Proportion") was first printed and publishedin Venice in 1494.

It included a 27-page treatise on bookkeeping,"Particularis de Computis et Scripturis" (Italian:"Details of Calculation and Recording"). It waswritten primarily for, and sold mainly to,merchants who used the book as a referencetext or accounting manual.
http://en.wikipedia.org/wiki/Luca_Paciolihttp://en.wikipedia.org/wiki/Arithmetichttp://en.wikipedia.org/wiki/Geometryhttp://en.wikipedia.org/wiki/Ratiohttp://en.wikipedia.org/wiki/Proportionhttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Treatisehttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Treatisehttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Proportionhttp://en.wikipedia.org/wiki/Ratiohttp://en.wikipedia.org/wiki/Geometryhttp://en.wikipedia.org/wiki/Arithmetichttp://en.wikipedia.org/wiki/Luca_Paciolihttp://en.wikipedia.org/wiki/Luca_Paciolihttp://en.wikipedia.org/wiki/Luca_Pacioli


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The book represents the first known printedtreatise on bookkeeping; and it is widelybelieved to be the forerunner of modern

bookkeeping practice. In Summa Arithmetica, Pacioli introduced

symbols for plus and minus for the first time in aprinted book, symbols that became standard

notation in Italian Renaissance mathematics.Summa Arithmetica was also the first knownbook printed in Italy to contain algebra
http://en.wikipedia.org/wiki/Plus_and_minushttp://en.wikipedia.org/wiki/Algebrahttp://en.wikipedia.org/wiki/Algebrahttp://en.wikipedia.org/wiki/Plus_and_minushttp://en.wikipedia.org/wiki/Plus_and_minushttp://en.wikipedia.org/wiki/Plus_and_minushttp://en.wikipedia.org/wiki/Plus_and_minushttp://en.wikipedia.org/wiki/Plus_and_minus


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Although Luca Pacioli did not inventdouble-entry bookkeeping, his 27-pagetreatise on bookkeeping contained the first

known published work on that topic, and issaid to have laid the foundation for double-entry bookkeeping as it is practiced today
http://en.wikipedia.org/wiki/Treatisehttp://en.wikipedia.org/wiki/Treatise


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According to Pacioli, accounting is an ad hoc orderingsystem devised by the merchant. Its regular useprovides the merchant with continued information aboutthe business, and allows an evaluatuation of how the

business is going and to act accordingly. Pacioli recommends the Venetian method of double-

entry bookkeeping above all others. Three major booksof account are at the direct basis of this system: thememoriale(Italian: memorandum), the giornale(journal),

and the quaderno(ledger). The ledger is considered asthe central one and is accompanied by an alphabeticalindex.
http://en.wikipedia.org/wiki/Memorandumhttp://en.wikipedia.org/wiki/Journalhttp://en.wikipedia.org/wiki/Ledgerhttp://en.wikipedia.org/wiki/Indexhttp://en.wikipedia.org/wiki/Indexhttp://en.wikipedia.org/wiki/Ledgerhttp://en.wikipedia.org/wiki/Journalhttp://en.wikipedia.org/wiki/Memorandum


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Paciolis treatise gave instructions on how to recordbarter and other transactions in a variety of currencies.

It also enabled merchants to audit their own books andto ensure that the entries in the accounting records

made by their bookkeepers complied with the method hedescribed.

Without such a system, all merchants who did notmaintain their own records were at greater risk of theft bytheir employees and agents for that reason the first and

last items described in his treatise concern maintenanceof an accurate inventory.
http://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventory


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The nature of double-entry can be graspedby recognizing that Paciolis system ofbookkeeping did not simply record the

things merchants traded so that they couldkeep track of assets or calculate profitsand losses; instead as a system of writing,

double-entry produced effects thatexceeded transcription and calculation.


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SOMBARTS THEORY

Despite the fact that it is generally agreed thataccounting responds to the needs of the environment inwhich it is embedded, some researchers (especiallySombart 1924) suggest that Double Entry Bookkeepingwas such a powerful tool that it led to the development of

a new social and economic system which we callcapitalism.

This is a position unsupported by any evidence, takinginto account how ancient accounting systems developed.The weight of available evidence does support the

generally accepted view that that Double EntryBookkeeping was the product of economic and socialchange and responds to the needs of the environmentand not the other way round.


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BRITISH INDUSTRIAL REVOLUTION ANDMODERN DEVELOPMENTS

Accounting Implications of the British IndustrialRevolution (1750-1900)

The industrial revolution was characterized by the

invention of powered or mechanical machinery (thesteam engine) and production changed from handmechanised systems

The industrial revolution brought about the followingsocial and economic changes in that country:

The use of machinery in production systems New accounting problems emerged including theconcept of depreciation, useful lives of machinery,annual depreciation charges and residual values andthese problems had a significant impact on profitdetermination in a way that did not exist before.


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The construction of factories to facilitate the massproduction of goods and the emergence of increaselabour force

New accounting problems emerged including inventorycontrol and valuation, ascertaining the periodicinventory valuation and balances, how to allocateoverhead costs to inventories and which method to

account for the issue of inventory (FIFO, LIFO andAVCO etc.)

Several issues emerged such as how the accountingfunction has the responsibility to provide informationthat facilitates collective bargaining by organised

labour (trade unions), safety at work and motivationindustrial sociolo


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The emergence of large scale industrial and

commercial activities This necessitated the formation of joint stockcompanies (limited liability companies) dating back asthe 1844 Joint Stock Companies Act. The central issuewas the separation between ownership andmanagement (shareholders and directors).

The need for the accountancy profession to getorganised and respond to the accounting needs of itsenvironment in an orderly and efficient manner. Thiswas characterised by the early pronouncements of theInstitute of Chartered Accountants in England and

Wales (ICAEW) during the early 1960s.


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The formation of the Accounting Standards Steering

Committee (ASSC) in 1970. The ASSC changed to be known as the AccountingStandards Committee (ASC) and was then joined bythe Scottish and Irish Institutes of CharteredAccountants and the Association of Chartered CertifiedAccountants (ACCA). The professional accountingbodies referred to above formed the ConsultativeCommittee of Accountancy Bodies (CCAB) still inexistence today.

The ASC issued accounting standards known asStatements of Standard Accounting Practice (SSAPs)


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The ASC was changed to become the presentAccounting Standards Board (ASB).

On the international scene, the International

Accounting Standards Committee (IASC) wasestablished in 1973 and issues InternationalAccounting Standards (IAS).

The IASC became known as the International

Accounting Standards Board (IASB) in 2001and issues International Financial ReportingStandards (IFRS).

Atp Notes History

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