Historical Development of Accounting

1. Historical Development of Accounting

2. Accounting period • Age of record keeping (before 2500BC) • Double entry accounting(1211-1494) • Age of stagnation (1500-1800) • Age of Scientific Accounting (19th century –now)

3. Age of record keeping • Stewardship concept- steward assumed responsibility for estate dupervision • Record keeping- for integrity and fraud prevention. • Use clay tablets –in Sumerian civilisation (grain)- date 2400BC to 700AD in Mesopotamia (Iraq) • Use Egypt papyrus – paper from reeds grown in Nile delta -2390BC • Problems- understate the physical stock, make good of any trading losses, suits only decentralised organizations - need for full accountability

4. Accounting record • Use documentation, rather than oath-taking. Recognize expenditure & revenue-not INCOME. • 1.Use of Roman numerals-calculation • ( +, -) is difficult because of no zero value. • 2.Use of Arabic numerals-earlier used in India dated 250BC= Spain in 711AD. • Single record based on physical volumes, not currency value – esp. for small size business and few transactions only.

5. Double entry accounting • Originated from bank ledger in Florence 1211 and books from Genoa 1340-1466. • Double entry techniques-Luca Pacioli in Venice, 1494.-focus on Italian peninsular and Muslim merchants. • Nobes (1979)- claimed double entry originated from India- Bahi-Kata system ( Cr-left, Dr-right) • Superior than single entry- systematic trial balance and provide internal control to deter fraud.

6. Double entry accounting • 7 reasons-writing, arithmetic, private property, commerce, capital investment, money and credit transactions. • Double entry- enter all assets and liabilities, record in memo, record Dr and Cr in journal, then transfer to ledger account. • But, less interest on profit due to merchant enterprise were short term ventures.

7. Age of stagnation • Slow spread of double entry techniques. • This period is when double entry was not valued-concept of periodicity and matching were not appreciated, disregard for depreciation of assets, no write-off bad debt and less attention for profit. P& L A/c as closing book only. • Only use by owner managers and extended families.

8. Age of Scientific Accounting • 19th century-after industrial revolution in UK- raise issue of recognition, measurement and accountability. • Due to; a) separation of ownership, b) management in large-scale industrial enterprises. • Insufficient double entry and industrial revolution- raise demand for new accounting practices. • Demand for- recognition of capital and revenue, private and business transaction, fixed asset measurement, method of depreciation, write-off debts etc. • Preferred income statement – to determine income. • Imposed income tax in 1799

9. Issues raised: • Definition of capital and income • Recognition: What asset and liabilities should be included in measuring income and capital? • Measurement: How should assets and liabilities be valued and how much change between net assets at the beginning and end of period should be regarded as income? • Introduce concept- going concern, matching, prudence, historical cost minus depreciation, consistency etc.

10. Development of accounting • Historical accounting developed a result of business and social changes, not by research and theory • Future research is needed to identify methods of recognition and measurement.