How Accounting Helps The Past And Present Accounting Essay

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The project shows the history of accounting which depicts ancient accounting from different parts of the world. Also development of the double entry accounting in the 14- 16 century and also when a man called Luca Pacioli created a book called the "Summa" for accounting which paved the way for accounting we know today. This project also explains what is accounting and bookkeeping and the relationship between accounting and bookkeeping. It also looks at the main users of accounting information and why each of them uses it for their own needs. This project also has some T accounts and a trial balance from a company.

History of Accounting

Accounting measures accounting information and provides this information accurately so it can be used to see how the business is doing (Larson, Wild and Chiappetta, 2005, p. 4). In other words accounting is the way in which financial information about a business is put together so that the users of this information can get it.

Further in the future man developed the concept of value and monetary system which lead to a new era in the history of accounting. Alexander (2002) it is said that the Italian renaissance (14th-16th century) gave birth to evolution trend towards double entry system. The Italians were the first to start tracking their business transaction. DeSantis (n.d.) During the time when Venice was the major business place in Europe a group of merchants created the double entry system where it used and also during this period Fra Luca Pacioli a mathematician wrote accounting book called "Summa" which had information on record keeping and double-entry accounting, one of the very first published books in that time this book became the accounting "textbook" for the next 500 years. DeSantis (n.d.) the book was one of the first to be published on the Gutenberg press; the book became very popular and was changed into 4 main languages of the time. DeSantis (n.d.) the Summa made Pacioli well known and called "The Father of Accounting". DeSantis (n.d.) he didn't create the double entry accounting he explain the method used by the merchants. DeSantis (n.d.) also, the Summa made reference to the certification of books, ethics and cost accounting. DeSantis (n.d.) Most of the system explained in the Summa like memorandums, journals and ledgers are still in use today.

Alexander (2002) the accountants of Egypt had to be accurate because if they were irregularities were seen it could be punishable by fine, mutilation or death. Alexander (2002) but in Egypt accounting never progressed further than simple list making. "The inability to describe all goods in terms of a single valuation measure made cumulation and summation difficult and the development of a cohesive accounting system all but impossible" (Alexander, 2002).

"In the 5th century B.C., Greece use public accountants to allow its citizenry to maintain authority and control over their government's finances" (Alexander, 2002). Alexander (2002) Athens Popular Assembly legislated financial matters and kept control of receipts and expenditure of public monies under the watch of state accountants. Alexander (2002) Greece most important contribution to the accounting evolution was the coined money. Alexander (2002) banking in Greece was a major thing in Greece the bankers did basically the same as the present bankers, they kept account books, changed and loaned money and arranged for cash transfer for citizens through affiliate banks in far away.

"Government and banking accounts in ancient Rome evolved from records traditionally kept by the heads of families, wherein daily entry of household receipts and payments were kept in an adversaria or daybook, and monthly postings were made to a cashbook known as a codex accepti et expensi" (Alexander, 2002). "An elaborate system of checks and balances was maintained in Rome for governmental receipts and disbursements by the quaestors, which managed the treasury, paid the army and supervised governmental books" (Alexander, 2002). "Julius Caesar personally supervised the Roman treasury, and Augustus completely overhauled treasury operations during his reign" (Alexander, 2002). Romans used a budget the Empire's diverse financial enterprises, limited expenditures to the amount of estimated revenues and levied taxes in a manner which took into consideration its citizens' ability to pay" (Alexander, 2002).

Alexander (2002) Scotland is the birth of the modern profession of accounting because chartered accountants originated and the oldest societies of public accountants were found. Alexander (2002) there is several instances of members of the leading solicitors' society were practicing as accountants. In Edinburgh but more Glasgow, accountant was known as merchant (Alexander, 2002).

In 1887 the American Institute of certified public accountants was formed by thirty-one accountants Schneider (n.d.). Alexander (2002) the ensuing decades economic growth was huge because industry was overtaking agriculture in financial importance. Schneider (n.d.) the great depression in October 29, 1929 caused the creation of Securities and Exchange Commission (SEC) in 1934 and from that all companies in trading must periodic reports to be called accountants. The (AICPA) and this organization sets accounting standards until in 1973, when the Financial Accounting Standards Board (FASB) was established" (Schneider, n.d.). Schneider (n.d.) the industry did extremely well in the late 20th century because large accounting companies expanded their services to more than just auditing to different types of consulting.

Relationship between accounting and bookkeeping

Accounting measures accounting information and provides this information accurately so it can be used to see how the business is doing (Larson, Wild and Chiappetta, 2005, p. 4). "Record keeping or bookkeeping is the recording of transaction and events, either manually or electronically" (Larson, Wild and Chiappetta, 2005, p. 4). Cagan (n.d.) bookkeeping is what it sounds like keeping the books. Cagan (n.d.) bookkeeping is labor intensive and time consuming. Cagan (n.d.) also without it the business wouldn't be able to keep track of the business's finances, and also to see how the business is really doing.

"Bookkeeping and accounting has two basic goals: to keep track of your income and expenses, which improves your chances of making a profit. Cagan (n.d.) raw materials which are the ingredients used to make the meal. Cagan (n.d.) bookkeeping provides the raw information which is used to make useful financial reports. Cagan (n.d.) a meal has a lot of ingredients which helps you to make a good meal; accounting helps you to make reports that help the business to be successful. A bookkeeper puts together and records information in the books like the ledgers and journals and the accountant analyzes that information, after which the accountants present it in a more useful format. Cagan, (n.d.) after that the accountants explain all the information and also makes future recommendation. Cagan (n.d.) bookkeeping can exist without accounting because bookkeeping is the crucial part of the whole process. "Managers must ensure that their company's booking and accounting system is accurate and reliable" (Tracy, n.d.). " It is important for bookkeepers and accountants to have a clear idea of what it takes to be sure that the information coming out of the accounting system is complete timely and accurate" (Tracy, n.d.).

Users of accounting Information

Users of accounting information can be divided into two groups which are internal users and external users. Internal Users are directly related to the organization and are found inside the organization and external users are not employed in the organization and are found outside the organization.

Internal Users:

Managers: are people who steers an organization towards meeting the organization's aims and objectives so it can perform efficiently. Any management of any business needs accounting information to plan, control and evaluates the performance of decision making (Users of accounting, 2012). They also need this information to find out if the organization is operating at a profit or loss. Accounting measures organization transaction and as such help steer the manager in the right direction with solid information. This helps managers to make good decisions for the organization so the organization can correct the mistakes they made and remain profitable.

Owners: this or these are person(s) that started the so organization naturally they would want to know if the organization is operating profitable or not. They can also make decision based on the financial status of the business like, to raise wages, to fire employees, to drop wages and many other decisions. The owners need to know the organization's operational result this means whether the business is at a profit or loss and they also need to know the financial status of the organization because they are the ultimate risk takers (Users of accounting, 2012).

Employees: These are persons employed in an organization and are paid for the work they do. Employees are interested in the accounting information because of their salary and other monetary benefits like, bonus, overtime payment etc (Users of accounting, 2012). Also employees may want to invest in the organization and want to know if the organization is well enough financially to do so. Also they will want to know about the financial status of the organization to see if it doing well enough to continue paying employees or not and then the employee will decide whether to stay as an employee or seek another job.

External Users:

Lenders: "A lender is an institution or individuals that loan a borrower money" (What is a lender, n.d). "Loan money or other resources to an organization, examples of lenders are banks, saving and loan coops, mortgage and finance companies" (Larson, Wild and Chiappetta, 2005, p. 5). The lenders lend money with the intention of getting repayment with interest. If the owners wants to borrow money to help with the operation of the organization then the can go to the different type of lenders. If the organization is performing well financially and providing it has a good loan history then the organization will stand a good chance of getting the loan of if it is the opposite case then it will be hard for the organization to get the loan. The reason for this is that the lenders intend on getting their money back and if the organization looks fit enough to pay them back with interest they will give the organization the loan but if it is the opposite situation the organization will probably not get the loan.

Investors: An investor is an individual that gives money to investment goods with the expectation of monetary gains (Investor, n.d). Both potential and existing investors need the information to judge the prospect of the future and present investment in the organization (Users of accounting, 2012). Existing investors need accounting information to decide whether they should continue with the investing or not (Users of accounting, 2012). The reason for this is if the organization is operating profitably and is doing well financially the investors will invest more and increase their earnings from the business but if the organization is not doing well financially then the investors will cut their losses and stop investing. Prospective investors need accounting information to make decision to start investing in an organization or not (Users of accounting, 2012). The reason for this is that investors will want to invest in a organization that is doing well financially to make more money for themselves but if the organization is not doing well financially then the investors probably will not risk his money in a organization that is unprofitable and end up losing his money. An organization always needs to be financial sound and profitable to attract investors.

Government: Government is interested in account statements and reports and, its cost structure and income in order to propose the different type of taxes like income tax, excise duty, commercial tax and other type of taxes (Users of accounting, 2012). The organization gives some of their profits to the government as taxes (Users of accounting, 2012).

Public: the public as costumers want to know if they should exercised on controlling the expenses of the organization and price fixed is reasonable (Users of accounting, 2012). This is because the public wants to know if they are getting value for their money and they aren't getting robbed.

Creditors: are persons or organizations who the organization owes money (Users of accounting, 2012). Like lenders creditors are interested in the organization paying them back when payment is due. Short term creditors need the information to find out if how much they are owed they will get back in time (Users of accounting, 2012). "Long term creditors want to know how solvency and liquidity of the organization (Users of accounting, 2012). "They also want to know if the business can repay them with interest in time (Users of accounting, 2012). They are also interested because if the organization a poor financial history they will avoid doing business with that organization and also if the organization goes under the organization's assets are enough to pay the creditors.

T Accounts for ABC Enterprise

Capital A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 35,000

2011 Dec 1 Cash 35,000

2012 Jan 1 Bal B/D 35,000

Cash A/C

Date Details $

Date Details $

2011 Dec 1 Capital 35,000

2011 Dec 2 Bank 10,000

2011 Dec 21 Sales 500

2011 Dec 4 Purchases 1,000

2011 Dec 27 S. White 1,000

2011 Dec 12 Salaries 800

2011 Dec 18 Van 7,000

2011 Dec 31 Bal C/D 17,700

36,500

36,500

2012 Jan 1 Bal B/D 17,700

Bank A/C

Date Details $

Date Details $

2011 Dec 2 Cash 10,000

2011 Dec 8 Rent 2,000

2011 Dec 31 Bal C/D 8,000

10,000

10,000

2012 Jan 1 Bal B/D 8,000

Purchases A/C

Date Details $

Date Details $

2011 Dec 4 Cash 1,000

31 Bal C/D 3,500

2011 Dec 5 A. Harris 700

2011 Dec 5 M. Henry 1,000

2011 Dec 5 P. Peters 800

3,500

3,500

1 Bal B/D 3,500

A. Harris A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 700

2011 Dec 5 Purchases 700

2012 Jan 1 Bal B/D 700

M. Henry A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 1,000

2011 Dec 5 Purchases 1,000

2012 Jan 1 Bal B/D 1,000

P. Peter A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 800

2011 Dec 5 Purchases 800

2012 Jan 1 Bal B/D

Sales A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 2,300

2011 Dec 6 R. Brown 500

2011 Dec 6 S. White 1,000

2011 Dec 21 Cash 500

2011 Dec 24 A. Mitchell 300

2,300

2,300

2012 Jan 1 Bal B/D

R. Brown A/C

Date Details $

Date Details $

2011 Dec 6 Sales 500

2011 Dec 31 Bal C/D 500

2012 Jan 1 Bal B/D 500

S. White A/C

Date Details $

Date Details $

2011 Dec 6 Sales 1,000

2011 Dec 21 Cash 1,000

Rent A/C

Date Details $

Date Details $

2011 Dec 8 Bank 2,000

2011 Dec 31 Bal C/D 2,000

2012 Jan 1 Bal B/D 2,000

Fixtures A/C

Date Details $

Date Details $

2011 Dec 10 OBF Ltd. 500

2011 Dec 31 Bal C/D 500

2012 Jan 1 Bal B/D 500

Salaries A/C

Date Details $

Date Details $

2011 Dec 12 Cash 800

2011 Dec 31 Bal C/D 800

2012 Jan 1 Bal B/D 800

Van A/C

Date Details $

Date Details $

2011 Dec 24 Cash 7,000

2011 Dec 31 Bal C/D 7,000

2012 Jan 1 Bal B/D 7,000

A. Mitchell A/C

Date Details $

Date Details $

2011 Dec 24 Sales 300

2011 Dec 31 Bal C/D 300

2012 Jam 1 Bal B/D 300

OBF Ltd A/C

Date Details $

Date Details $

2011 Dec 31 Bal C/D 500

2011 Dec 10 Fixtures 500

2012 Jan 1 Bal B/D 500

ABC Enterprise

Trial balance as at Dec 31, 2011

Details

Debit $

Credit $

Capital

35,000

Cash

17,700

Bank

8,000

Purchases

3,500

A. Harris

700

M. Henry

1,000

P. Peter

800

Sales

2,300

R. Brown

500

Rent

2,000

Fixtures

500

Salaries

800

Van

7,000

A. Mitchell

300

OBF Ltd

500

40,300

40,300

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