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Like all the other important aspects of life, accounting has its own history. The process of accounting can be traced back to at least 3600 Ancient Civilization, even back then, people kept records of the cost of materials and labour that is used for building structures. Subsequently, come the development of Commerce in the 1400's (Mercantilism in Italy). Nonetheless, the first publication of double entry bookkeeping system of accounting is due to Monk Luca Pacioli in 1494 AD in Venice Italy.
Today's double entry accounting remains the same as Monk Luca Pacioli's back then. Due to the continuous development in the business society, financial accounting has evolved tremendously. As a result of the rapid growth in businesses and the ownership of large corporations, there was a need to separate the owner's equity from managers. Consequently, managers had to make account for the use of owner's capital and the extent of wealth creation.
Over the years there has been an accelerated growth in the profession of accounting. During the year of 1904, 50 years after the coming out of the accounting profession, the individuals who actually held the title of chartered accountants was about 6000. As the year passes by, the number of chartered accountants increased. On one hand, it is said that accounting came about as a result of the changes in the environment and societal demands. While on the other hand, it is said that accounting came about because of the evolution of commerce.
Throughout the medieval period, according to the historian, Michael Chatfield observation, he believed that medieval accounting agency "laid the foundations for the doctrines of stewardship and conservatism, and the medieval era created the conditions for the rapid advance in accounting technology that occurred during the renaissance." Yet during the thousands of years that has passed between the fall of the Roman Empire and the publishing of Monk Luca Pacioli's work, there was a period of accounting stagnation occurred and any practices of accounting outside of Italy were generally omitted from the history of accounting. For the period of the medieval time, bookkeeping was localized and centered on the specialized institution of the feudal manor. In the course of that time the exchequer gave the preparers and users of the property rather than the actual owner the authority to carry out activities. In those times the main reason for such act is so that they can monitor the individuals from the lesser part of the socio-economic background.
At some point in the 1086, the Conqueror, William took precedence of all properties in the name of his king. William later took up the responsibility of calculating taxes due on the properties and this is known as the 'Domesday Book.'
The Pipe Roll also known as the Great Roll of the Exchequer is the oldest English accounting record and this reflect the taxes, rent and fines payable to the King of England from A.D. 1130 to 1830. During that time wooden tally sticks were used for account keeping. Whenever an individual pays off his debt a wooden tally stick would be cut and prepares by the treasurer as a transaction. And that would be their kind of receipt. The treasurer would normally cut the tally stick according to the amount paid by the creditor. For instance if the person is paying 1000 pound, then the treasurer would cut the tally stick the size of a human hand as his receipt.
The only way business of today's society could grow, flourish and respond to the needs of their stakeholders is by using more precise accounting methods. Besides, the accounting brings forth the business and economic history, as the development of accounting assist business in making more economical decisions.
A little background has just been given about accounting and when bookkeeping was first recognized. Now we will take a look at bookkeeping and accounting and their relationship. But first, let's take a look at what bookkeeping and accounting actually are.
Bookkeeping also known as record keeping is the process of accumulating, organizing, storing, and accessing the financial information base of an entity, which is needed for two basic purposes; facilitating the day-to-day operations of the entity and preparing financial statements, tax returns, and internal reports to managers. Those financial statements include sales, purchases, income, receipts and payments by an individual or organisation. The person responsible for bookkeeping is referred to as a bookkeeper. At the same time accounting is the systematic recording, analyzing, summarizing and reporting of financial information for a business or an organisation over a period of time. An accountant is the individual whom is responsible for accounting within a business or an organisation, and that person is expected to follow the rules and regulations of the generally accepted accounting principle.
Bookkeeping and accounting are related in some ways as they both deal with the financial information of the business or an organisation. Bookkeeping is an essential part of the accounting process and without bookkeeping the accounting process cannot begin. That is, the preparation of the final financial statements (income statement and the statement of financial position). Bookkeeping generally ends at the preparation of the trial balance and that statement is used to draw up the income statement and the statement of financial position which is done by the accountant. In a nutshell, where the bookkeeping process ends, the accounting process begins.
Bookkeeping and accounting goes hand in hand as bookkeepers have to record financial information according to a set of financial systems under a set of guidelines which are known as internal controls. These internal controls are developed by accountants and they manage and monitor the system as well. Internal controls were created to minimize errors that would have been made by bookkeepers due to the fact that they would be recording a large number of activities for the business within a given time span. Accountants design the bookkeeping system in such a way that they can easily recognize theft, fraud, embezzlement and other threatening activities to the business.
Accountants depend on reliable and accurate financial information from bookkeepers to properly assess the financial position of the business. If the bookkeeper financial information is incorrect then the accountant financial statements would be incorrect as well. Though, the accountant normally examines the bookkeeper's work before actually reporting it. In general the bookkeeper of the business or organisation is often referred to as the "accountant assistant."
Bookkeeping and accounting depends on each other systems to effectively analyse, summarise and report financial information of an organisation or business to the various stakeholders.