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Evolution of AccountingAncient AccountingAs early as 8500 B.C.,
accounting has already existed. Archaeologists have found clay
tokens as old as 8500 B.C. found in Mesopotamia which were usually
cones, disks, spheres and pellets. These tokens correspond to such
commodities like sheep,
. Examples of ancient civilizations keeping account records are
China, Babylonia, Greece and Egypt. Like in Babylonia during 3600
B.C., payments of salaries were recorded in clay tablets.
In addition, the rulers of these civilizations keep track of
labor and material costs used in building structures using
accounting. A good example is the case of the Egyptian pharaohs in
building their magnificent pyramids.
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Middle AgesDuring the thirteenth to the fifteenth centuries,
trade flourished places such as Florence, Venice and Genoa, thus,
there was advancement in account keeping methods, thanks to the
merchants and the bankers of such time. during the 1211 A.D., one
of the systems in accounting was kept by a Florentine banker.
However, the system was primitive as the concept of equality for
entries was absent. Double entry records first came out during 1340
A.D. in Genoa.
In 1494, the first systematic record keeping was formulated by
Fra Luca Pacioli, a Franciscan monk and one of the most celebrated
mathematicians to this day. Pacioli is considered as the father of
accounting
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Industrial Revolution
The industrial revolution which was characterized by great
changes in working and business transactions paved way to the
specialized field of accounting called cost accounting in order to
meet the need for the analysis of various costs.
In addition, since there was a development of the corporate form
of organization,
there was a need for a separate and independent report to assure
the management's financial representations are reliable.
Information Age
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At present,
there have been tremendous advancements in accounting to meet
the needs brought about by information technology.
Use of Computers for reducing work , faster business
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The Father of AccountingLuca Pacioli:
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Luca Pacioli:
Luca Pacioli was born in Sansepulcro, in Tuscany. He was
probably born during 1445. His family was poor, and Pacioli's
future seemed very unpromising.
Pacioli joined a Franciscan monastery in Sansepulcro and became
an apprentice to a local businessman.
In 1475, Pacioli became a teacher at the University of Perugia,
where he stayed for six years. He was the first lecturer to hold a
chair in math at the University.After 1481, Pacioli wandered
throughout Italy, and in some areas outside it, until he was called
back to the University of Perugia by the Franciscans in 1486.
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The year 1494 is the only date during Pacioli's life that is
absolutely certain. It was during this year that the
forty-nine-year-old Pacioli published his famous book Summa de
arithmetica, geometria, proportioni et proportionalita (The
Collected Knowledge of Arithmetic, Geometry, Proportion and
Proportionality). Pacioli wrote the Summa in an attempt to redress
the poor state of mathematics teaching in his time. One section in
the book made Pacioli famous. The section was Particularis de
Computis et Scripturis, a treatise on accounting. De Scripturis was
later described by some as "a catalyst that launched the past into
the future."(Luca Pacioli: Unsung Hero of the Renaissance)
Pacioli was the first person to describe double-entry
accounting, also known as the Venetian method. This new system was
state-of- the-art, and revolutionized economy and business. The
Summa made Pacioli a celebrity and insured him a place in history,
as "The Father of Accounting." The Summa was the most widely read
mathematical work in all of Italy, and became one of the first
books published on the Gutenberg press.
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Introduction to Accounting Meaning
Need for Accounting
Internal and External Uses
Concepts , Conventions and Practices
GAAP
Chapter I
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Definition of Accounting Accounting is the art of recording,
classifying and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least, of a
financial character, and interpreting the results thereof.
Activity which deals with providing information for users for
their decision making
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Book keeping and AccountingBook keeping is the art of recording
all those business transactions that result in transfer of money or
moneys worth in books of accounts.Book Keeping may be defined as
systematic and regular record of events affecting a firm with view
to obtaining a clear picture of the financial state of affairs of
the firm and of its performance in monetary terms over a period
time.Accounting is preparation of reports based on recorded data
and interpretation and communication of accounting information.
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Need for Accounting
Financial information to decision makers
Yardstick of financial performance
Formulation of Policies and Budgets
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Accounting ProcessStep 1 - Identification of Transaction
Step 2 - Recording of the transaction
Step 3 - Posting to Ledger
Step 4 - Preparation of Trial Balance
Step 5 - Preparation of Final Accounts
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Recording of Transaction Transactions are recorded in a book
called JournalWhat to record? When to record?How to record?
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Classification and Summarization Classification refers to the
segregation, categorisation or sorting of transactions into
relevant groups
Summarizing refers to balancing of accounts and posting to trial
balance
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Preparation of Financial StatementsIncome Statement To ascertain
the operational result of the business Balance Sheet To ascertain
the financial position of the organization
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INTERPRETATIONFinancial Statements are interpreted for the
benefit of end users. These end users are:Share holders /
Prospective investorsManagementCreditors / SuppliersLenders
GovernmentEmployeesResearch groups.
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Debit and Credit All the accounts are divided into three
categories Real a/c - Debit what comes in, Credit what goes out
Personal a/c Debit the receiver, Credit the giver Nominal a/c Debit
all expenses and losses, credit all incomes and gains
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Branches of AccountingFinancial Accounting deals with recording,
classifying and summarizing of past events.
Cost Accounting deals with cost identification, cost
classification, cost analysis, cost reduction and cost control.
Management Accounting Processing of data generated by financial
and cost accounting for the purpose of managerial decision
making.
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TerminologyAssets They have economic value and their use gives
benefits to the business.Fixed assets which give benefits spread
over a long period of time.Current assets which are converted into
cash within one operating cycle.Liabilities represents what the
business owes to others.Capital Owners investment in business.
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Accounting EquationEvery transaction has two aspects Receiving
aspect Giving aspectAll the sources of funds should equal the uses
of funds Sources of funds = Uses of funds Total Liabilities = Total
AssetsOwners equity + Outsiders funds = Total Assets
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Uses of Financial StatementsManagementShareholders, Analysts and
InvestorsLendersSuppliersCustomersEmployeesGovernment and
Regulatory AuthoritiesOthers: Academicians, Researchers, etc