History of accounting

Accounting has been called ‘the language of business’. Perhaps a better term is the ‘language of financial decisions’. The better you understand the language. The better you can manage the financial aspects of living.

Accounting has a long history. Some scholars claim that writing arose in order to record accounting information. Account records date back to the ancient civilisations of China, Babylonia, Greece, and Egypt. The rulers of these civilisations used accounting to keep track of the cost of labour and materials used in building structures like the great pyramids.

Accounting developed further as a result of the information needs of mer­chants in the city-states of Italy during the 1400s. In that commercial climate the monk Luca Pacioli, a mathematician and friend of Leonardo da Vinci, published the first known description of double-entry bookkeeping in 1494.

The double-entry accounting system -- in which for every ‘debet dare’ there is a ‘debet habere’ – has evolved to the point where it is very much like the present day system. Debet dare and debet habere are Latin terms meaning ‘should give’ and ‘should have’ respectively.

The pace of accounting development increased during the Industrial Revolution as the economies of developed countries began to mass-produce goods. Until that time, merchandise had been priced based on managers' hunches about cost, but increased competition required merchants to adopt more sophisticated accounting systems.

In the nineteenth century, the growth of corporations, especially those in the railroad and steel industries, spurred the development of accounting. Corporation owners—the stockholders—were no longer necessarily the managers of their business. Managers had to create accounting systems to report to the owners how well their businesses were doing.

The role of government has led to still more accounting developments. When the federal government started the income tax, accounting supplied the concept of " income. " Also, government at all levels has assumed expanded roles in health, education, labour, and economic planning. To ensure that the information that it uses to make decisions is reliable, the government has required strict accountability and compliance with standards in the business community.

Accounting standards may be defined as «... uniform rules for external financial reporting applicable either to all or to a certain class of entity». Accounting standards may be viewed as a method of resolving potential conflicts of interests between the various user groups which have access to company accounts. The various groups have different objectives, information needs, and capacities for the generation and interpretation of information and, therefore conflicts may arise between groups outside the entity. It is a role of accounting standards to attempt to reconcile the conflicts. A number of important issues for the accounting profession should be mentioned here. These issues are as follows:

- Reliability. Accounting information should be reliable in use.

- Uniformity. The pressure for the standardization of accounting practices is to ensure a uniformity of treatment of data and hence an identity of the meaning of information.

- Comparability. Reliability and uniformity are integrated in the notion of comparability.

- Judgment. Accountants say that they should be allowed to exercise some judgment in interpreting data. This implies that some variety should be allowed for in the procedures available for transforming data into information.

Accounting practice and financial reporting regulation have shown great variety internationally. In recent years there has been growing interest in the harmonization of international accounting. Factors which have stimulated the movement towards harmonization have included the increasing internationalization of business, the importance of multinational companies in the world economy, and the development of international capital markets. In 1973 the International Accounting Standards Committee (IASC) was established in an attempt to coordinate the development of accounting standards internationally.

Questions:

1.What do you know about accounting? How old is it?

2.What century does it date back?

3.When you hear the word ‘accountant’, what kind of work do you draw in your mind?

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