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Historical Development Of Accounting
Accounting is the process of obtaining, recoding, classifying, summarizing, reporting, interpreting ans presenting financial information in a manner that will facilitate informed decisions by the users of the information. This definition indicates the phases involves in accounting. first the accounting/financial information would be obtained by the accountant in respect of transactions from source documents such as payment vouchers, invoices and receipts. Next the information would be recorded. During this stage the accountant would classify and summarize the transactions into meaningful groups. Then the accountant would analyze and interpret the information in a manner that would make them comprehensible for the users so that they could, in turn make appropriate decisions.
Irrespective of the manner in which business organizations have evolved, one factor has remained constant and that is the need for book-keeping (that is the recording of business transactions in an orderly manner) in order to, among others, measures the value of resources employed and the profitability (or otherwise) of the business venture. various forms of recording existing, ranging from situations in which virtually no records were kept to single-entry systems, double-entry and computerized systems.
The most elaborate systems of book-keeping which shows the complete effect of every transaction is the double-entry system. This system was developed by italian merchants who had begun to use it as early as the first half of 14th century while business in the rest of Europe was recorded using single-entry system. More than in any other part of the world. Europe being the most developed continent, witnessed a boom in industrial and business activities and italian merchant, at that time, were the most widely-traveled businessmen; their business activities taking them across Europe and beyond.
The account of steward's of the commune of Genoa, a city in Italy in the year 1340 are reputed to be the earliest set of double-entry records of course, as they traversed Europe in their business activities. Italian merchant compare notes with their counterparts in other countrie3s who accepted the superiority of the double-entry system, which at that time was aptly dubbed the italian method- to the system they had been using. By this means the double-entry systems gradually spread to the rest of Europe and the world. The spread of the system was accelerated with the publication in 1494 of the first known text on double-entry system of book-keeping by the italian monk, Luca Pacioli, who was an erudite scholar of his time of course. The title of the book is in italian language but translated into English. it means "Everything about Arithmetic Geometry and Proportion" it has to be stated that the book was not all about double-entry book keeping, as only one chapter dealt with double-entry book keeping. The chapter was, however so popular among students that ten years later in 1504, Luca publish it as a separate book whose title translated into English was "The Perfect School Of Merchants".
The influence of Italy on the accounting profession has dwindled in modern times, almost to the point of insignificance. Much of the current thinking in the profession is mainly dictated by two countries- The united kingdom (UK) and the united states of America (USA). Some of the evidence of this fact are presented below.
(a) The biggest and most influential professional accountacy institutes originated from both countries. They include:
* Association of Chartered Certified Accountants (ACCA)- UK
* chartered Institute of Management Accountants (CIMA)- UK
* The Institute of Chartered Accountants Of England and wales (ICAEW)-UK
* The American Institute of Certified Public Accounts (AICPA)- USA
(b) The accounting standards setting bodies of both countries are the respected and best known in the world. They are
* Accounting standards Board- UK
* Financial Accounting Standards Board-USA
(C) The body responsible for developing and issuing international accounting standard, under a restructuring program that took effect on 1st April 2001, was split into two organs. These two organs are located in the USA and UK, They are:\
* The International Accounting Standards Committee (IASC) Foundation based in the USA. this body is run by 19 Trustees. who are responsible for the governance and public awareness of the work involved in developing and issuing international accounting standards.
* The International Accounting Standards Board (IASB)- Located in the UK, which saddled with the technical responsibility of developing and issuing the international accounting standards and its members are appointed by the Trustees.
Roles Of Accountants: Generally the roles of an accountant are:
* Preparation and communication of accounting information to the users
* Assisting management with the aid of relevant information to curb or eliminate wastage
* Setting up and running an efficient system of internal and accounting controls
* investigation of fraud and Treasury management
Types Of Accountant : These are outline thus;
* Financial Accountant: The financial accountant obtain records and communicates information to enable the users to assess the performance of the enterprise.
* Management Accountant: The management accountant prepares futuristic accounting information (estimate and projections) such as budgets to assist management in decision making
* Auditor : The auditor is an accountant who examines the financial statement and underlying records of a company and reports thereon to the shareholders- if he is an external auditor, or to the management- if he is an internal auditor
* Tax Accountant : This is an accountant who helps a company to organize its tax matters. This includes advising on types and timing of asset acquisitions, computation of tax liabilities, filing of tax office with his understanding of complex tax laws, he is able to help a company to avoid-rather than evade tax.
Accounting Is Historical : Accounting provides information on transactions and the effect thereof after the transactions had already occurred. To facilitate this, the life-time of an enterprise is split into regular periods of 12 months each of which is known as accounting period, over which the performance of the business is reported. The accounting period adopted by the enterprise may not coincide with the calender year, unless it so desires. for example, the accounting period of Firm A may run from 1 January to 31 December, while that of Firm B may be for 1st July of one year to 30st June of the following year.
One shortcoming of historical accounting information is that it may come rather late for any meaningful action to be taken on it. This does not however detract from the tremendous value of accounting information. After all it is a truism that what happened in the past usually provides a guides as to what would happen in future. There is branch of accounting known as Management Accounting- which provides futuristic accounting information instead of historical accounting data and statistics. To do this management accounting makes use of projections and estimates. This is very useful to management for the purpose of decision making in that it takes care of the shortcoming associated with financial accounting. Management accounting does have its own shortcoming which is the risk of significant errors in projections and estimates on the basis of which the decisions are made.