HISTORICAL

BACKGROUND
of
ACCOUNTING
 Why care about accounting
and its history?
• It will help us illuminate our past and
help explain the phenomenal growth
of the accounting profession, since
the first royal charters were granted to
the Society of Accountants in
Edinburgh less than 150 years ago
 How and Why did this
relatively new profession
develop?
• History tells us that it is a part of the
human commerce of writing and the use
of numbers and counting.
• Other note that it is simply in response to
the needs of the time brought about by
changes in the environment, economic,
political and societal demands.
• This presentation covers the concepts
and practice of accounting fundamental.
From the concepts and information
about accounting up to the accounting
cycle, which includes journalizing,
reversing and closing entries.
• Accounting is a profession similar to
medicine and law. Such profession
continually evolve and change as
society and the needs of society change.
• The objective of this presentation is to
make people aware of how accounting
works in relation to business and also
how can it be helpful even in a simple
way of living. This also emphasized
the importance of accounting in any
types of business. Little by little, you
will be able to understand how
accounting works and you will realize
its significance to our daily living.
Etymology
• The word "Accountant" is derived from
• the French word "Compter"
which took its origin from
the Latin word "Computare"
The word was formerly written in
English as "Accomptant"
but in process of time the word, which was always
pronounced by dropping the "p", became gradually
changed both in pronunciation and in orthography
to its present form.
Early history
The development of mathematics and
accounting were intertwined during the
Renaissance. Mathematics was in the midst of
a period of significant development in the late
15th century. Hindu-Arabic numerals and
algebra were introduced to Europe from Arab
mathematics at the end of the 10th century by
the Benedictine monk Gerbert of Aurillac, but
it was only after Leonardo Pisano (also known
as Fibonacci) put commercial arithmetic,
Hindu-Arabic numerals, and the rules.
 HISTORY of ACCOUNTING

In the 15th century, the Italian

merchants usually entrusted their
properties to their servants or
employees who were required to keep
track of their daily activities by listing
down what properties (assets) are
owned by the merchants and what
debts (liabilities) are owed to others.
The 19th century is a witness to a
massive development of trade and
industry and the simple structure of a
business combinations, mergers and
consolidations
•It became necessary to improve
the process of recording and
reporting financial information
from simple bookkeeping to
accounting.
• The name that looms largest in early
accounting history is Fa Luca Pacioli
• who in 1494 first described the
system of double-entry bookkeeping
used by Venetian merchants

Summa de Arithmetica,
Geometria, Proportioni et
Proportionalita.
• Of course, businesses and
governments had been recording
business information long before
the Venetians. But it was Pacioli
who was the first to describe the
system of debits and credits in
journals and ledgers that is still
the basis of today's accounting
systems.’
Born: 1445 in Sansepulcro, Italy

Died: June 19, 1517 in the

monastery in Sansepulcro.
 "Summa de Arithmetica, Geometria,
Proportioni et Proportionalità"
which he dedicated to Guidobaldo, the duke of Urbino
(“Collected Knowledge of Arithmetic,
Geometry, Ratio and Proportion")
was first printed and published in Venice in
1494. It included a 27-page treatise on
bookkeeping,
"Particularis de Computis et Scripturis"
("Details of Accounting and Recording").
 It was written primarily for, and
sold mainly to:
♫ merchants who used the book as
a reference text
♫ as a source of pleasure from the
mathematical puzzles it contained
♫ and to aid the education of their
sons.
It is widely believed to be the forerunner
of modern bookkeeping practice.
In Summa Arithmetica, Pacioli
introduced symbols for plus and minus
for the first time in a printed book,
symbols that became standard notation
in Italian Renaissance mathematics.

Summa Arithmetica was also the first

known book printed in Italy to contain
algebra.
Three major books are at the direct
basis of this system:
THE MEMORIALE (memorandum),
THE GIORNALE (journal), and
THE QUADERNO (ledger).

The ledger is considered as the central

one and is accompanied by an
alphabetical index.
According to PACIOLI: To be
successful businessman or merchant,
he needs:

• Sufficient cash or credit;

• Good bookkeepers; and
• An accounting system which
allows him to view his
finance at a glance.
MEMORANDUM
• Pacioli’s equivalent of a daybook, is
for the recording, in chronological
order, of business transaction as they
occurred.
• The transaction could be entered in any
of the various monetary units the in use
in the Italian city-states of the time,
with conversion to a common currency.
THE JOURNAL
• Was the merchant’s private account
book.
• Entries consisted of a narrative
debit, credit and explanation in one
continuous paragraph.
• The journal had only one column,
which was not totaled.
• There where no compound entry.
THE LEDGER

• Pacioli’s ledger was, of his three books,

the most like in its modern equivalent.
• The money and date columns were
almost identical to those in modern
ledgers, with entries consisting of brief
paragraphs, debits o the left side of a
double page (deve dare) and credits on
the right (deve avere).
• The first 16 chapters of Particularis De
Computis describe this basic system of
books and accounts, while the remaining
20 are devoted to specialized accounting
issues of merchants
• These include:
• bank deposits and withdrawals,
• brokered purchases,
• drafts,
• barter transactions,
• joint venture trading,
• expense disbursements,
• and closing and balancing books.
TRIAL BALANCE – SUMMA SUMMARIUM

• Is the end of Pacioli’s accounting cycle.

• The debit amounts from the old ledger are
listed on the left side of the balance sheet and
credits on the right.
• If the two totals are equal, the old ledger is
considered balanced.
• If not, says Pacioli, “that would indicate a
mistake in your Ledger, which mistake you will
have to look for diligently with the industry and
intelligence God gave you.”
• The many problems encountered by the
ancients with regards to record keeping,
control and verification of financial
transactions were not entirely different
from our current ones.
• Government, in particulars, had strong
incentives to keep careful records of
receipt and disbursements – particularly
concerning taxes.
• A double-entry bookkeeping system
is defined as any bookkeeping
system in which there was a debit
and credit entry for each transaction,
or for which the majority of
transactions were intended to be of
this form.
What is accounting?

Accounting
is a service activity, whose function
is to provide quantitative information,
primarily financial in nature, about
economic entities that is intended to be
useful in making economic decision.
What is accounting?
Accountancy or accounting is the art of
communicating financial information
about a business entity to users such as
shareholders and managers.

The communication is generally in the

form of financial statements that show in
money terms the economic resources
under the control of management .
What is accounting?

Accountancy or accounting is
the process of identifying,
measuring and communicating
economic information to permit
informed judgment and decision.
EVOLUTION
OF
ACCOUNTING
 ACCOUNTING in
MESOPOTAMIA,
CIRCA 3500 B.C.
• Five hundreds years before
the appearance of double-
entry, the Assyrian,
Chaldaean – Babylonian and
Sumerian civilizations were
flourishing in the
Mesopotamian Valley,
producing some of the oldest
known records of commerce.
• The renowned Code of Hammurabi,
handed down during the first
dynasty of Babylonia (2285-2242
B.C.) for example, required that an
agent selling goods for a merchant
gives a merchant a price quotation
under seal or face invalidation of a
questioned agreement.
• Thus, it is believed that the most
transactions were recorded and
subscribed by the parties during this
period.
• The Mesopotamian
equivalent of today’s
Accountant was the

•“scribe.”
ACCOUNTIN
G in
ANCIENT
EGYPT
• Egyptian bookkeepers associated
with each storehouse kept
meticulous records, which were
checked by an elaborate internal
verification system.
• Ancient Egyptian accounting never
progressed beyond simple list-
making in its thousands of years of
existence because illiteracy and the
lack of coined money appear to
have hindered its development.
ACCOUNTING
in
PRE –
CHRISTIAN
CHINA
• Accounting is used as a means to
evaluate the governmental programs
and those who performed this
function (civil servants)

• A level of sophistication was achieved

during the Chao Dynasty which was
not surpassed in China until after the
introduction of double entry processes
in the 19th century.
ACCOUNTING
in
GREECE
• In the 5th century B.C. Greece
used “public accountants to allow
its citizenry to maintain real
authority and control over their
government’s finances

• The introduction of coined

money about 600 B.C. is the
Greeks most important
contribution to accountancy
ACCOUNTING
in
ANCIENT
ROME
• Financial records are kept by the
heads of families who maintain a
daybook.
• This daybook is used to record
household receipts and payments.

• This method of accounting is

important because the Romans during
that time were asked to submit
statements of assets and liabilities
which is used for taxation.
 THE
ACCOUNTANCY
PROFESSION IN
THE PHILIPPINES
 In the Philippines, bookkeeping was
introduced by the Spaniards and the
bookkeeper was called Tenedor de Libro.
Trade flourished even before the Spaniards
came to our shores as traders from the nearby
Asian shores, Chinese traders in particular,
exchanged goods and wares with the Filipino
merchants.
It was only when the Americans came in the
early part of the 20th century that business
proliferated with the establishments of
American companies.
• AD 980s. Did you know that the system of accounting in the
Philippines can be traced back to our ancestors when we
exchanged goods and services with the Chinese, Indians, and
Malays? During this time, “accounting” was a simple matter of
hands exchanging cash. Eventually, this straightforward way of
buying and selling evolved into a more polished state when
travellers from the West started coming over.

• 1700s. British colonizers established the first accounting firms.

 
• 1890s. When the Americans arrived and established businesses
in the country, it greatly influenced the accounting practice in
the Philippines. Initially, business schools popped up to have a
pool of accountants for American businesses and subsidiaries.
Later, schools like the University of the Philippines, Jose Rizal
College, Far Eastern University and De La Salle College started
to offer their own accounting programs.
• 1923. Accounting was recognized by the Philippine
government as a profession through the Board of
Accountancy (BOA), which passed the Accountancy Act
1923. This Act authorized the issuance of the Certified
Public Accountant (CPA) certificates we know today.

• 1929. The Philippine Institute of Certified Public

Accountants (PICPA) was established.

• 1967. Eventually, the Board of Accountancy (BOA) was

established and the Accountancy Act 1967 was passed.
Under the legislation, only Filipinos and foreigners from
countries that extend the same privileges to Philippine
accountants can become CPAs or Certified Public
Accountants and work in the Philippines.
• 1975. Under the Revised Accountancy Law
1975, only registered Philippine CPAs are
allowed to be partners in accountancy firms in
the country. The SEC and the Board of
Accountancy review and grant the license to the
firms.

• 2004. The Philippine Accountancy Act of 2004

replaced the Revised Accountancy Law 1975.
To this day, this Law is in force although there
have been some amendments due to the
changing accounting practice.
• In 1923, there were 43 registered accountants
and the numbers have grown tremendously,
making accounting one of the most popular
courses in colleges and universities.

• Complexities and growth of the profession

brought about the expansion on the Board of
Accountancy , the body that regulates the
practice of the accounting profession in the
Philippines.
• Under the stewardship of the Professional
Regulation Commission (PRC), the Board of
Accountancy discharges its mandate of
supervising, controlling, and regulating the
practice of accountancy with authority and
distinction.
• Most importantly, the Board has taken the lead
in raising the standards of the profession to a
very high level of excellence, as evidenced by
the following developments:
1. First among the many licensure
examination to be computerized.

2. Upgrading of the quality of accounting

education. With the PRC, the Board
made representations with the DECS for
the adoption of standards for the
organization and operation of
professional accounting programs
leading to the prescription of a common
baccalaureate degree – Bachelor of
Science in Accountancy.
3. Regulation of CPA firms and partnerships. To
ensure compliance of their staff and partners
with standards and regulations of the
practice, The Board moved for the
registration of firms or Partnerships of CPAs
with both the PRC and the Board of
Accountancy.

4. Requirement of CPAs in civil service. The

Board made representations with the Civil
Service Commission to require that only
CPAs be appointed as accountants and
auditors or to hold allied positions in
government.
CHAPTER OUTLINE

FUNDAMENTAL
PURPOSE
ND
A
FUNCTION OF
ACCOUNTING
• Many students believe that understanding
learning accounting is very difficult. Just as
you learn in elementary the simple
arithmetic equations through multiplication,
addition, subtraction and division.
• But all that needs to be done is to follow
accounting specialized rules, concepts and
procedures that govern counting, recording,
summarizing as well as analyzing and
interpreting business transactions.
 O U
Y
N K
H A
T