Rules of Debit and Credit:

Ruels of debit and credit denote to the rules of debiting an account and crediting another of a transaction under double entry book-keeping system. There are following approaches for the rules of debit and credit.

Rules of Debit and Credit on the Basis of Nature of Account:
This approach is known as English or Dual Aspect Approach.
a) Personal Account:
Personal accounts are related to any person or organization. Mukesh Account, Bill Account, John Account, Swiss Bank Limited Account etc. are some examples of personal accounts. According to this account, the rules of debit and credit is:
Debit the receiver
Credit the giver

Rules of Journalizing:

We have already discussed that journalizing is a task of recording transactions in a journal. Before journalizing a transaction, following three steps must be minded.

1. Firstly, we need to find out the two aspects or two fold effect of a transaction.
2. Secondly, we need to identify the accounts whether they are personal, real or nominal accounts.
3. Finally, we need to use the golden rules of debit and credit.

Objectives or Advantages of Journal:

The following are some objectives of journal.

1. It provides date-wise (chronological) records of all business transactions.
2. It helps to prepare ledger account.
3. It helps to understand the principles of double entry book-keeping system through the accounts to be debited and credited.
4. It gives complete information at one place about each business transaction with narration.

Ruling or Format of a Journal:
A general format of the journal is as given below which has five columns.

Each Column is discussed in detail as follows:
Date: This is the first column of a journal which is meant for recording the date of transaction. All the transactions should be recorded in the order of date or in the order of occurrence.

Particulars: It is the second column of journal which is meant for recording two names of account to be debited and credited. The word 'Dr.' is written after the name of debit account. In the next line the account to be creditedis written with the prefix 'To'.

After each entry, a brief explanation of each transaction is given which is called 'Narration'. It explains the reasons of debiting and crediting the accounts. It is followed by word 'Being' or 'For'.

L.F. : It is third column of a journal. The full form of L.F. is ledger folio which is for the record of page number or folio number of the ledger where the posting has been made from journal.

Dr. or Debit Amount: In this column, the amount of account to be debited is written strictly in sequence with the name of the account.

Cr. or Credit Amount: It is fifth of last column of a journal where amount of credit account is written. It also must be in sequence with the name of the account credited.

Journal

When any transaction takes place, it may be immediately noted down in a book which is known as memorandum book so that the transaction may not be forgotten. It is a just rough book and after it, a journal is prepared. A journal is also known as book of original entry which is a chronological record (in order of occurrence) of transactions according to double entry book-keeping system. In other words, it is subsidiary book meant for recording the day-t0-day transactions of a business in the order in which they take place.

The word 'Journal' has come from a French word 'Jour' which denotes a 'day book'. Therefore, it also may be known as day book. The act of recording transactions in journal is called 'journalizing' and the record of a transaction in journal is called 'journal entry'.

Continue......Terms of Doub........

12. Profit:
Profit is an economic gain arises from the sale of goods. When the goods is sold at higher price than its cost the difference is profit. In case of running business, the profit for the year is the excess of income over expenditures. Mathematically, it can expressed as:
Profit = Incomes - Expenses

13. Loss:
The word refers to the excess amount of expenditures over incomes. When goods of $10,000 has been sold for $8,000 the difference $2,000 ($10,000 - $8,000) is a loss. Goods lost by fire, theft, accidents etc also included in it.

14. Financial Transactions:
Any exchange of goods or services for cash or credit by one person to another is a transaction. Those transactions that are related with money are financial transactions.

Continue...........Some Basic.........

9. Purchase:
Purchase of raw material either on cash or credit by a manufacturing concern for production and then sale is termed as purchase. In case of trading concern, goods purchased for resale purpose is known as purchase. If a bookshop purchases books and stationery, they are termed as purchases but if it acquires furniture, then that is not treated as a purchase because the furniture is non-trading goods for a bookshop.

10. Sale:
The word 'sale' denotes the exchange of goods or services for money either on cash or credit. However, it does not include the sale of assets like sales of old machinery and furniture.

11. Stock:
The term stock denotes to unsold goods lying in business. It also includes the unused raw material in production. Opening stock is the amount of goods in hand at the beginning of the period where as closing stock means the stock of goods at the end of the year. There are following three types of stock or inventory.

• Stock of raw material : It refers to unused stock raw materials but to be used for production of finished goods in future.
• Stock of work-in-progress : It denotes to that stock of goods which are partly produced. It is also called as semi-finished goods. Raw materials in the process of production which are not yet been finished are stock of work-in-progress.
• Stock of finished goods : Those completed goods which are left to be sold at store are known as stock of finished goods.

Some Basic Terms of Double Entry System:

4. Drawings:

Money or value of goods belonging to business withdrawn by proprietor for his personal and domestic use is called drawing. It reduces the capital of the business.

5. Revenue:

Revenue is the sum of money received or to be received from the customers or clients of a business as a result of sale of them of goods or both. Income generated from the sale of goods, rent received, commission received etc. are some items of revenue. They are regular in nature.

6. Expenses:

Expenses include the cost of goods sold, amount paid for salary, rent, advertisement, insurance, wage etc. They are spent for generating future revenue. Expenses is the amount spent to produce and sell goods or services.

7. Debtors:

A person or an organization that owes money to the business mainly on account of credit sale of goods or rendering of services is a debtor. Debtors are current assets as they are expected to be collected within short period. When goods or services are sold on credit in the ordinary course of business, the customers are known as trade debtors.

8. Creditors:

The creditors are those persons or organizations to whom the amount are due. It is caused due to the credit purchase of goods or services. When goods or services are purchased on credit for the purpose of resale purpose the supplier or sellers are known as trade creditors.

Some Basic Terms of Double Entry System:

1. Capital:
The amount that is invested in the business by the propreitor is called capital. In other words, capital is the excess of assets over external liablilities. For example, if the total assets of business is $120,000 and the liabilities is $80,000, then the capital on that date would be Rs. 40,000 ($120,000-80,000). Sometimes, it is also called as net worth or owner's equity.

2. Assets:
Any property or possession of the business is known as assets. It also refers to the amount due on debtors. Plant, machinery, land, building, cash in hand, cash at bank, bills receivable, debtors, prepaid expenses, accrued income etc. are some of example of assets. The following are further classifications of assets:

1. Current Assets
2. Fixed Assets

• Tangible Fixed Assets
• Intangible Fixed Assets

3. Liabilities:
Liabilities denote the amount owing to outsiders who are not owners. In other words, the debts that are due by the firm to other parties are collectively known as liabilities. Creditors, bank overdraft, bank loan etc. are some examples of liabilities. Capital introduced by owner is also comes under liability. There are two types of liabilities.

1. Long Term Liabilities
2. Current Liabilities
   

Inventory

Assets whose purpose is for sale to customers are inventory. In a grocery store, food is inventory. Books and magazines are inventory. Cash registers are not inventory.

Example A developer builds a tract of homes and puts them up for sale. Are those buildings fixed assets or inventory? Answer: inventory because their purpose is for sale to customers. For people live in those homes, they are fixed assets. Even though a homeowner may hope to sell it sometime down the road, he’s using the asset, not just holding it for sale.

Inventory accounting shows up in two places in the financial statements. It is a current asset in the Balance Sheet. It is also a part of Cost of Goods Sold in the Income Statement.

Experience Few software packages handle the Cost of Goods Sold accounting properly. While in theory Cost of Goods Sold should show Beginning Inventory, Purchases, and Ending Inventory, we lump them all into just one account. This is where you may want to consult your particular accounting program’s limitations, to see if you need to do this, too.

At the end of the year each company should physically count its inventory. The accountant should price this merchandise at cost and then adjust the books to the inventory that is actually on hand. Both GAAP and IRS rules require a physical count once a year.

But how do you count for inventory in the meantime?

One method is the percent of sales method. First, you should code all inventory purchases to Inventory (the Balance Sheet account). Next, figure your average markup. This can be based on the ratio of Cost of Goods Sold to Sales in previous years. Then at the end of the period (usually a month or a quarter) make an adjusting entry to credit this amount out of inventory and debit it into Cost of Goods Sold.

Example Assume markup of 20%. August Sales were $10,000. Cost of Goods Sold should be $8,000.

Don’t try to be too exact with these estimates. They are, after all, estimates. Use rounding. Don’t imply accuracy that is not there and is not possible to achieve. Note that this is why a physical count is so important. That should be calculated to the last penny!

How do you cost inventory?

So the clerks have gone all around the plant and you now have a whole bunch of count sheets. The amounts of each item should be multiplied by how much these items cost to get your cost. But how can you know? What if the prices were different at different times of the year? Which prices should you use?

First, you’ve got to have records of how much units were bought at what prices. Next, you have several options: First in First Out (FIFO), Average, and Last in First Out (LIFO). As the names imply, you go through your lists, crossing out items as sold until you get to the number of units that match your count. Those are the prices you use to cost the items on your count sheets.

Depreciation

You know that when you take a brand new computer out of its box it is no longer as valuable as the price you paid for it. Fixed assets depreciate in value. The difference between what you bought an asset for and what is it now worth is depreciation.

Depreciation is an expense. It is also a contra-account against fixed assets.
Example
This is what the Fixed Assets section of a Balance Sheet might look like: The journal entry for this might have been
Machinery and Equipment $ 50,000
Buildings 100,000
Less: Accum. Dep. (20,000)
=======
Total Fixes Assets $130,000

Depreciation Expense (debit) 5,000
Accumulated Depreciation (credit) 5,000

Tip
Make only one journal entry for all your assets. Use only one Depreciation Expense amount in your Income Statement and one Accumulated Depreciation amount in your Balance Sheet. These amounts should be the total of all your depreciation calculations.

This is easier on both the accountant and the readers of the financial statements. Few people want to go into all the details of depreciation and it just makes them look more complicated than they need to be.

Tip
Separate listings of Depreciation Expense and Accumulated Depreciation should be in the financial statements for each category of assets. This gives the user valuable information on the aging of a company’s plant and equipment. Together with the Cash Flow Statement’s section on which assets have been bought and sold, an analyst can form useful conclusions about a company’s present and future capital needs.

Most users couldn’t be bothered. If a user wants to know all that, then provide them the depreciation schedule that gives them even more information. Otherwise why assault users with additional information when financial statements are complicated enough?

What about the other $15,000 in Accumulated depreciation (the 20,000 less the 5,000)? Accumulated depreciation is the total of all depreciation for the current period and all prior periods.

Not all of the amount of an asset is depreciated at one time. The idea of depreciation is that depreciation goes up as the asset’s value goes down.

So how are the amounts determined? There are a variety of methods. Here are the two most common.

The Straight Line Method
Take the total cost of an asset. Estimate how much it will be worth when you dispose it. The difference between its starting amount and the ending amount is going to have to be depreciated.

Now estimate its total useful life. Divide the total difference by the total life. That is the amount to depreciate this period.
Example
Assume a widget that costs $10,500. Its useful life is 10 years. Its value at the end will be $500.
Over the next 10 years you will need to adjust this widget’s book value from $10,500 down to $500. In other words, you’ve got to decrease it by $10,000 over 10 years. This works out to an average of $1,000 per year.
The straight line method is to just use the average.

The IRS Method
This is not generally accepted accounting principles (GAAP). It is for accounting on the Tax Basis of accounting which is an Other Comprehensive Basis of Accounting (OCBOA). The IRS has tables that you use to look up the deductable depreciation amounts. Remember that these tables like all IRS rules are the result of politics not any accounting theory.

You know that when you take a brand new computer out of its box it is no longer as valuable as the price you paid for it. Fixed assets depreciate in value. The difference between what you bought an asset for and what is it now worth is depreciation.

Depreciation is an expense. It is also a contra-account against fixed assets.
Example
This is what the Fixed Assets section of a Balance Sheet might look like: The journal entry for this might have been
Machinery and Equipment $ 50,000
Buildings 100,000
Less: Accum. Dep. (20,000)
=======
Total Fixes Assets $130,000

Depreciation Expense (debit)


5,000

Accumulated Depreciation (credit)
5,000

Tip - Jack’s
Make only one journal entry for all your assets. Use only one Depreciation Expense amount in your Income Statement and one Accumulated Depreciation amount in your Balance Sheet. These amounts should be the total of all your depreciation calculations.
This is easier on both the accountant and the readers of the financial statements. Few people want to go into all the details of depreciation and it just makes them look more complicated than they need to be.
Ignore Kathy’s tip below. (Grin!)

Tip - Judi's
Ignore Jack’s tip above. (Grin!)
Separate listings of Depreciation Expense and Accumulated Depreciation should be in the financial statements for each category of assets. This gives the user valuable information on the aging of a company’s plant and equipment. Together with the Cash Flow Statement’s section on which assets have been bought and sold, an analyst can form useful conclusions about a company’s present and future capital needs.

Jack’s Rebuttal
Most users couldn’t be bothered. If a user wants to know all that, then provide them the depreciation schedule that gives them even more information. Otherwise why assault users with additional information when financial statements are complicated enough?

Judi’s Rebuttal
Breaking out depreciation isn’t all that complicated to do or to read. Aw, come on Jack!

Okay, so even partners like us can have our professional disagreements! (Grin!)

What about the other $15,000 in Accumulated depreciation (the 20,000 less the 5,000)? Accumulated depreciation is the total of all depreciation for the current period and all prior periods.

Not all of the amount of an asset is depreciated at one time. The idea of depreciation is that depreciation goes up as the asset’s value goes down.

So how are the amounts determined? There are a variety of methods. Here are the two most common.

The Straight Line Method

Take the total cost of an asset. Estimate how much it will be worth when you dispose it. The difference between its starting amount and the ending amount is going to have to be depreciated.

Now estimate its total useful life. Divide the total difference by the total life. That is the amount to depreciate this period.
Example
Assume a widget that costs $10,500. Its useful life is 10 years. Its value at the end will be $500.
Over the next 10 years you will need to adjust this widget’s book value from $10,500 down to $500. In other words, you’ve got to decrease it by $10,000 over 10 years. This works out to an average of $1,000 per year.
The straight line method is to just use the average.

The IRS Method

This is not generally accepted accounting principles (GAAP). It is for accounting on the Tax Basis of accounting which is an Other Comprehensive Basis of Accounting (OCBOA). More on GAAP vs. OCBOA here.

The IRS has tables that you use to look up the deductable depreciation amounts. Remember that these tables like all IRS rules are the result of politics not any accounting theory.

For example there is the Section 179 Expense election. This allows you to deduct all of the value of new assets up to a certain amount.

Peachtree has a module to track fixed assets and depreciation. Quickbooks does not. A spreadsheet can also track depreciation.

With a spreadsheet like Excel, each row is for individual assets. Columns are for the Asset’s name, Class, Date Purchased, Amount, Depreciation Method, Accumulated Depreciation - Beginning of Year, Depreciation Expense, Accumulated Depreciation - End of Year. The class is the Balance Sheet line description.

Then sort by class (Judi’s tip) and sub-total for your series of journal entries. Use the Depreciation Expense column subtotals for your series of journal entries. Otherwise, just use the total at the bottom for Jack’s one comprehensive journal entry.

QuickBooks 2010................

continue from QuickBooks 2010.........

QuickBooks 2010 also helps small business owners gain valuable insights into how their business is performing so that they can make better decisions and increase profitability. New features to help customers improve their bottom line include:

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Report Center: This radically re-designed report center gives users access to more than 100 reports and makes it easier to find the right report in order to make better business decisions. Different views make it easier to navigate quickly between reports. These include a carousel view to flip through the reports, a list view to see all reports at once, and a ‘favorites’ view to keep track of frequently used reports. A new search feature helps users find the report with the specific information they want.

“The new Company Snapshot gives you great information at the click of a button,” said Debbie Kirkland, president of Kirkland Services in Christmas Valley, Ore. “This is a great place to go to pinpoint problem areas or to just determine your strengths and weaknesses within your company.”

Accounts Receivable and Accounts Payable

Account receivable is an asset where as account payable is a liability. Account receivable represents money that customers owe you and on the other hands money that you owe for being a customer of somebody else is account payable.

Both account receivable and account payable do not affect the cash balance but it affect to the net income of the company. These allow you to put money into the income statement without cash actually moving.

When invoices are sent or received, then transactions are recognized.
Example
Assume: You get an invoice from the phone company.
Book the amount as a debit to Telephone Expense and the credit to Accounts Payable.
When you finally get around to paying the bill, book the debit to Accounts Payable instead of Telephone Expense. You don’t want the same bill expenses twice!

GAAP requires that an allowance must be made for bad debts. An estimate must be made on some kind of percentage basis. Credit a contra account"Allowance for Bad Debts" on the Balance Sheet, Debit Bad Debts Expenses.

A contra-account is a balance sheet account whose purpose is to reduce the amount of another account. That is why asset contra-account have credit balances while liability contra-accounts have debit balances. "Contra" is a latin word that means "against".

Professional firms like Law Firms or even us Accounting firms may use an account called "Unbilled Accounts Receivable". This is for work they've racked up but aren't ready to bill the clients yet. The offset account is a liability account "Unearned Revenue".

Accounts Receivable and Accounts Payable

Account receivable is an asset where as account payable is a liability. Account receivable represents money that customers owe you and on the other hands money that you owe for being a customer of somebody else is account payable.

Both account receivable and account payable do not affect the cash balance but it affect to the net income of the company. These allow you to put money into the income statement without cash actually moving.

When invoices are sent or received, then transactions are recognized.

Example

Assume: You get an invoice from the phone company.
Book the amount as a debit to Telephone Expense and the credit to Accounts Payable.
When you finally get around to paying the bill, book the debit to Accounts Payable instead of Telephone Expense. You don’t want the same bill expenses twice!

GAAP requires that an allowance must be made for bad debts. An estimate must be made on some kind of percentage basis. Credit a contra account"Allowance for Bad Debts" on the Balance Sheet, Debit Bad Debts Expenses.

A contra-account is a balance sheet account whose purpose is to reduce the amount of another account. That is why asset contra-account have credit balances while liability contra-accounts have debit balances. "Contra" is a latin word that means "against".

Professional firms like Law Firms or even us Accounting firms may use an account called "Unbilled Accounts Receivable". This is for work they've racked up but aren't ready to bill the clients yet. The offset account is a liability account "Unearned Revenue".

NetSuite continue........

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•Employee Management and Productivity
- Role-based Dashboards
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- Employee Records
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*Some features sold in add-on module

back to previous.......

Double Entry Book-keeping System

Every debit must have a credit and vice versa.

Example Assume you write a check for your monthly rent. You reduce cash and increase expenses. Credit cash; debit rent expense.

Every transaction has to be analyzed with its impact on at least two accounts.

Sometimes a transaction involves more than two accounts.

Example You make a loan payment. Part of any loan payment is for interest and part is for principle. So one part of your check is debited to interest expense and the principal reduction is debited to loans payable. The two amounts added together equals the amount of your check which is credited to your asset account for cash in bank.

None of this will make sense unless you understand the basic concept of debits and credits.

What if you can only see just one account that would relate to a transaction?

For every entry, for every credit there is a debit – ALWAYS!

Rules for Debit and Credit

Debits are on the LEFT. Credits are on the RIGHT.

Welcome to the obstacle course. Here’s where we’re going to put this concept to work.

Assets are on the left. Got that? Debits are on the left.

Whenever you code an entry to an asset account that increases the amount, you put the amount in the debit column.

And yes, you over there, those assets include cash. If money is received, cash is debited. Not credited, DEBITED!

Why? Because cash is an asset. Assets are on the left. Debits are on the left. Increases to assets are debited.

For liabilities and the equity, it goes on the right side or credits are on the right.

If you take out a loan, you will credit your liability. That is because loans increase liabilities. Liabilities are on the right. Credits are on the right.

Now what about the reverse? What about when assets or other stuff goes down? Well, the reverse is the reverse!

If the value of assets goes down then it is Credited and if the value of liabilities and equity go down then it is debited.

When you write a check, you credit cash. Checks reduce cash. Cash is an asset. Assets are on the left. Credits are on the right. Credits make assets go down. They are the reverse of debits.

When you pay off a loan, you debit liabilities. Liabilities are on the right. Debits are on the left. Debits make liabilities go down. They are the reverse of credits.

Assets are on the left. Liabilities and Equities are on the right! I will say this again. Debits are on the left. Credits are on the right.

Equity consists of (1) money owners have invested in the company and (2) the results of operations. That’s net income to you.

Net income comes from where? The Income Statement. Revenues minus expenses are net income. And as I just said, net income is an item in Equity.

Equity is on the Right. The Income Statement accounts all result in net income. Net income is in equity. Which is on the right.

This means that anything that increases net income will increase equity. Which is on the right.

Revenues increase net income. They are credited. Because they are on the right!

Expenses decrease net income. They are debited. Because they are on the left!

Assets, Liabilities and Equity

A short Discussion of Assets, Liabilities and Equity:

Assets:
Assets are those physical and non physical material which you own. Generally in balance sheet, assets are recorded on the left side. It is mainly categoried into two i.e. current and non-current assets.

Current assets are those assets that can readily be converted to cash. Bank accounts are of course most readily convertible, but any assets that can be converted to cash within a short time are current assets. The short time for the current assets is taken as one year or less.

Non-Current assets are further divided into fixed assets and other assets. Non-current assets are mainly intended for long period of time like machine, building, furniture etc. Such non-current assets may be sold in less than one year or is intended to help to operate the business for periods of greater than a year.


Liablitities:
Liabilities are what you owe. It is recorded on the right side of the balance sheet and it is also categorized into two i.e. current and non-current liabilities.
Current Liabilities are the liabilities which are to be paid in short period i.e. within one year or less.

On the other hand, non-current liabilities are the long term debts for more than one years. Long term debt, bank loan etc are non-current liabilities.

Equity:
Equity is what's left over. It is your net worth. Equity consists of money invested in the compnay by the owners, money taken out of the company by the owners (i.e. their return on their investment) and net income.

Changes in Retained Earnings

Retained Earnings can be charged in capital depending on the nature of company. It starts with the beginning balance and then shows the major elements that increased and decreased the equity during the period. Footnotes complete the required financial reporting packages.

The Cash Flow Statement

The Cash Flow Statement compares net income to change in cash. It is greatly related to the transactions of cash. Generally there are two methods i.e. the direct method and indirect method. Indirect method is easier than the direct method. But we have to practice in both methods. Here both of the methods require a reconciliation between net income and net changes in cash. In this requirement, net income is at the top of the page and cash is at the bottom. All those things that account for the difference between the two amounts are listed in between.

Example:
Depreciation is an expense that reduces net income. However, no cash actually goes out of the bank account when it is recorded. Therefore it has to be added back to net income as part of the process of reconciling it to cash.
In cash flow statement, there are three categories. They are Operating Activities, Financing Activities and Investment Activities.

The Financial Statement

Balance Sheet

Balance sheet shows the assets and liabilities of the concern. The difference between the two is the entity.

Generally, assets are listed on the left side of the page where as the liabilities and equity are listed on the right side of the balance sheet. This is significant in understanding debits and credits. Liabilities and equity are always shown together which mean that if liabilities are greater than assets, then equity is negative.

The main features and objectives of balance is to show the financial position of the concern at a specific time period say in fiscal year or financial year.

Income Statement

Income statement shows the revenues and expenses of the company. the difference between the two is net income.

Revenues and expenses are self explanatory. Many income statements just show those two categories with net income at the bottom. However, many situations call for a further breakdown.

Those companies who are dealing with buy and sell inventory need to know gross profit. To do this expenses are broken into two parts: Costs of goods sold and Operating Expenses.

Example

Assume: A furniture store sells $20,000 worth of furniture. It banks $40,000. Expenses other than the cost of the furniture was $15,000. The Income Statement would look like this: Revenue $40,000

Cost of Goods Sold $20,000

Gross Profit $20,000
Operating Expenses $15,000
======
Net Income $ 5,000

Here, companies have costs that are not operating costs. Costs from discontinued operations, gains and losses from sale of assets are examples of non-operating amounts.

Softrax Revenue Manager: Revenue Recognition for ERP

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CONSISTENCY AND ACCURACY ACROSS THE ENTERPRISE
Softrax Revenue Manager helps companies achieve a high degree of accuracy and consistency with their revenue recognition policy. It provides a comprehensive application and repository for all revenue processes, and eliminates manual tasks and disconnected processes. In addition, because far more granular data is available, audit processes are simplified, and reporting/forecasting activities are much more robust.

A ROBUST SOLUTION FOR MANAGING GLOBAL OPERATIONS
Softrax Revenue Manager excels when complex issues occur across multiple business models, corporate entities, and currencies. Revenue rules can be graphically designed making the revenue processes highly adaptable to new requirements and policy changes. The combination of a rules engine as well as industry standard workflow ensures that Softrax Revenue Manager can be adapted to a wide range of transactions. This flexibility allows complex revenue allocation and scheduling to be easily accommodated and maintained as your business changes.

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A SHORT HISTORY OF ACCOUNTING AND BUSINESS

The history of accounting is as old as civilization, among the most important professions in economic and cultural development, and fascinating. That’s right, fascinating! Accountants invented writing, developed money and banking, innovated the double entry book Fra Luca Pacioli keeping system that fueled the Italian Renaissance, were needed by Industrial Revolution inventors and entrepreneurs for survival, helped develop the capital markets necessary for big business so essential for capitalism, turned into a profession that brought Fra Luca Pacioli credibility for complex business practices that.............. continue from previous page........

Accounting history is summarized in seven chapters. An overview places accounting in perspective. In some ways accounting hasn’t changed since Paciolli wrote the first textbook in 1494. On the other hand, accounting has led the information revolution. Many aspects of 21st century accounting will be unrecognizable by today’s professional leaders. Understanding the role of financial needs today and in the future requires an understanding of the past. The role of accounting in the ancient world is coming into clearer focus with new archaeological discoveries and innovative interpretations of the artifacts. It is now evident that writing developed over at least five thousand years—by accountants. The roles of trade, money, and credit also have long and complex histories. It is difficult to overestimate the importance of double entry bookkeeping. It was central to the success of the Italian merchants, necessary to birth of the Renaissance. The Industrial Revolution depended on inventors and entrepreneurs, not accountants. It is the survival of their firms that required innovative accounting and, later, the development of a profession. Big business, particularly the railroads, required capital markets that depended on accurate and useful information. This was supplied by the expanding accounting profession. The earliest of the Big Eight started in mid-nineteenth century London. Turn of the century America saw the rise of really big business, governable because of improvement in cost accounting. But the Crash of 1929 and the subsequent Great Depression demonstrated problems with capital markets, business practices, and, yes, considerable deficiencies in accounting practices. Many aspects of current accounting practices started with the flood of business regulations from the Roosevelt administration. The earliest electronic computers were funded to assist the World War II efforts. By 1950 massive efforts were begun to automate accounting practices, a continuing process. A global real-time integrated system is a near reality, suggesting new accounting paradigms replacing double entry and generally accepted accounting principles.

Why read this book? What we do today in accounting is based on a 10,000-year history. Understanding this history is necessary to comprehending the linkages of accounting to career potential, financial regulation, tax, accounting systems, and management decision issues. This history also is a powerful tool to predict the accounting of the next generation.

A SHORT HISTORY OF ACCOUNTING AND BUSINESS

The history of accounting is as old as civilization, among the most important professions in economic and cultural development, and fascinating. That’s right, fascinating! Accountants invented writing, developed money and banking, innovated the double entry bookkeeping system that fueled the Italian Renaissance, were needed by Industrial Revolution inventors and entrepreneurs for survival, helped develop the capital markets necessary for big business so essential for capitalism, turned into a profession that brought credibility for complex business practices that sparked the economic boom of the 20th century, and are central to the information revolution that is now transforming the global economy. Twenty-first century accounting will resemble rocket science and will continue to be among the critical professions of the new century. Accountants have not excelled in public relations, but their story is fascinating. And here it is.

There are no household names among the accounting innovators; in fact, virtually no names survive before the Italian Renaissance. It took archaeologists to dig up the early history and scholars from many fields to demonstrate the importance of accounting to so many aspects of economics and culture. This book covers the great events. From merchants and scribes long before writing and money, to today’s global information networks.

Accounting History

In the past years, the accounting is only related to recording system for banking services and tax collection. Due to commercial revolution, accounting is developed into modern double-entry booking system to serve the information needs of trading companies. The Accounting system of this age is to reveal continuing change to adapt to the economic changes. Similarly due to the industrialization and division of labor, the need of managerial accounting and cost behavior analysis is emerges. The rise of the modern corporations during the industrial revolution, with funding provided by outside owners, led to the development of periodic financial reporting.


Accounting reflects the cultural, economic, legal, social and political conditions of the environment within which it operates. Accounting practices and procedures can be better understood by knowing the underlying factors that influence their development factors helps to explain the observable difference and similarities. Because accounting responds to its environment, accounting research reveals that different cultural, economic, legal and political environments produce different accounting systems, and similar environments produce similar systems.