Development of a general accounting theory

Because there was a natural season to farming and herding, it was easy to count and determine if a surplus had been gained after the crops had been harvested or the young animals weaned.

Key Elements of Accounting Theory While accounting procedures are formulaic in nature, accounting theory is more qualitative in that it is a guide for effective accounting and financial reporting.

The most important aspect of accounting theory is usefulness, which, in the corporate finance world, means that all financial statements should provide important information that can be used to make informed business decisions.

Accounting theory, as regulatory standards evolve, also helps develop new accounting practices and procedures.

There is also evidence for an early form of accounting in the Old Testament ; for example the Book of Exodus describes Moses engaging Ithamar to account for the materials that had been contributed towards the building of the tabernacle.

In addition to usefulness, accounting theory states that all accounting information should be relevant, reliable, comparable and consistent.

The basic needs of the fort were met by a mixture of direct productionpurchase and requisition ; in one letter, a request for money to buy 5, modii measures of braces a cereal used in brewing shows that the fort bought provisions for a considerable number of people.

For example, organizations such as the International Accounting Standards Board help create and revise practical applications of accounting theory, and professionals such as CPAs help companies navigate new and established accounting standards. The petition also pointed out that accountancy required a varied group of skills; as well as mathematical skills for calculation, the accountant had to have an acquaintance with the general principles of the legal system as they were frequently employed by the courts to give evidence on financial matters.

This also means that accounting theory is intentionally flexible so that it can produce effective financial information, even when the legal environment changes. Its regular use provides the merchant with continued information about his business, and allows him to evaluate how things are going and to act accordingly.

The first assumption states that a business is separate from its owners. Summa de arithmetica was also the first known book printed in Italy to contain algebra. Finally, all financial statements must be prepared on a monthly or annual basis. The people of that time relied on primitive accounting methods to record the growth of crops and herds.

Pacioli recommends the Venetian method of double-entry bookkeeping above all others. The third assumes that all financial statements are prepared with dollar amounts and not with other numbers like unit production. It included a page treatise on bookkeeping, "Particularis de Computis et Scripturis" Latin: The Petition, signed by 49 Glasgow accountants, argued that the profession of accountancy had long existed in Scotland as a distinct profession of great respectability, and that although the number of practitioners had been originally few, the number had been rapidly increasing.

As companies proliferated, the demand for reliable accountancy shot up, and the profession rapidly became an integral part of the business and financial system. Further, accounting theory can be thought of as the logical reasoning that helps evaluate and guide accounting practices.

History of accounting

His work represents the first known printed treatise on bookkeeping; and it is widely believed[ by whom? Double-entry accounting made it possible to calculate profit and capital and for managers, investors, and authorities to verify books.

It also enabled merchants to audit their own books and to ensure that the entries in the accounting records made by their bookkeepers complied with the method he described. His manuscript was first published in Since then, both businesses and economies have greatly evolved.

Action at a Distance and the Development of Accounting. Firstly, the development of the double-entry book-keeping system in the fourteenth and fifteenth century and secondly, accountancy professionalization which was created in the nineteenth and twentieth centuries.

One important breakthrough took place around that time: Louvre Museum Early development of accounting[ edit ] See also: With the growth of the limited liability company and large scale manufacturing and logistics, demand surged for more technically proficient accountants capable of handling the increasingly complex world of high speed global transactions, able to calculate figures like asset depreciation and inventory valuation and cognizant of the latest changes in legislation such as the new Company lawthen being introduced.

An account of small cash sums received over a few days at the fort of Vindolanda circa AD shows that the fort could compute revenues in cash on a daily basis, perhaps from sales of surplus supplies or goods manufactured in the camp, items dispensed to slaves such as cervesa beer and clavi caligares nails for bootsas well as commodities bought by individual soldiers.

In particular, there is evidence that a key step in the development of counting—the transition from concrete to abstract counting—was related to the early development of accounting and money and took place in Mesopotamia [1] Other early accounting records were also found in the ruins of ancient BabylonAssyria and Sumeriawhich date back more than 7, years.

Pacioli wrote 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. Three major books of account are at the direct basis of this system: The second affirms the belief that a company will continue to exist and not go bankrupt.

The Messari accounts contain debits and credits journalised in a bilateral form and carry forward balances from the preceding year, and therefore enjoy general recognition as a double-entry system.

The Phoenicians invented a phonetic alphabet "probably for bookkeeping purposes", based on the Egyptian hieratic script, and there is evidence that an individual in ancient Egypt held the title "comptroller of the scribes".

The Edinburgh Society of accountants adopted the name "Chartered Accountant" for members. Finally, accounting theory requires that all accounting and financial professionals operate under four assumptions.

Accounting Theory

Accounts of this kind gave the owner the opportunity to take better economic decisions because the information was purposefully selected and arranged. In Summa de arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols which became standard notation in Italian Renaissance mathematics.

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Foundations of the Formal Sciences. The Origins and Evolution of Accounting Theory Accounting as a discipline has existed since the 15th century.Accounting theory also includes the reporting of account- newer and more formal approach to the development of accounting theory is a relatively recent innovation in our field and permeates much of the cur-rent accounting research.

Researchers are attempting to analyze accounting in general, gives the firm’s balance. The theory relied in great part of work undertaken in the fields of economics, and central to the development of Positive Accounting Theory was the acceptance of economics based ‘rational economic person assumption”.

Accounting Theory and Taxation Accounting, in general terms, is a process, a device, a means of conveying business information.

Certain theories of accounting had to be developed in order to effectuate a language, just as has been true in any other need so development and change in accounting theory took place.

Actually, accounting. vide a general frame of reference by which accounting practice can be evaluated and (2) guide the development of new practices and procedures. Accounting theory may also be used to explain existing practices to. 1 An Introduction to Accounting Theory Learning Objectives After reading this chapter, you should be able to: • Understand the meaning of accounting theory and why it.

Theories of Accounting: Evolution & Developments, Income-Determination and Diversities in Use principles that provide a general frame of reference to every accountant to evaluate and guide the development First the evolution of accounting, followed by discuss on recent growth and development in accounting theory; secondly .

Development of a general accounting theory
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