Accounting Theory - History of Accounting

Accounting is one of the oldest professions around and dates back to the earliest days of civilization. It has been driven by the trade system of crops and products necessary for survival. As the barter system expanded to include the exchange of money, methods were formalized by 2000 BC. to include the creation of accurate records of the quantities and relative values.

Early Accountants - What were their Influences?

Through archaeological discoveries of artifacts, researchers are learning more about the true influence the earliest accountants had on civilization. Through their discoveries, archeologists have discovered accountants participated in the development of:

• trade – expand market for and access to goods and services

• cities – as trade grew, so did the marketplace

• concepts of wealth and numbers – personal and governmental planning

• writing – understandable system of accurate recordkeeping

• double entry bookkeeping – associated with birth of Italian Renaissance

• money and banking – helped businesses avoid bankruptcy in Industrial Revolution

Who is the Father of Accounting?

The history of accounting is not complete without Luca Pacioli (1445 - 1517), also known as Friar Luca dal Borgo and the “Father of Accounting”. Pacioli is credited for the “birth” of accounting. In 1494, he wrote a textbook that was a compilation of the mathematical and accounting knowledge of his time. His textbook provided the first printed description of the double-entry accounting system used by Venetian merchants in the late 15th century including a similar accounting cycle as we know it today. The system described journals and ledgers with sections for assets, liabilities, capital, income, and expenses found on the modern accounting balance sheet.

What about Modern Accounting?

As civilization evolved, businesses grew and so did capital markets and with that…accountability. Successes depended more and more on accurate and dependable financial documents. Through time, the role of the accountant has become an integral part of almost every aspect of day-to-day business and governmental regulation. The history of accounting has led modern accounting to become a global, real-time integrated information system driving the direction of accounting expertise and emphasis on the importance of the accounting profession.

Dealing with a Bad Roommate

Do you have the roommate from hell? You have come to the right place! I have put up with numerous intolerable roommates over the years, and have developed the techniques to tolerate, infuriate, and eventually prevent situations like this from arising.

Tolerate
So your roommate is bugging the crap out of you with his loud music, late nights, and poor cleaning habits? You've talked with him and he still hasn't changed? Try some of these ideas:

• Buy a box of ear plugs to drown out his loud music, talking, etc. Make sure that he knows that you are using them, so that if you still have a disturbance after this then it is obvious you are not overreacting.
• Get out of the house as much as possible. If you aren't there to be bothered, then problem solved. This could have a positive impact on your social life also.
• Stop cleaning up after him, only cleaning up after yourself. After a while, he will notice the mess and realize it is his. With any luck, he will clean this up out of courtesy - this may take patience on your part.
  

Infuriate
Before purposely pissing off your roommates, you should make sure you exhaust every other option and are willing to take the consequences of what might happen.

• Start doing what the same inconsiderate things. If he stays up late making noise on nights you have important things to do the next day, do the same.
• Report them to the landlord for violations of the lease or local ordinances, such as noise complaints.
  

Prevent
They say an ounce of prevention is worth a pound of cure.

• Create a list of must-have qualities in roommates, and make sure that you communicate these to them. You will have to make sure to live up to the same standards you demand.
  
• Make sure to screen your roommates very carefully before moving in. Get to know them and spend time before making the commitment. This could be as simple as a few meals. If you can't handle them in social settings, how will you be living with them?
• Move in with people of similar background, age, and values. Most problems occur surrounding these.

The benefits of having a roommate are many but they come with added responsibility. Use these tips for dealing with bad roommates, or preventing getting them in the first place, in order to reap the rewards without the crisis.

Pass the CPA Exam - Financial versus Cost versus Management Accounting

When you are studying for the CPA, you have to keep in mind the different types of accounting that are out there and keep them separate in your mind. There are three areas of accounting to consider in modern day accountancy for business. These three areas are cost, finance and management accounting.

Financial accounting, is used mainly for discerning the results of any such business on a periodic basis, such as every year. This should help the company determine the future goals and plans in the long term. From an economic perspective, financial accounting treats money as a factor of production.

Management and cost accounting are basis of accountancy used to help the management of a company make decisions on a day to day basis. These are widely tested in the Business section of the CPA exam, and include efficiency and productivity. Is the business meeting budgeted goals? How much of a variance from stated goals and standards (in a positive or negative way) is there? Cost accounting's purpose is to measure the value of direct and indirect costs involved in production. From this information, management can make an informed decision on improvement in production performance. From an economic perspective, cost accounting measures economic performance. Thus, this information gives management a clearer indication of the performance of the product resources in the business.

Costing also helps the sales manage in setting the correct price. But, because costing is solely a measurement of economic performance, it can not be considered as an accurate basis for setting prices. This is because selling prices is more of an economic decision. It would not be wrong for me to mention that pricing is basically determined by market factors. Prices are influenced mainly by demand, supply and competition, less on costs. For i.e. high demanded plus lack of competition would result in the business charging higher prices for its product, well above the costs.

The third area is management accounting, which is related closely to cost accounting. Although it has essentially evolved from cost accounting, management accounting plays a much broader role in management decisions. It measures the performance, economically, of the whole business, vis-à-vis the economic environment that the business operates in. This area of accounting, seeks to combine both financial and cost information into a much broader function.

Lastly, management accounting, this area is instrumental in advising and assisting management in making vitally important business decisions. It essentially makes management more self aware of the economic implications and consequences of decisions made. From an economic perspective, it looks at the study of money as an economic resource, while at the same time, treating it as a measure of economic performance. This allows the management to measure it as an economic factor of production, for i.e. the rate of return on capital employment.

It is then seen that accounting plays a vital role in three distinct areas, which are equally as important for those wanting to pursue a career in accounting. With the advent of computerised accounting, it has made it much easy for management to monitor the accounting information. Financial accounting software, allows you to make financial statements and various cost and MIS statements almost instantly with just one push of a button, the only laborious aspect of accounting is data entry. A financial manager must bring it upon himself or herself to make sure that meaningful data is input into the system. Proper categorisation must be done and all key based errors avoided, in order to ensure management is receiving accurate financial information.