ACC2210 (Business Accounting) 8IB1 2013

ACC2210 8IB1
(Business Accounting)

Individual Assignment
Name: Herman Salim ID Number: I12001395 Program: Bachelor of Business (BBUS) Major: International Business Lecturer: Ms. Nga Elsie Date of Submission: 18thSeptember 2013
Question 1

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Double entry bookkeeping has been in existence for a long time. In fact it revolutionized the way in which accounting records were kept and what they tried to record. Many events, including the emergence of this form of recording caused the role of the accountant and the purpose of financial statements to change. Required: Discuss the emergence of accounting as it is today. Identify the major historical events that stimulated change in the way financial statements are prepared.

Answer: Accounting is a method or language to record financial transaction of an organization by analyze, identify, measure and interpret the transaction. By then, the accountants are people who will make a report called as a financial statement/information. The purpose of accounting is to inform the users what is going on in an organization, so that they can make a better economic decision (Businessdictionary, n.d.). Furthermore, the ancient documents appeared to serve two functions that are still relevant to the needs of the present today. They helped people to keep track of their assets and made it easier to exercise control over hose who ad been entrusted with other peoples money and property. This latter purpose is termed the stewardship function of accounting. There are three main or essential concepts that build accounting astoday on these following: Time interval. This is derived from astronomical phenomena used for developing calendars. Stonehenge in England is believed to be a 4000-year old astronomical observatory used to calculate calendars. For an accounting system to record when financial transactions and events take place, some form of calendar is essential. Money measurement. Money is defined as a medium of exchange that functions as legal tender. Money measurement became easier when coinage was adopted. Coinage was invented in ancient Lydia (now part of Italy) about 700 BC and soon spread to other Mediterranean countries. Entity. In accounting, an entity is best thought as a set of resources (or assets) held and used for a common purpose, and of obligations (or liabilities) incurred in furtherance of that purpose.
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As from the three essential concepts above, it was when a history of accounting happened. Started from the prior to the late 1800s; the terms bookkeeping and accounting were often used interchangeably because of the recording/posting process was central to both activities. There was little need for financial statements because most owners had direct knowledge of their businesses and, therefore, could depend on elementary bookkeeping procedures for information. Prior to 3500 BC (Stone age), examples of prehistoric recordkeeping have been discovered. In Mesopotamia, clay tokens have been dated to 8000 BC. Starting at the beginning about 3500 BC (Bronze age), the development of written language had been discovered and regarded as a divide between pre-history and civilization. After 3500 BC, the ancient accounting system of clay tokens slowly evolved into an early form of written language called cuneiform writing. Later, about 3250 BC, hollow clay balls (envelopes) were used to segregate tokens for some purposes like a sales contract or a shipper bill of lading. In 2285 BC, the Code of Hammurabi was created. This Babylonian law code was comprised of 282 laws. A handful of these laws concerned the purchasing of goods and required salesmen to record how much they profited from selling their product. These transactions were notarized and documented by scribes. Because the materials necessary for writing at this time were very expensive, the records were kept by molding clay pieces to represent different numbers and

transactions(Accountingdegreeonline, n.d.). Later on at about 1000 BC, Egyptiancreated paper frompapyrusin order to record accounting documents. By 300 BC, the use of Egyptian papyrus became the main form of account-keeping in Rome. In Greece, marble tablets were used. For instance, in Athens the Parthenon building accounts were inscribed on marble tablets on the Acropolis. Greece also had public accountants and made a significant contribution to accounting with the creation of coins which were solely used as money around 600 BC.

Accounting did not evolve in the same way or at the same time all across the globe. In China ad the Andes of South America, early recordkeeping systems evolved quite independently. In China, art of written languagedeveloped during the Shang Dynasty (1776 BC to 1122 BC). They carved it on the bones or shells, mostly on tortoise shells. The pattern represented objects

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or number of objects and was interpreted to tell fortunes such as number of children you should have, and so on. In between 1100 1500 AD, record document method using strings emerged in South America. The string have different length and colours and named quipus. Quipus documents were kept by accountant-historians called as quipu-camayocs. Their records were kept as physical quantities rather than in monetary terms. The data saved in the quipus inclusive record of birth and deaths, food supply, and the goods kept in warehouses. This made quipus became historical and economic documents for the Incas. Important quipus will be duplicated because there is checking system by comparing two quipus and analyze the differences. In the 13 and 14 centuries, an Italian friar and known as the father of accounting,Luca Pacioli, produced an essential accounting technique double-entry bookkeeping. According to Smith (2011), the needs of better systems of bookkeeping was created by the considerable developments in trade, banking and manufacturing which occurred in this period. Pacioli wrote a textbook describing double entry bookkeeping and published the textbookin Venice 1494. Pacioli also described three main books of account; Day book (Waste book) containing all transactions of daily business activities without omission, journal it is where the day book entries reduced into debit and credit side, and last ledger - containing the actual accounts in which the journal entries posted. Hence, he did not distinguish between a merchants private and business assets and liabilities, and also his text did not call for an annual balancing of the books. The rise of modern accounting was due to the industrial revolution in the mid 1800s. England experienced an explosion of profits from their production of coal, iron, and other goods. In 1880, the Institute of Chartered Accountants in England and Wales (ICAEW) was established. It brought legitimacy to professionals in the field of accounting and worked to establish principles, ethics codes, and more for accountant to follow (Accountingdegree online, n.d.). In 1973, the International Accounting Standards Committee (IASC) was established and later on they issued International Accounting Standards (IAS) which is used by more than half of the country al over the world. Todays, accounting becomes one of the most influential professions. The basic form of financialstatement used in both the ancient world and the Middle Ages to fulfill the stewardship function was based on the charge and discharge principle. These statements have survived over the years and is now to be found in the form of receipts and

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payments accounts. Which are produced by, amongst others, treasurers of sports and other clubs (Lewis and Firth, 1985). Question 2

There is a wide range of users of financial (accounting) information. Each one the users have different needs. Required:

Identify any FIVE(5) users of financial information and explain how their needs are met (or not) by financial information. Discuss how their interests are protected (or not). Who is responsible for the protection of these interests and how is this protection achieved?

Answer: Five users of financial information and the benefits to them: 1. Investors or shareholders (and their advisors). As the main or primary users of financial information who plays important roles in a company; buy, hold, and sell shares, they are the one who really needs accounting information than others. According to Accountingverse(n.d.), they require financial information in order to help them to make a better business decision on what ought to do with their investments; the risk of and return on their investment based on analysis. Riley (2011) added that financial information is needed in order for them to access whether a business will be able to pay dividends (Returns) or not together with measuring business performances overall. 2. Suppliers and other trade creditors. They are the one who a company ordered inventory from. They must be given financial information of a company in a way to decide whether to sell goods or inventories on credit. They need to know if the company is meeting its demands and able to repay or not when it falls due. Actually, the terms of credit are set according to the assessment of their customers

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financial health (Accounting-simplified, n.d.). It is added by BBC (n.d.) that sometimes future contracts could depend on this kind of issue as well. 3. Employees or trade unions. A person who works for returns or compensations. They need information to assess an entitys stability and profitability. Riley (2011) highlighted that they are crucially interested in information about employment opportunities and the maintenance of pension funding and retirement benefits. They are also likely to interested in the remunerationand job security gained from a company. It is also used for making collective bargaining agreements such as discussing matters of promotion, and so on. 4. Governments and their agencies.As a system where people or citizens are governed, financial information of a company is needed. It has a direct responsibility for the control of the economy and in carrying this out it obviously requires as much relevant information as possible. According to Lewis and Firth (1985), by using this accounting data in conjunction with other economic information, the government can then make its policies and decisions. The decisions which may be directly influenced by accounting data include corporate taxation rates (Whether the tax paid by a company is accurate and in line with its financial strength), price regulations (e.g. prices and income policies), investment incentives, import controls to help declining industries which face stiff international competition., credit policies (e.g.) hire-purchase controls). Besides, the Government itself also needs accounting information in order to provide a basis for national statistics. 5. Banks and other lenders. It is where a company can borrow money from. A financial information of a company is essential to be provided for them because it helps them to determine whether loans and interests will be paid when due (Riley, 2011). Any decision to lend must be supported by a sufficient asset base and liquidity. 6. Other users (Customers, analyst, competitors, and general public).
http://www.accountingverse.com/accounting-basics/users-of-financial-statements.html

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www.tutor2u.net/blog/index.php/business-studies/comments/qa-who-are-the-main-users-of-financialaccounts http://accounting-simplified.com/purpose-of-financial-statements.html http://www.bbc.co.uk/bitesize/higher/business_management/finance/users_financial_info/revision/1/ http://www.tutor2u.net/blog/index.php/business-studies/comments/qa-who-are-the-main-users-offinancial-accounts http://www.businessdictionary.com/definition/accounting.html http://www.accountingdegreeonline.net/resources/history-of-accounting http://aaahq.org/southwest/pacioli.htm

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