UNIVERSITY OF NAIROBI
SCHOOL OF BUSINESS
DEPARTMENT OF FINANCE AND ACCOUNTING
DAC 101: FOUNDATIONS OF ACCOUNTING
NAME : AWINO JOSEPH PETER
REG NO : D33/30463/2010
LECTURER : MR. LUTHER OTIENO
QUESTION: HISTORY AND EVOLUTION OF ACCOUNTING
Unlike most other modern professions, accounting has a history that is usually discussed in terms of one seminal event – the invention and dissemination of the double entry bookkeeping processes. But a view of accounting history that begins with Luca Pacioli’s contributions overlooks a long evolution of accounting systems in ancient and medieval times.
More fundamental is the question, why should we care about the history of accounting at all? Certainly a glimpse back into this period helps illuminate our past generally, and it is the sort of winding, twisted path that makes for an entertaining story. But perhaps the most compelling reason is to help explain the phenomenal growth that the profession of accountancy has enjoyed worldwide since the first royal charters were granted to the Society of Accountants in Edinburgh less than 150 years ago.
In 1904, 50 years after the emergence of the formal profession, about 6,000 practitioners carried the title of chartered accountant. In 1957, there were 38,690 chartered and incorporated accountants (Scottish, British and Irish). Today, the Institute of Chartered Accountants in England and Wales alone has a membership of over 120,000 worldwide. This is to say nothing of the many professionals in the other allied institutes in Canada, New Zealand, Ireland, Australia, Scotland and South Africa, along with American certified public accountants -comprising a vast, worldwide network of professional accountancy dominated by several, mammoth, worldwide accounting firms.
How and why did this relatively new profession develop? Its history is that of human commerce, and even more fundamentally, of writing and the use of numbers and counting.
Some argue that accounting developed purely in response to the needs of the time brought about by changes in the environment and societal demands. Others claim that the development of the science of accounting has itself driven the evolution of commerce since it was only through the use of more precise accounting methods that modern business was able to grow, flourish and respond to the needs of its owners and the public. Either way, the history of accounting throws a light on economic and business history generally, and may help us better predict what is on the horizon as the pace of global business evolution escalates.
Ancient Accounting: Dawn of Man through Luca Pacioli
In attempting to explain why double entry bookkeeping developed in 14th century Italy instead of ancient Greece or Rome, accounting scholar A. C. Littleton describes seven "key ingredients" which led to its creation: Private property: The power to change ownership, because bookkeeping is concerned with recording the facts about property and property rights. Capital: Wealth productively employed, because otherwise commerce would be trivial and credit would not exist. Commerce: The interchange of goods on a widespread level, because purely local trading in small volume would not create the sort of press of business needed to spur the creation of an organized system to replace the existing hodgepodge of record-keeping. Credit: The present use of future goods, because there would have been little impetus to record transactions completed on the spot. Writing: A mechanism for making a permanent record in a common language, given the limits of human memory. Money: The "common denominator" for exchanges, since there is no need for bookkeeping except as it reduces transactions to a set of...
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