Naim Wakil - Theory of Accounting

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Theory of Accounting

• By - Naim Wakil

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Introduction
What is accounting? Accountancy or accounting
is the art of communicating financial information
about a business entity to users such as
shareholders and managers. The communication is
generally in the form of financial statements
that show in money terms the economic resources
under the control of management.
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Etymology

• The word "Accountant" is derived from the French
  word "Compter" which took its origin from the
  Latin word "Computare". The word was formerly
  written in English as "Accomptant", but in
  process of time the word, which was always
  pronounced by dropping the "p", became gradually
  changed both in pronunciation and in orthography
  to its present form.

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Early history

• Accountancy's infancy dates back to the earliest
  days of human agriculture and civilization (the
• Sumerians in Mesopotamia, and the Egyptian Old
  Kingdom). Ancient economic thought of the Near
• East facilitated the creation of accurate records
  of the quantities and relative values of
  agricultural
• products, methods that were formalized in trading
  and monetary systems by 2000 BC. Simple
• accounting is mentioned in the Christian Bible
  (New Testament) in the Book of Matthew, in the
• Parable of the Talents. The Islamic Quran also
  mentions simple accounting for trade and credit
• arrangements.
• In the twelfth century AD, the Arab writer, Ibn
  Taymiyyah, mentioned in his book Hisba
  (literally,
• "verification" or "calculation") detailed
  accounting systems used by Muslims as early as in
  the mid-
• seventh century AD These accounting practices
  were influenced by the Roman and the Persian
• civilizations that Muslims interacted with. The
  most detailed example Ibn Taymiyyah provides of a
  
• complex governmental accounting system is the
  Divan of Umar, the second Caliph of Islam, in
• which all revenues and disbursements were
  recorded. The Divan of Umar has been described in
  
• detail by various Islamic historians and was used
  by Muslim rulers in the Middle East with
• modifications and enhancements until the fall of
  the Ottoman Empire.
• The development of mathematics and accounting
  were intertwined during the Renaissance.
  Mathematics was in the midst of a period of
  significant development in the late 15th century.
  Hindu-Arabic numerals and algebra were introduced
  to Europe from Arab mathematics at the end of the
  10th century by the Benedictine monk Gerbert of
  Aurillac, but it was only after Leonardo Pisano
  (also known as Fibonacci) put commercial
  arithmetic, Hindu-Arabic numerals, and the rules
  of

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Luca Pacioli and double-entry bookkeeping

• A double-entry bookkeeping system is defined as
  any bookkeeping system in which there was a debit
  and credit entry for each transaction, or for
  which the majority of transactions were intended
  to be of this form.7 Luca Pacioli wrote a
  27-page treatise on bookkeeping that contained
  the first known published work on that topic, and
  is said to have laid the foundation for
  double-entry bookkeeping as it is practiced
  today.8
• Pacioli's portrait, a painting by Jacopo de'
  Barbari, 1495, (Museo di Capodimonte).9Pacioli's
  "Summa de Arithmetica, Geometria, Proportioni et
  Proportionalità" (trans. "Review of Arithmetic,
  Geometry, Ratio and Proportion") was first
  printed and published in Venice in 1494. It
  included a 27-page treatise on bookkeeping,
  "Particularis de Computis et Scripturis" (trans.
  "Details of Accounting and Recording"). It was
  written 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. It represents the first known printed
  treatise on bookkeeping and it is widely
  believed to be the forerunner of modern
  bookkeeping practice. In Summa Arithmetica,
  Pacioli introduced symbols for plus and minus for
  the first time in a printed book, symbols that
  became standard notation in Italian Renaissance
  mathematics. Summa Arithmetica was also the first
  known book printed in Italy to contain
  algebra.10
• According to Pacioli, accounting is an ad hoc
  ordering system devised by the merchant. 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. Pacioli recommends the Venetian
  method of double-entry bookkeeping above all
  others. Three major books are at the direct basis
  of this system the memoriale ( trans.
  memorandum), the giornale (journal), and the
  quaderno (ledger). The ledger is considered as
  the central one and is accompanied by an
  alphabetical index.11

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Naim Wakil Thank You )