Accounting: Early History of Double-Entry Bookkeeping
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Questions and Answers

According to Godfrey, Hodgson, and Holmes (2003), what are the two components of accounting as a language?

  • Characters and symbols
  • Assets and liabilities
  • Numerals and words (correct)
  • Debits and credits

    • Double entry accounting contributed to a new attitude toward economic life.

    True

    The basic principle of capitalism states that economic initiative should come from ________ rather than the government.

    individual

    What role did the invention of double entry accounting play in economic expansion?

    <p>It contributed to a new attitude toward economic life by focusing on profits.</p> Signup and view all the answers

    Who is credited with introducing double-entry bookkeeping?

    <p>Luca Pacioli</p> Signup and view all the answers

    What were the terms used by Luca Pacioli to describe the entries in his double entry system?

    <p>Debit and Credit</p> Signup and view all the answers

    Luca Pacioli suggested that all entries in a bookkeeping system should not be double entries.

    <p>False</p> Signup and view all the answers

    According to Luca Pacioli, the purpose of bookkeeping is to give traders without delay information about their __________ and __________.

    <p>assets, liabilities</p> Signup and view all the answers

    What does AICPA stand for?

    <p>American Institute of CPA</p> Signup and view all the answers

    In which year was the Financial Accounting Standards Board (FASB) established?

    <p>1973</p> Signup and view all the answers

    The Companies Act of 1965 was amended in 1985.

    <p>True</p> Signup and view all the answers

    The Malaysian Institute of Certified Public Accountants (MICPA) issued the first Malaysian Accounting Standard (MAS 1) on ___ in 1984.

    <p>EPS</p> Signup and view all the answers

    Match the following organizations with their roles:

    <p>Malaysian Institute of Accountants (MIA) = Established under the Accountants Act 1967 to issue accounting standards International Accounting Standards Committee (IASC) = Admitted MICPA as a member in 1978 and began adopting IAS Financial Reporting Foundation (FRF) = Established under the Financial Reporting Act, 1997 to lodge financial statements</p> Signup and view all the answers

    Who is generally associated with the introduction of double-entry bookkeeping?

    <p>Luca Pacioli</p> Signup and view all the answers

    Accounting theory primarily focuses on advocating the usefulness of knowledge about accounting to users.

    <p>True</p> Signup and view all the answers

    What are the elements that theories can help people with?

    <p>prescribe how, predict why, seek to explain why, prescribe what</p> Signup and view all the answers

    Accounting theory provides a description, explanation, or a prediction of accounting practice based on ____________ and/or logical reasoning.

    <p>observations</p> Signup and view all the answers

    According to May's 'broad principles', which of the following is true about income accounts?

    <p>They should not include unrealized profit</p> Signup and view all the answers

    Who called for the protection of investors?

    <p>Adolph A. Berle</p> Signup and view all the answers

    The American Institute of Accountants established a Board of Examiners to create a uniform CPA examination in 1917.

    <p>True</p> Signup and view all the answers

    In which year was the Financial Accounting Standards Board (FASB) created?

    <p>1973</p> Signup and view all the answers

    The New York Stock Exchange required all corporations applying for listing to agree to publish annual financial statement from ____

    <p>1900</p> Signup and view all the answers

    Match the accounting phase with its corresponding timeframe:

    <p>Professional Contribution Phase = 1959-1973 Politicization Phase = 1973-Present</p> Signup and view all the answers

    What three aspects make up a good theory according to the content?

    <p>Semantic theory, Syntactic theory, Pragmatic theory</p> Signup and view all the answers

    What is one criticism of Historical Cost Accounting (HCA) as mentioned in the content?

    <p>Lack of empirical verification for calculated outputs</p> Signup and view all the answers

    Semantic theory focuses on the ability to relate accounting theories to the real world.

    <p>True</p> Signup and view all the answers

    Pragmatic theory concerns the effect of words or symbols on ______.

    <p>people</p> Signup and view all the answers

    Match the following theoretical aspects with their descriptions:

    <p>Syntactic theory = Logical relationship and basic concept linking Semantic theory = Ability to relate to the real world Pragmatic theory = Observation of accountant behavior in practice</p> Signup and view all the answers

    What is the purpose of accounting according to the Descriptive Pragmatic Approach?

    <p>To allocate the historical cost of resource usage against revenue</p> Signup and view all the answers

    What does the Descriptive Pragmatic Approach focus attention on?

    <p>Accountants' behavior</p> Signup and view all the answers

    Descriptive Pragmatic Approach allows for assessing the quality of an accountant’s judgment.

    <p>False</p> Signup and view all the answers

    According to the Descriptive Pragmatic Approach, the purpose of accounting is to allocate the _____ against revenue.

    <p>historical cost of resource usage</p> Signup and view all the answers

    What does the Decision Usefulness principle of accounting focus on?

    <p>Aiding the decision-making process of certain users</p> Signup and view all the answers

    What is the definition of behavioural accounting research according to Hofstedt and Kinard (1970)?

    <p>The study of the behaviour of accountants or the behaviour of non-accountants as they are influenced by accounting functions and reports.</p> Signup and view all the answers

    What are the two main types of theories mentioned in the content?

    <p>Positive and Descriptive</p> Signup and view all the answers

    ______ theory characterizes firms as a nexus of contracts between consumers of products and the suppliers of factors of production.

    <p>Contracting</p> Signup and view all the answers

    Agency theory was fundamental in the development of Positive Accounting Theory (PAT).

    <p>True</p> Signup and view all the answers

    Match the following accounting theory types with their description:

    <p>Normative Theory = Prescriptive theory on how accountants should behave Positive Theory = Descriptive, explanatory, or predictive theory on how people behave Behavioural Theory = Derived from disciplines like psychology to understand human behavior</p> Signup and view all the answers

    Study Notes

    Early History of Accounting

    • The history of accounting dates back thousands of years to ancient civilizations, with evidence of bookkeeping found in Mesopotamia, Egypt, China, Greece, and Rome.
    • The use of clay tokens in ancient Mesopotamia around 7500 B.C. is considered one of the earliest forms of accounting.
    • In ancient Egypt, scribes used papyrus to record financial transactions and taxes around 2000 B.C.
    • The ancient Chinese civilization also used accounting to manage government finances and taxation during the Chao dynasty (1122-256 B.C.).

    Luca Pacioli's Contribution

    • Luca Pacioli, an Italian mathematician, introduced double-entry bookkeeping in 1494 in his book "Summa de Arithmetica Geometrica, Proportioni et Proportionalita".
    • Pacioli's system of double-entry bookkeeping was based on the principle of dual entries for all transactions, with debits and credits used to record transactions.
    • He emphasized the importance of periodic recording and closing of books, and the need for accounting records to be accurate and reliable.

    Development of Accounting Principles

    • The development of accounting principles evolved over time, with the introduction of new techniques and concepts, such as cost accounting, depreciation, and auditing.
    • The 16th and 17th centuries saw the spread of the "Italian method" of accounting throughout Europe.
    • The 18th and 19th centuries saw the development of new accounting techniques, including the use of ledgers, journals, and financial statements.
    • The 20th century saw the development of complex accounting issues, such as earnings per share (EPS), accounting for inflation, and long-term leases.

    Role of Accounting

    • Accounting provides a historical record of a company's transactions and financial performance.
    • Accounting information is used for decision-making, stewardship, and communication with stakeholders.
    • Accounting is viewed as a language, with its own symbols, grammar, and rules, used to convey financial information to users.

    Critiques of Accounting

    • Accounting has been criticized for being used as a tool for deception, with accountants using "sleight-of-hand" techniques to manipulate financial statements.
    • Accounting standards are often influenced by politics and special interest groups, leading to criticism of accounting as an ideological tool used to sustain and legitimize the current social and economic order.### Management Contribution Phase (1900-1933)
    • Definition of capitalism: an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state
    • Key features of capitalism: free enterprise, private enterprise, free market, enterprise culture
    • Emergence of capitalism in the late 18th century due to: neglectfulness of middle-class officials, favoring of merchants and guilds
    • Role of management in the formulation of accounting principles: ad hoc solutions to urgent problems and controversies
    • Consequences of management initiative: lack of theoretical support, focus on taxable income and minimization of income taxes, smooth earnings

    Institution Contribution Phase (1933-1959)

    • Creation of the Securities and Exchange Commission (SEC) in 1934
    • SEC's role in the development of accounting principles: prescription of accounting guidelines and forms for reports submitted
    • Approval of "broad principles" by the American Institute of Accountants (AIA)
    • Proposal for the development of accounting standards by George O. May and William Z. Ripley
    • Arguements for improvement in standards of financial reporting by Adolph A. Berle and Gardiner C. Means

    Professional Contribution Phase (1959-1973)

    • Establishment of the Accounting Principles Board (APB) and the Accounting Research Division
    • Issuance of 31 Opinions dealing with controversial issues
    • Criticisms of the APB: limited and ad hoc Opinions, failure to solve problems of accounting for business combinations and goodwill
    • Establishment of the Financial Accounting Standards Board (FASB) in 1973

    Politicization Phase (1973-Present)

    • Setting of accounting standards as a social decision, affecting economic behavior
    • Political action and empirical findings in the setting of standards
    • Role of professional associations and agencies in the formulation of accounting principles
    • Limitations of accounting history: incomplete, conditional, and not definitive

    Development of Accounting in Malaysia

    • Prior to 1957: Companies Ordinance and amendments
    • 1958: Establishment of the Malaysian Institute of Certified Public Accountants (MICPA)
    • 1965: Establishment of the Companies Act, 1965
    • 1967: Establishment of the Malaysian Institute of Accountants (MIA)
    • 1968: MICPA issued first accounting guidance
    • 1978: MICPA admitted as a member of the International Accounting Standards Committee (IASC)
    • 1984: MICPA issued the first Malaysian Accounting Standard (MAS 1) on EPS### Development of Financial Reporting Regime in Malaysia
    • 1965 - Companies Act was amended, introducing the Ninth Schedule with more comprehensive disclosure requirements, including the preparation of a statement of source and application of funds.
    • 1985 - The Companies Act 1965 was amended again, empowering the Securities Commission (SC) to sanction registered auditors who failed to comply with any provisions.
    • 1987 - The Malaysian Institute of Accountants (MIA) began to issue accounting standards.
    • 1993 - The Securities Commission was established, requiring public listed companies to show full disclosure requirements as required by the SC.
    • 1997 - The Financial Reporting Foundation (FRF) and Malaysian Accounting Standard Board (MASB) were established under the Financial Reporting Act 1997.
    • 2012 - Malaysian Financial Reporting Standards (MFRS) converged with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
    • 2016 - The Companies Act 2016 was introduced, introducing a no par value regime.

    Regulatory Bodies

    • Malaysian Institute of Accountants (MIA) - issues accounting standards.
    • Financial Reporting Foundation (FRF) - responsible for financing arrangements for the operation of MASB.
    • Malaysian Accounting Standard Board (MASB) - reviews, revises or adopts approved accounting standards, issues statements of principles for financial reporting, and develops a conceptual framework for financial reporting.
    • Securities Commission (SC) - regulates public listed companies, requiring them to comply with accounting standards issued by MASB.
    • Bursa Malaysia - regulates listed companies, requiring them to comply with the Bursa Listing Requirements.
    • Bank Negara Malaysia - regulates financial institutions, issuing guidelines on financial reporting.

    Accounting Theory

    • A theory is a set of principles that describe, explain, or predict accounting practice.
    • The development of accounting theory has gone through several stages, including the pre-theory period (1450-1750), the general scientific period (1750-1920s), the normative period (1920s-1970s), and the specific scientific theory period (1970-2000).
    • Accounting theories can be positive or normative, and can be developed through inductive or deductive reasoning.

    Objectives of Accounting Theory

    • Explain and predict accounting practice as it is.
    • Provide a basis for prediction and explanation of accounting behavior and events.
    • Help in the investigation, explanation, and conclusion of an event.
    • Justify the existence of the accounting profession and accountancy.
    • Evaluate current accounting practice and guide the development of new accounting practice.

    Purpose of Accounting Theory

    • Provides basis for prediction and explanation of accounting behavior and events.
    • Helps in the investigation, explanation, and conclusion of an event.
    • Justifies the existence of the accounting profession and accountancy.
    • Evaluates current accounting practice and guides the development of new accounting practice.

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    Explore the evolution of double-entry bookkeeping and its significance in financial regulation. Learn about the early history of accounting and its impact on modern-day financial systems.

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