Accounting History and Methodologies

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Questions and Answers

What was the significance of the Summa in accounting history?

It was the first book to describe historical cost accounting.

It was the first book published using the printing press.

It made Pacioli a celebrity and secured his legacy. (correct)

It introduced ledger postings as a recording method.

Which accounting approach involves recording debits on the left and credits on the right?

Venetian approach (correct)

Florentine approach

Napoleonic approach

Savary approach

What fundamental principle did Jacques Savary introduce in the Commercial Code of France?

Historical cost as basis of valuation (correct)

Bilateral accounting entries

Market value for asset reporting

A detailed chart of accounts

What critical change in accounting valuation was initiated by the Napoleonic Commercial Code?

Use of market value on the day of inventory Signup and view all the answers

Who introduced the concept of the Chart of Accounts and where?

Schmalenbach in Poland Signup and view all the answers

What is the primary function of accounting as defined?

To provide quantitative information for economic decision making Signup and view all the answers

Which option does not describe a characteristic of the Florentine approach?

Records debits on the right side and credits on the left Signup and view all the answers

What is NOT a role attributed to Jacques Savary in accounting history?

Pioneer of double-entry accounting Signup and view all the answers

What is the primary characteristic of a sole proprietorship?

Unlimited liability for the owner Signup and view all the answers

Which of the following is NOT a legal requirement for forming a sole proprietorship?

Annual financial audits Signup and view all the answers

What is a primary disadvantage of a sole proprietorship?

Limitations in raising capital Signup and view all the answers

What type of business organization typically involves two or more owners?

Partnership Signup and view all the answers

Which of the following businesses would most likely be classified as a manufacturing business?

A furniture factory Signup and view all the answers

What is a major reason why someone might choose to operate as a sole proprietor?

Ease of entry and exit Signup and view all the answers

In a partnership, profits and losses are typically divided based on what?

Ownership percentage and agreement Signup and view all the answers

Which factor does NOT contribute to the overhead costs in a manufacturing business?

Advertising expenses Signup and view all the answers

What is the minimum percentage of Independent Directors required on the board of a corporation?

20% Signup and view all the answers

What happens to the minimum capital stock requirement for stock corporations under the new code?

It is no longer required unless specified by a special law. Signup and view all the answers

What is the new period allowed for corporations to commence operations after incorporation?

5 years Signup and view all the answers

What is one disadvantage of forming a partnership?

Unlimited liability Signup and view all the answers

Which document is required for the execution of a partnership agreement?

Articles of Partnership Signup and view all the answers

What does the Revised Corporation Code allow regarding the revival of corporations whose term has expired?

They can apply for revival but not for corporations with public interests. Signup and view all the answers

What is a key characteristic of a corporation?

It acts as a separate legal entity Signup and view all the answers

Which of the following statements about the ban on corporate donations is true?

Only foreign corporations are banned from making donations. Signup and view all the answers

What characterizes a 'delinquent corporation' under the new code?

A corporation that became inoperative for at least 5 consecutive years. Signup and view all the answers

Which of the following is NOT a step in the formation of a partnership?

Transfer of Ownership Signup and view all the answers

Which statement describes a benefit specific to partnerships?

Tax implications are generally favorable Signup and view all the answers

What is the status of the Treasurer’s Affidavit under the new corporation code?

It is no longer required due to the removal of the capital stock minimum. Signup and view all the answers

What must partners do to ensure their business activities remain distinct from their personal affairs?

Maintain separate financial records Signup and view all the answers

Which of the following features is introduced in the new code regarding electronic filings?

Filing of Articles of Incorporation and amendments can be submitted in electronic form. Signup and view all the answers

What must be approved by the Securities and Exchange Commission when forming a corporation?

Articles of Incorporation Signup and view all the answers

Which of the following is true regarding the transfer of shares in a corporation?

It can be done at any time without affecting the corporation's existence Signup and view all the answers

What is the principle that states acquired assets should be recorded at their actual or historical value?

Historical Cost Principle Signup and view all the answers

Which accounting concept assumes that the business will continue its operations indefinitely?

Going Concern Principle Signup and view all the answers

Which concept emphasizes that financial reporting must include all relevant information affecting users’ understanding?

Completeness Concept Signup and view all the answers

What does it mean when a firm uses the same accounting method from period to period?

Consistency in reporting Signup and view all the answers

What accounting principle states that cash received for services to be rendered in a future period should not be recognized as revenue?

Revenue Recognition Principle Signup and view all the answers

Which concept involves dividing the life of a business into regular intervals for financial reporting?

Accounting Period Concept Signup and view all the answers

Under which principle are expenses incurred recorded against the revenues earned in the same period?

Matching Principle Signup and view all the answers

What is the significance of presenting a separate and distinct personality of the business from its owner?

Legal liability protection Signup and view all the answers

Study Notes

The Summa and Luca Pacioli

"The Summa" was one of the first books published on the Gutenberg press and became widely successful.
Translated into several languages: German, Russian, Dutch, and English, elevating Luca Pacioli to celebrity status.
Pacioli is recognized as "The Father of Accounting."

Florentine and Venetian Approaches

Florentine Approach: Involves journal entries where each transaction includes at least one debit and one credit, with total debits equaling total credits.
Venetian Approach: Features ledger postings where debits are listed on the left and credits on the right, ensuring clear tracking of each account.

Savary and Napoleonic Commercial Codes

Jacques Savary (1622-1690) authored the Code of Savary in 1673, introducing "historical cost" for asset valuation.
The Code of Napoleon was enacted on March 21, 1804, amending the Code de Commerce in 1807, mandating assets to be recorded at market value on the inventory date rather than historical cost.

Eugen Schmalenbach and Chart of Accounts

Eugen Schmalenbach (1873-1955) promoted the use of the “Chart of Accounts” in Poland post-World War II, simplifying account listings for commercial transactions.

Definition of Accounting

Accounting is a service activity that provides quantitative, primarily financial information useful for making economic decisions.
Involves inventory management for businesses, especially grocery stores, drugstores, and manufacturing entities which turn raw materials into finished goods.

Types of Business Organizations

Sole Proprietorship: Owned by a single individual, bearing unlimited liability and personal accountability for business debts. Profits and losses belong entirely to the owner.
- Advantages: Simple setup, full control, tax benefits.
- Disadvantages: Unlimited liability, limited capital raising abilities, continuity issues.
Formation Steps: Includes business name registration, permits, and tax registrations.
Partnership: Formed by two or more individuals who share profits and losses, often through a formal agreement.
- Advantages: Ease of formation, pooled resources, management collaboration.
- Disadvantages: Unlimited liability, challenges in ownership transfer, continuity problems.
Formation Steps: Involves name reservation, Articles of Partnership filing, and obtaining necessary permits.
Corporation: A separate legal entity with transferable ownership shares, requiring Articles of Incorporation and adherence to SEC regulations.
- Stockholders enjoy limited liability and perpetual existence, allowing shared ownership transfer without dissolving the entity.
- Revised Corporation Code (2019) introduced features like indefinite corporate life and extended operational commencement period.

Key Accounting Concepts

Methods that favor lower income and asset values for reliable financial reporting.
Emphasis on relevance and reliability of data in financial statements.
Continuous operation assumption justifies cost methodologies, with a requirement for consistent accounting practices for comparability.
Life of the business is divided into periods for regular financial statement preparation; separate entity concept distinguishes business from owners.

Identifying Accounting Concepts Exercises

Recognition of revenue and expense timing principles impacting financial statements.
Measurement of financial performance based on regular intervals and documentation of expected losses within reports.

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Description

Explore the foundational texts and practices in accounting, focusing on Luca Pacioli's contributions and the differences between Florentine and Venetian approaches. Additionally, learn about historical commercial codes that shaped today's accounting standards.