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Double-Entry System of Bookkeeping

Double-Entry System of Bookkeeping

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Published by: leenajaiswal on Sep 03, 2010
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DOUBLE-ENTRY BOOKKEEPING SYSTEM
 The
double-entry bookkeeping system
was started in 13th century andrefers to a set of rules to record financial information in afinancialaccountingsystem wherein every transaction or event impacts at least twodifferentaccounts.
In modern accounting this is done usingdebits and creditswithin the accounting equation, assets = liabilities + equity. Theaccounting equation serves as a kind of error-detection system: if, at anypoint, the sum of debits does not equal the corresponding sum of credits,then an error has occurred.Since there are several different types of errors that can occur which resultin equal sums for debits and credits, double-entry accounting is not aguarantee that no errors exist. However, it is still useful. Timeline
 
CenturyDevelopment Stage
551-479BCEConfuciusis described, bySima Qianand other sources, as having endured a poverty-stricken and humiliating youth and been forced,upon reaching manhood, to undertake such petty jobsasaccountingand caring forlivestock.
RomanEmpire The origins of a primitive double-entry system may possibly betraced as far back as theRoman Empire, in "
"ex Oratione Ciceronis pro Roscio Comaedo
", and
where the advised system was "
That the one side of their book was used for Debitor, the other for Creditor 
" (
Huic Omnia Expensa.Huic Omnia Feruntur accepta et in tota Ratione mortalium sola.Utramque Paginam facit.
).
[
]
 
12thLater there are traces of the double-entry system in theaccounting of the Islamic worldfrom at least the 12th century.
13th The earliest extant records that follow the modern double-entryform are those of Amatino Manucci, aFlorentinemerchant at the end of the 13th century.
14thSome sources suggest thatGiovanni di Bicci de' Mediciintroducedthis method for theMedici bankin the 14th century.15thBy the end of the 15th century, the merchant venturersof Veniceused this system widely.Luca Pacioli, a monk and collaborator of Leonardo da Vinci, first codified the system inamathematics textbookof 1494.
Pacioli is often called the "fatherof accounting" because he was the first to publish a detaileddescription of the double-entry system, thus enabling others tostudy and use it.
Significance
 This section requiresexpansion.Double-entry bookkeeping has been considered a fundamental innovationand a cornerstone oCapitalismby such thinkers asWerner  SombartandMax Weber, Sombart writing in "Medieval and Modern Commercial Enterprise" that."
The very concept of capital
is derived from this way of looking atthings; one can say that
capital, as a category, did not exist beforedouble-entry bookkeeping.
Capital can be defined as that amount of 
 
wealth which is used in making profits and which enters into theaccounts."
Accounts
An accounting system records, retains and reproduces financialinformation relating to financial transaction flows and financial position.Financial Transaction Flows primarily encompass inflows on account of incomes and outflows on account of expenses. Elements of financialposition, including property, money received, or money spent, areassigned to one of the primary groups i.e.assets,liabilities, andequity. Within these primary groups each distinctive asset, liability, income andexpense is represented by its respective "account". An account is simplya record of financial inflows and outflows in relation to the respectiveasset, liability, income or expense. Income and expense accounts areconsidered temporary accounts, since they only represent the inflowsand outflows which are absorbed in the financial position elements oncompletion of the time period.

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