BASIC FINANCIAL ACCOUNTING AND REPORTING BY WIN BALLADA, CPA (DIGEST NOTES)

ACCOUNTING AND ITS ENVIRONMENT

DEFINITION OF ACCOUNTING
 Is the system that measures business activities, processes that information into reports and
communicates the results to decision-makers.
 It is called the “language of business”
 It is a service activity
 Provides quantitative information, primarily financial in nature, about economic entities that
is intended to be useful in making economic decisions
 An information system that measures, processes and communicates financial information
about an economic entity
 Is a process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information
 One of the oldest skills
 Art of recording, classifying and summarizing in a significant manner, and in terms of money,
transactions and in events, which are in part at least of a financial character and interpreting the
results thereof.

-Accountants can be called the “scorekeepers of the business”

I. HISTORY OF ACCOUNTING
 It is founded in 8500 B.C, at the MESOPOTAMIA (Iraq)
 BULLAE- is the first bills of lading
 Can be related to the beginning of arithmetic in 7000 BC.
 Oldest accounting records are in clay tablets, about 5000 years old found in Tigris-Euphrates
Valley.
 In 600 BC, the Greeks introduced the coined money.
 During middle ages, credit instruments were used. The Italian Merchants developed the double-
entry bookkeeping.

II. MIDDLE AGES

 The Inca Empire used knotted cords and different lengths and colors called quipu to keep
accounting records during the 11th to 14th centuries.
 Double-entry bookkeeping is not a discovery of science; it is the outcome of continued efforts to
meet the changing necessities of trade
III. The Florentine Approach
 renaissance florentone markets were a fascinating combination of formalization. In the form of
account books and double-entry bookkeeping, and of informal social networks, constructed out of
the surrounding rules of Florentine sociality.
 -business was conducted of logical of friendship, but friendship in turn was instrumental, as well
as emotional.

 Giovanno Farolfi & Company

- is one of the oldest examples of double-entry because the firm’s branch in Salon , Providence in
France kept the financial record and survive from 1299-1300

 Amatino Manucci
- was the inventor of double-entry bookkeeping. He managed to construct a comprehensive and
full-articulated set of double-entry records, with a regular balancing procedure on closure of the
General Ledger.

IV. The Method of Venice

 Luca Pacioli
- a Franciscan friar and a celebrated mathematician, is generally associated with the introduction of
double-entry bokkeeping.
- In 1494 he published, Summa de Arithmetica, Geometria, Proportioni et Proportionalita or
“Everything about Arithmetic, Geometry, Proportions and Proportionality” which includes ,
Particularis de Computis et Scripturis or “Details of Calculation and Recording,” describing the double-
entry bookkeeping.
- he did not invent double-entry bookkeeping, but rather described the accounting practices of the
day.
- The Father of Double-Entry Accounting.
- According to him, the purpose of Double-Entry bookkeeping was “to give the trader without
delay information as to his asset and liabilities”

- ” It is always good to close the books each year, especially if you are in a partnership with others.
Frequent accounting makes for long friendship”- Luca Pacioli

V. Savary and Napoleonic Commercial Code

 Napoleonic Code or Code Napoleon
-the legal requirement for businesses to keep accounting records was first introduced in the
Ordonnance de Commerce of 1673 which was put through by Jean-Baptiste Colbert during the reign of
Louise XIV, and the Napoleonic Commercial Code of 1807, that influenced the bookkeeping provisions
of commercial law throughout Continental Europe, Francophone Africa and beyond.
 -In the 20th century Americans dominated the business environment and they developed their
own accounting practice similar to those of the Italians.

 Nicolas Petri
- was the first person to group similar transactions in a separate record.

 Benjamin Workman
- published “The American Accountant” , the earliest known American accounting book.