The History and the

Definition of Accounting

Accounting Theory
Seminar 1

1
 The History of Accounting

Why do we study the history of accounting?

 To know the evolution of the development of accounting
 To know any thoughts in relation to the development of accounting
 To know scholars, books, organizations which have contributions to
the development of accounting

The history of accounting might be explained through the following

periods:
 Pre-historical period
 Prophetic period
 Bookkeeping evolution period
 Period after 1900

2
 Pre-historical period (contnd)
 Egypt : The history of accounting began in Egypt, 3000 years BC.
At that time, the treasurer of the country has an authority to make
daily reports to the Prime Minister and then the Prime Minister
forwarded these reports to the King. The reports dealt with any
information about gold, textile and necessities available in store
houses.
 Mesopotamia (areas around Baghdad). Mesopotamian period is
also termed as Babylonian period (3000-1000 BC). In this period,
there were simple records of transactions in the form of tablet called
as clay envelopes. Clay envelopes disclosed the value of assets
and transactions, The records aimed to record the ownership of a
wealth.
 Greek and Roman Period: In 256 years BC, a system of a
accountability accounting was introduced by Zenon. The record of
this accounting system was then known as Zenon Papyri. Zenon
Papyri is not only a record but also a tool for detecting fraud and
inefficiency.
3
 Prophetic period

 This occurred in the era of Prophet Muhammad SAW (after 611)

 The main source of literature about Islamic Accounting is Al Qur’an,
particularly Al Baqoroh verse 282. This verse explains about the
obligations of parties or people who are involved in a business
activity (transactions) to make a record.
 The objectives of the record are
 As evidence of transactions
 To avoid manipulations
 To show that the wealth is a mandate from Allah

4
 Bookkeeping evolution period

 The 11th to the 12th century : the record was still in the form of single
entry (Italy)
 Double entry bookkeeping was found in the 14th century, in Italy
(1340). In double entry bookkeeping, people started knowing the
terms deberee (debit) and creed (credit).
 Several concepts which were known as the characteristics of double
entry bookkeeping at that time:
 Entity concept: a concept which separates a business from the
owner
 Transactions were recorded on a monetary basis.
 Predictions of expenses and equity were used. This showed
that, at that time, people had known the difference between
capital and income

5
 Bookkeeping evolution period (continued)
 In 1494, the first book which contained the basis of double entry
bookkeeping was published.
 This book was written by Luca Pacioli in Italy.
 The title is: Summa de Arithmatica, Geometria, Proportioni et
Proportionalita (in English: Review of Arithmetic, Geometry, and
Proportions).
 Luca Pacioli, although was not the founder of double entry
bookkeeping, was known as the father of accounting because his
publication was the first one in the literature which introduced double
entry bookkeeping.

6
 The Definition of Accounting

 In the literature, accounting may be defined in a number of different

ways. This is because accounting scholars see accounting from
their own perspectives. The perspective itself is influenced by time,
perception, and background of the scholars.
Examples of accounting definition:
 “Accounting is a science of recording and interpreting financial
transaction” (Brian Maggee)
 “Accounting is a service activity. Its function is to provide
information, primarily financial in nature, about economic entities
that is intended to be useful in making economic decisions, in
making reasoned choices among alternative courses of action”
(Accounting Principles Board Statement No. 4)

7
 The Definition of Accounting

Accounting
The record-keeping and reporting of an enterprise’s
performance and position in monetary terms. Management
is responsible for the decisions made in an enterprise.
Accounting provides the reports that summarise the
economic results of these decisions for internal use and for
transmission to external interested parties (such as
investors, creditors and regulatory agencies).