History of Accounting and Book Keeping System Assessment Answer
HISTORY OF ACCOUNTING
The double accounting system was invented in the early medieval ages and is prevalent since then. This essay describes the History of accounting and book keeping system which was prevalent in the past, how book keepers used to record and prepare the accounts and the impact that technology has made on the book keeping system.
A. Double entry book keeping history
The double entry accounting system was first invented by Luca Pacioli, a father in a church of Italy. He was a mathematician and a fellow of Leonardo Da Vinci. He wrote a book with the help of Leonardo on accounting which was named as accounting bible. Pacioli worked on the text part whereas Leonardo drew the practical illustrations for supporting and explaining the texts in the book. The book contained various sections; however the section that had the part of double entry system was named as “Particularis de computis et scripturis”. The section was further divided into smaller chapters that describe double entry, journals, balance sheet, trial balance and many other techniques which are subsequently adopted by the accountant and various traders. (Lee, Bishop and Parker, 2014)
Although, before Pacioli’s contribution, the double entry system was already prevailing in the common practice. There is no exact information about the invention of the book keeping system before Pacioli’s contribution. Due to the contributions made by Pacioli, he is known as the father of accounting by the modern professionals. (Sangster and Scataglinibelghitar, 2010)The dual entry system in accounts is not used in just journal entries but also uses ledger account, financial statements and trial balance. The principles described by the Pacioli in the 15th century are used world -wide in accounting methods and is accepted in all the accounting firms. (Sangster,2016)
B. Preparation of accounting records prior to the existence of technology
Before the emergence of the computers, book keeping was done by the book keepers. They use to write every transaction or the entry in the journals, which were defined as the original book of entry. After the recording of transaction in journal, the same was to be recorded in the particular ledger for instance the company’s general ledger. The balance of each account had to be calculated and the balances of the account were required to implement in the financial statement. The writing of each and every transaction and rewriting the amounts in the accounts was done manually which likely resulted in recording of incorrect amounts sometimes. In order to reduce the errors, the trial balance was prepared by the book keeper. The trial balance is an internal report or document which reveals that if the accounts are not balanced then book keeper is required to undertake the task of going through each and every transaction until the cause of disparity is located and the trial balance document reveals the accounts to be balanced. Various adjustment entries were required to be passed by the accountant to match the trial balance. The necessity of the adjusting entries arises due to following reason:
- Additional assets and revenue may have been earned and not recorded.
- Additional liabilities and expenses may have been incurred and not recorded.
- Depreciation and other non routine adjustments needed to be recorded and computed
- Amounts recorded by the book keeper may have prepayments that are no longer prepaid
After doing all the adjustments, the accountant presents the adjusted balance of accounts in the financial statements. After the completion of financial statement of each year, closing entries are required. The aim of the closing entries is to get balance of all the accounts in the income statement to be zero before the starting of new accounting year. The net amount of the income statement balance will ultimately be transferred to capital account of the proprietor or to the stockholders’ retained earnings. (Thompson,1994)
C. Impact of technology on the double entry system
The computers, internet, wireless and digital service program as resulted to changes in conducting business. Accounting has seen advancement and tremendous growth due to the growth in the information technology. The accounting software has automated the traditional ledger and accounting books. (Warsono, 2013)These software packages come with a specialised feature that can be customised according to the current business operations. The various benefits of information technology that are derived by the accounting department are:
- Computerised accounting system: the biggest impact that information technology has made is on the accounting software developed and used by the companies to record and track the financial transactions. The hand written ledgers, spreadsheets and financial statement are translated into computers which can quickly present the individual transaction into financial reports.
- Increased functionality: Due to the development of technology, the functionality of the accounting departments have improved and the information is produced in timely manner.
- Improved accuracy: the computerised accounting system has internal checks and balances which ensure that the transactions and the balances of account are matched before formulating the financial statements.
- Faster processing: with the development of information technology, the accountants can process the large amount of financial information quickly.
- Better reporting to the stakeholders: the reports which are presented to the investors and stakeholders and which are used by them in investing decision is presented and reported in a better manner by the use of the computerised accounting software. (Jawabreh, O.A. and Alrabei, A.M., 2012)
There are various accounting software tools such as income tax, audit, word process, graphic software an image processing system software program tools.
The advancement in IT has strengthen the system process program of the company and also set up computerize their information systems. (Oladele, 2014) The computerised system of accounting has brought many opportunities for the companies which has enabled them to do the accounting functions more efficiently and effectively. The use of IT has enabled the companies to move towards a paperless society.
The fast pace growth in technology has impacted every sphere in the modern world, the accounting system is one of them. (Whitehead, 2014)The double entry system which was invented in the early ages have been in practice since then, however the invention of technology has brought ease and accuracy to the system and has put the businesses a step ahead in every dimension.