Markets now are coming from all over the over the world because of globalization.
Exchange of transactions and business dealings are now done anywhere and everywhere ignoring global barriers and constraints.
Especially now that almost everything can be transacted online via world wide web or internet.
With the internalization of markets, some businesses are raising capital and trade internationally with the intention of increasing the liquidity of their organizations.
Managing for financials and economics of the businesses became complicated because of various practices, different currencies, dissimilar tax laws and distinct political policies in different countries. Hence, one has to study these factors and the risks they bring in order to engage in business globally.
Now that everything is boundary-less, so is accounting. Accounting regulatory bodies requires accounting practitioners to keep abreast with updates, interpretation and practice of International Accounting and Auditing Standards.
This is to assure greater confidence and reliability on the accounting information to be used by global investors so they can make a more rational and better business and investments decisions.
Showing posts with label accounting history. Show all posts
Showing posts with label accounting history. Show all posts
Monday, June 4, 2012
Saturday, June 2, 2012
The rise of the group of companies and the need for consolidated accounts
Since the end of World War II, rapid growth of domestic and multinational corporations in various countries was observed.
Noticeably, with the global inclinations of business, organizations not just build new facilities and infrastructures but also most previously separate entities combine or group themselves together. Hence, there were several business combinations here and there.
Thus, the evolution of Business Combination accounting practices.
Combinations of businesses may be done thru merger or consolidation.
Business combination is said to be merger when one company takes over all the business operations of other entities, thus dissolving the latter's organizations.
While in consolidation, a new corporation is formed to take over the assets and operations of two or more separate entities, and those previously separate entities are dissolved.
Business combination is believed to be the most complex and somewhat controversial areas of accounting because it involves accounting the financial transactions of huge businesses which may unfold management fiascos, empirical fortunes and executive brilliance. But, accounting business combinations is also interesting because each business involved in a business combination is unique and must be assessed and evaluated in its economic substance regardless of its legal form.
Financial reports for these business combinations are prepared into consolidated financial reports which are derived from consolidated accounts.
Note that these consolidated accounts are what almost matters to the investors in evaluating the entity's profit or loss, financial condition and the share in the business aside from the dividends.
Noticeably, with the global inclinations of business, organizations not just build new facilities and infrastructures but also most previously separate entities combine or group themselves together. Hence, there were several business combinations here and there.
Thus, the evolution of Business Combination accounting practices.
Combinations of businesses may be done thru merger or consolidation.
Business combination is said to be merger when one company takes over all the business operations of other entities, thus dissolving the latter's organizations.
While in consolidation, a new corporation is formed to take over the assets and operations of two or more separate entities, and those previously separate entities are dissolved.
Business combination is believed to be the most complex and somewhat controversial areas of accounting because it involves accounting the financial transactions of huge businesses which may unfold management fiascos, empirical fortunes and executive brilliance. But, accounting business combinations is also interesting because each business involved in a business combination is unique and must be assessed and evaluated in its economic substance regardless of its legal form.
Financial reports for these business combinations are prepared into consolidated financial reports which are derived from consolidated accounts.
Note that these consolidated accounts are what almost matters to the investors in evaluating the entity's profit or loss, financial condition and the share in the business aside from the dividends.
Wednesday, May 30, 2012
Schmalenbach and the chart of accounts
Since the World War II, chart of accounts have played a vital role in the development of accounting in Poland.
A writer and professor at Cologne, named Eugen Schmalenbach (1873-1955), believed that chart of accounts are not mere carriers of balances but it contains significant information which can be prepared regularly and speedily to respond rapidly to the external and internal circumstances infleuncing the economic issues of an enterprise.
Schamalenbach used "price level accounting" or "uniform chart of accounts".
Price considered as the basis of value, helped and assisted decentralize management to evaluate and compare the entity's performance and financial condition of similar companies within the same sector of the economy and industry.
Also, Price seemingly to be available as control and the corrective measure for investment assessments and decisions.
Schamalenbach also advocated that traditional accounting policies must be changed so to keep with relevant and reliable information which builds challenges, satisfaction and ingenuity of accountants.
A writer and professor at Cologne, named Eugen Schmalenbach (1873-1955), believed that chart of accounts are not mere carriers of balances but it contains significant information which can be prepared regularly and speedily to respond rapidly to the external and internal circumstances infleuncing the economic issues of an enterprise.
Schamalenbach used "price level accounting" or "uniform chart of accounts".
Price considered as the basis of value, helped and assisted decentralize management to evaluate and compare the entity's performance and financial condition of similar companies within the same sector of the economy and industry.
Also, Price seemingly to be available as control and the corrective measure for investment assessments and decisions.
Schamalenbach also advocated that traditional accounting policies must be changed so to keep with relevant and reliable information which builds challenges, satisfaction and ingenuity of accountants.
Monday, May 28, 2012
The arrival of income taxation and the conflict with financial accounting
It was in AD 10 when the fist known income tax was instituted by Emperor Wang Mang (45 BC-AD of Xin Dynasty of China, where the income tax rate is 10% flat rate of profits.
While the first graduated income tax system from 8.33% to 10% was implemented in 1798 in Britain by William Pit (the Younger) in his budget to pay for weapons and equipment in preparation for the Napoleonic wars.
In the United States, the first income tax was imposed in July 1861 with a rate of 3% of all income over 600 dollars.
In our country, the Philippines, the first income tax law was created on March 31, 1913. Currently, our tax laws imposes a graduated tax rates from 5% to 32% for the Individual Tax Payers, while beginning 2009, a flat rate of 30% was implemented for the taxable income of non-sole proprietorship businesses (meaning, for partnerships and corporations).
With the arrival of income taxation laws, this became another major event in accounting history.
Income tax returns were treated as legal documents, being such, the lawyers initially thought of them as they are the ones who have the exclusive rights to prepare them.
However, Accountants disagreed to such view and argued that since the preparation of Income Tax Returns (ITRs) starts with accounting involvement and preparing the schedules and financial reports as basis of the contents of the ITRs are mostly accounting tasks, hence, it is more proper to classify the ITR preparation as an accounting work.
Because US law firms in the 1920s were slow to integrate income tax preparation into their skills and practices, Public Accountants saw that its a new profitable endeavor and leapt into doing tax works since they also have the expertise in readying the data for ITRs content.
By the time the lawyers contested the accountants for practicing law even without a license, the income tax preparation had been so absolutely identified with the accountants, and subsequently the lawyers lost their case.
Tax Accounting was born as a specialized field of accounting with this development where CPAs are infused with taxation works. In tax accounting, accountants offered services regarding tax computations, tax planning, tax advisory to legally minimize taxes of clients.
Observe too that there are several conflicts with accounting and taxation. Remedies are done thru preparation of financial reports for tax purposes aside from the preparation of basic financial statements and the reconciliation of the two.
While the first graduated income tax system from 8.33% to 10% was implemented in 1798 in Britain by William Pit (the Younger) in his budget to pay for weapons and equipment in preparation for the Napoleonic wars.
In the United States, the first income tax was imposed in July 1861 with a rate of 3% of all income over 600 dollars.
In our country, the Philippines, the first income tax law was created on March 31, 1913. Currently, our tax laws imposes a graduated tax rates from 5% to 32% for the Individual Tax Payers, while beginning 2009, a flat rate of 30% was implemented for the taxable income of non-sole proprietorship businesses (meaning, for partnerships and corporations).
With the arrival of income taxation laws, this became another major event in accounting history.
Income tax returns were treated as legal documents, being such, the lawyers initially thought of them as they are the ones who have the exclusive rights to prepare them.
However, Accountants disagreed to such view and argued that since the preparation of Income Tax Returns (ITRs) starts with accounting involvement and preparing the schedules and financial reports as basis of the contents of the ITRs are mostly accounting tasks, hence, it is more proper to classify the ITR preparation as an accounting work.
Because US law firms in the 1920s were slow to integrate income tax preparation into their skills and practices, Public Accountants saw that its a new profitable endeavor and leapt into doing tax works since they also have the expertise in readying the data for ITRs content.
By the time the lawyers contested the accountants for practicing law even without a license, the income tax preparation had been so absolutely identified with the accountants, and subsequently the lawyers lost their case.
Tax Accounting was born as a specialized field of accounting with this development where CPAs are infused with taxation works. In tax accounting, accountants offered services regarding tax computations, tax planning, tax advisory to legally minimize taxes of clients.
Observe too that there are several conflicts with accounting and taxation. Remedies are done thru preparation of financial reports for tax purposes aside from the preparation of basic financial statements and the reconciliation of the two.
Saturday, May 26, 2012
The industrial revolution and the share-issuing company
The industrial revolution (late 18th and early 19th century) was the eras when there are major changes happened in the economy which has a profound effect on socio-economic and cultural conditions in Britain and throughout the world especially in the areas of agriculture, manufacturing, and transportation.
Also, during this period was the introduction of improved conditions where powered all-metal machines and tools are used for mass production, the development of steam-powered ships, railways, and in the late of 19th century, the invention of the internal combustion engine and electrical power generation.
With these improvements, developments and enhancements in economy, consequently, practice of accounting was greatly affected.
New accounting practices were introduced during the period of industrial revolution, to wit:
Also, during this period was the introduction of improved conditions where powered all-metal machines and tools are used for mass production, the development of steam-powered ships, railways, and in the late of 19th century, the invention of the internal combustion engine and electrical power generation.
With these improvements, developments and enhancements in economy, consequently, practice of accounting was greatly affected.
New accounting practices were introduced during the period of industrial revolution, to wit:
- Depreciation, Allocation of Overhead, Inventory Accounting;
- Progression of accounting for business entities like sole proprietorship, partnership, share companies and stock exchange listed corporations;
- Intensified and improved business regulations on financial reporting and new tax accounting systems and procedures.
Sunday, May 20, 2012
The Florentine vs the Venetian approach to reporting
The Florentine Approach is the introduction of double-entry bookkeeping system.
It was in the 14th century when Amanito Manucci, a partner of merchant partnership, created a recording system where there's at least one account debited and one account credited and where the total of debits equals the total of credits. Notice that this system of recording is the system of double-entry bookkeeping. Thus, Manucci was tagged as the inventor of double-entry bookkeeping. It was said that Amanito Manucci called Giovanni Farolfe & Company in Florence, introduced the Florentine Approach.
The records kept by Mannuci for the firm are the oldest evidence that demonstrated or reflected the use of double-entry bookkeeping system.
It was in the 14th century when Amanito Manucci, a partner of merchant partnership, created a recording system where there's at least one account debited and one account credited and where the total of debits equals the total of credits. Notice that this system of recording is the system of double-entry bookkeeping. Thus, Manucci was tagged as the inventor of double-entry bookkeeping. It was said that Amanito Manucci called Giovanni Farolfe & Company in Florence, introduced the Florentine Approach.
The records kept by Mannuci for the firm are the oldest evidence that demonstrated or reflected the use of double-entry bookkeeping system.
In Venetian Approach of reporting, the merchants are described as they kept their records in bilateral form (alla veneziana), where the debits are recorded on the left side of the page across the credits. This method is further described as an evolved system, using several books which are carefully cross-indexed and coordinated so that the contents are viewed in a coherent whole. Observed that this approach is the so-called ledger postings in our time.
The Venetian Method was introduced in the books of the merchant Andrea Bargarigo (1418-1449).
Luca Pacioli (1445-1517), the father of modern accounting, published in 1494 the Venetian method in his book entitled Summa de Arithmetica. Pacioli explained the use of books (of accounts). It was described that the each transaction was first noted in the memorandum book then listed the transaction in debit and credit form in the journal, and finally posted the entries in the ledger.
The Venetian Method was introduced in the books of the merchant Andrea Bargarigo (1418-1449).
Luca Pacioli (1445-1517), the father of modern accounting, published in 1494 the Venetian method in his book entitled Summa de Arithmetica. Pacioli explained the use of books (of accounts). It was described that the each transaction was first noted in the memorandum book then listed the transaction in debit and credit form in the journal, and finally posted the entries in the ledger.
Friday, May 18, 2012
Early Civilizations
Early Civilizations
Accounting history began around 3000BC and it is evidenced by the record-keeping wealth thru "clay tablets" of Mesopotamia.
Even the Bible, demonstrate the practice of accounting, there are verses which mentions barter or business dealing system, when there are such events, there are exchanges of values. Those can not be paid right away are collected later that's why some Bible verses mentions "settling of accounts."
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