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."

History of Accounting

Early Civilizations

Accounting history began around 3000BC and it is evidenced by the record-keeping wealth thru "clay tablets" of Mesopotamia...read more 

In the CMO3 S2007, History of Accounting has the following outline for discussion:

1.6.1  Florentine Approach vs 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...read more

1.6.2  Savary and the Napoleonic Commercial Code

Savary Commercial Code

Jacques Savary (1622 - 1690)

Savary belongs to a French family dedicated to trade and publication of works related to commercial matters.

He has broad involvement and experience in and out of royal service...read more

1.6.3  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...read more

1.6.4  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...read more

1.6.5  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...read more

1.6.6  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...read more

1.6.7  Internalization of markets and reporting

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...read more


Note, click each topic to read its full discussion.

Scope of Accounting

Looking at a dictionary, scope means the space to function or operate in; the range of a subject or activity.

Applying to accounting, scope of accounting covers and touches a lot of subjects.

Accounting affects economy.  Accounting touches not just the economic activities of businesses but also those of government and personal finances.

Forms of business organizations such as sole proprietorship, partnership and corporation, keep financial records to obtain financial information about its business operations and in order to make economic decisions.

So do the government, for them to allocate funds to its instrumentalities, it needs accounting and financial records to gauge how they perform and operate.

Individuals alike need to do financial record keeping and budgeting of their personal finances so they can know if they are economically surviving and striving.  In fact, learning and acquiring the knowledge of accounting fundamentals, and the skill of bookkeeping are the gateway to financial freedom.

Thus, knowledge of accounting is essential to all whether in private businesses, in government, and individuals.

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Introduction to Record-Keeping or Bookkeeping

Regardless of forms of business entity an organization belongs, the entity must write financial entries and keep financial records on its own. One of the main reason is that in the Philippine settings businesses are required to file tax returns and  pay taxes dues aside from other government compliance requirements such as local taxes and municipality permits, sss premium contributions, phil-health premium contributions, pag-ibig or hdmf contributions, etc.  What the entity files or pays to the government agencies and bureaus are based on the financial records it writes and keeps.

Record keeping : Bookkeeping  

In businesses, financial transactions are recorded. The tool where the financial records of the business are written and kept are called Books Of Accounts.  The manner the entity records its financial transactions is called record keeping or bookkeeping.

Bookkeeping has two kinds, the Single-Entry Bookkeeping and Double-Entry Bookkeeping

Single-Entry System

Single-Entry refers to the incomplete recording of transactions. In its simplest form, only one record maybe kept where all the transactions are narratively entered or posted. Thus, it does not provide properly analyzed transactions and can not recognized the effects of transactions all the time. As a consequence, preparers of financial statements are faced with some problems reconstructing the accounts to properly prepare financial statements and determine the income or loss. 

Double-Entry System

Double-Entry refers to the dual-effect that each transaction has on the accounting equation.  Under this system, all the transactions are assumed to have a dual-effect or two-fold effect on the accounting values and at least affects two accounts.    

Accounting values: Value Received and Value Parted With  

Meaning, in the Double-Entry System, it's like a relationship, there's a give and take.  We give the value parted with, and we take the value received. 

What we must know in record-keeping or bookkeeping?
Click each topic to read the explanation/discussion

• Economic Events

• Business Transactions

• Source Documents

• Value Received and Value Parted With

• Monetary Equivalent of the value received and the value parted with

• Accounting Elements

• Accounts

• Accounting Equation

• Debit and Credit

• Normal Balances of Accounting Elements / Accounts

• Transaction Analysis

• Journal Entries and Journalizing 

• Books of Original Entry : General Journal and Special Journals

• Posting

• Books of Final Entry :  Ledgers

• Trial Balance

• Financial Statements

Researched by:

Expenses Elements

Expenses are the costs incurred or consumed in the process of producing revenues.

Examples of Expenses Elements

Direct Cost to produce revenue

• Cost of Sales – cost of Merchandising inventory sold. 
• Cost of Service - direct cost of service rendered
• Cost of Goods Manufactured and Sold – cost of sold manufactured goods.

Operating Expenses

1. Marketing and Selling Expenses - pertains to costs in doing marketing and selling activities of the entities

• Commissions 
• Advertising and Promotions 

2. General and Administrative Expenses - pertains to costs in operating and administering activities of the organization. 

• Salaries and Wages
• Travel, Transportation, Gas and Oil
• Taxes and Licenses
• Rent
• Insurance
• Supplies
• Utilities: Communications, Electricity and Water 
• Utility Services: Janitorial, Security Guards
• Depreciation

Other Expenses and Losses 

• Interest Expense
• Loss on disposal of equipment 
• Income tax expense

Researched by:

Revenue Elements

Revenues are the gross earnings of the business as a result of selling goods and rendering services.

Examples of Revenue Elements

• Sales - refers to the revenue from sale of goods of a trade or merchandising business whether cash sales or sales on account.

• Service Income - refers to the earnings from rendering services by a servicing company whether cash and on account services.

• Professional Fees - refers to the earnings in rendering of services of professionals or professional servicing firms to their clients which could in cash or collectibles.

• Interest Income - refers to the earnings from the interest which derived from the promissory notes received by the organization whether in cash or collectible in the future.

• Rent Income - refers to the earnings from letting others use the properties or facilities of the entity.

• Gain on sale of other assets - refers to the earnings derived from selling the assets of the organization.  Gain on sale is when the proceeds of sale exceeds the book value of the asset being sold.  

Normal Balance : Credit

Revenue accounts have a normal credit balances. 

Researched by:

Owner's Equity Elements

Equity is the residual claim against the assets of the business after the total liabilities are deducted.

Alternative terms of Equity:

• Owner's Capital - for sole proprietorship
• Partner's Capital - for partnership
• Owner's Equity or Shareholder's Equity - for corporation

The components of Equity are as follows:

• Capital contribution of owners (initial and additional)
• Withdrawal by owners
• Net Income or Loss
• Prior Period Adjustments

Normal Balance : Credit

Equity accounts have a normal credit balances.

Researched by :

Liabilities Elements

Classification of Liabilities

Generally, liabilities are classified as follows:

• Current
• Non-Current 

Liabilities are classified as Current Liabilities when any of the following criteria are met:

1. It is expected to be settled in the normal course of the organization's operating cycle.
2. It is due to be settled within the twelve months of the Statement of Financial Position date.

Operating cycle means the time between the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible into cash.

Non-Current Liabilities are those liabilities which does not meet the criteria of current liabilities.

Generally, they comprise the portion payable beyond one-year of a long-term nature (usually, more than 12 months from SFP date).

Examples of Liabilities Elements

Current Liabilities Elements

• Accounts Payable
• Notes Payable
• Accrued Interest Payable
• SSS Premium Payable
• Withholding Tax Payable

Non-Current  Liabilities Elements

• Long Term Payable

Normal Balance : Credit

Liability accounts has normal credit balances.

Researched by:

Assets Elements

Classification of Asset

Generally, assets are classified as follows:

• Current
• Non-Current 

Assets are classified as Current Assets when any of the following criteria are met:

1. It is cash or cash equivalent which is not restricted for current use.
2. It is expected to be realized, or is held for sale or consumption in the normal course of the business' operating cycle.
3. It is held for trading purposes or for the short-term and expected to be realized within twelve months of the SFP date.

Operating cycle means the time between the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible into cash.

Non-Current Assets are those assets which do not meet the criteria of current assets.

Generally, they include those tangible and intangible assets of a long-term nature (usually, more than 12 months from SFP date).

Examples of Assets Elements

Current Assets Elements

• Cash - 
• Accounts Receivable
• Notes Receivable
• Accrued Interest Receivable
• Inventories
• Prepaid Expenses

Non-Current Assets Elements

• Land
• Building
• Furniture and Fixture
• Equipment

Contra-Valuation Accounts

• Allowance for Doubtful Accounts
• Accumulated Depreciation

Normal Balance : Debit

Asset accounts has normal debit balances.

Researched by: