Global Management Accounting: A Guide for Executives of International Corporations

By James A. Heely; Roy L. Nersesian | Go to book overview

CHAPTER 2
BACKGROUND TO ACCOUNTING

Accounting, as the word implies, is a reckoning of the financial results of an enterprise between those who control the employment of capital or assets and those who provide the capital or assets. Accounting responds to the needs of business and follows developments in commercial activity. The earliest records of business transactions, the essence of accounting, are over 5,500 years old. These are Egyptian and Sumarian records on agricultural production and tax collection. Other ancient records include both sides of a trade or barter and the amount of inventory in storehouses. The earliest extant records of depreciation, an expression of the idea of the wasting away of physical assets, go back to the days of the Greek and Roman record keepers. A wall, for example, would be depreciated over a period of eighty years, which one might construe as a measure of its useful life and the efficacy of ancient construction practices.

During the Middle Ages, commerce became more reliant on arithmetic and writing, and on money as a medium of exchange. The advancement of accounting practices was evidenced by the discovery of accounting records in Genoa dating back to 1340. These records were in terms of money, one of the first instances where unlike material items were described in terms of a like medium. In addition to expressing accounts in terms of the common monetary unit of the day, these records made the earliest known distinction between capital and income.

As the Renaissance dawned in Europe, there was a growing social acceptance of an individual accumulating private property and capital as something other than sinful. During this time, private property became sanctioned by society and protected by legal rights. There arose a practice of banking, where money was lent to those in commerce. The practice of lending money necessitated establishing some means of measuring performance--that is, the success or failure

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