This document discusses the history and development of accounting knowledge over the past 200 years. It begins by describing early accounting practices in ancient civilizations. It then outlines key developments in different time periods, including the establishment of double-entry bookkeeping in Europe in the 15th century, stagnation from 1494-1775, an emphasis on the balance sheet from 1775-1850, and the development of accounting principles and assumptions from 1850-1900. The document also discusses the leadership of the United States and European countries in advancing accounting theory in the 20th century.

1. Afterstudyingthis chapter, youwill beableto:
2.Dicscuss the major contribution to accounting
knowledge by Islamic nation.
1.Describe the major contribution to accounting
knowledge by the European countries.
2.Dicscuss the development of accounting theory and
practices in the USA.
3.Relate developments in accounting to developments
in society.
4.Desecribe the growth of accounting knowledge
during the past 200 years.
History of Accounting Thought

2. • Accounting appears to have been practiced
since the beginning of recorded history .
Business transaction and land sales were
recorded by about 3000 B.C.
 There is evidence in many early civilisations:
− Babylonian
− Assyrian
− Sumerian
− Egyptian
− Chinese
− Greek
− Roman

3. • Lo ca Pacio lio is consider the father of modern accounting
.
• The double entry system laid down by Lo ca Pacio lio was
applied earlier in Europe.(15th century)

4.  Discuss the major contribution to accounting knowledge
by Islamic nation.

5. • The period between (1494 and 1775) is regarded
as the age of stagnation of accounting. The
world changed very littlie during this period of
about 300 years.
• We know that accounting is a function of
economic (and social) development .
• There was practically no economic
development . Naturally , there was no progress
in accounting practices and ideas.

6. • The owner of business was expected to keep
accounts for his own use.
• Therefore, no preparation of financial
statements and auditing .
• in this stage , the concepts of capital as the
difference between assets the liabilities , net
profit as the change in capital between two
dates (after adjusting for capital contribution
and withdrawals) was well established during
the age of stagnation.

7. • Accounting knowledge ( principles ,
practices , systems) has grown much over
the period of about 200 years from (1775-
2000).
(1775-1850):
1- Business firms , proprietary owners, were
more interested in knowing their capital
(Assets – Liabilities),emphasis on balance
sheet during this period.
2- Assets were valued at current value.

8. (1850-1900):
The basic accounting principles and assumptions
(operating guidelines) developed during this
periods.
1- Growth of corporations between this period led
the development of separate entity assumption .
There was greater emphasis on income rather
than on balance sheet .
2- This resulted in development of accounting
concepts of income and the periodicity
assumption.
3- A company was regarded as going concern; and
fixed assets were valued at original cost less
depreciation.

9. 4- separate entity led to emphasis on auditing
Financial statement by Charted accountants.
5- The revenue principles , the cost principles
and the matching principles began to be
applied in the construction of income
statement.
6- Inventory and fixed assets began to be
valued at historical cost due to stewardship
reporting.

10. (1900-1950):
1-As for development of this period , stewardship
reporting did not remain all that significant around
1950 . Cost accounting and management
accounting development during this period .
2- Grater emphasis on financial statement for
decision-making
3- Tax accounting , advising and planning were
developed.
4- Auditing techniques , standers and guidelines were
issued by the professional bodies.
5- Governmental accounting was improved upon to
make it more useful in planning, budgeting and
controlling.

11. (1950-present)
1- Later half of the current century , saw
accounting as a Full-fledged information
system. its not regarded as art ,but a science
like other social sciences.
2- Many new theoretical concepts were tested
and put to practice . A long descriptive
approach ,the normative approach to
development of an accounting theory was
also regarded as useful .
3- Various accounting standards boards and
committees were set up to issue statements
of concepts and standards in many countries.

12. 4- International accounting was developed to
harmonize accounting techniques and practices in
member-countries.
5- Accountability accounting and human resource
accounting are arise .
6- Non-monitory information also began to be
reported in annual statement.

13. 6- Now greater attention was laid to systems planning
and inter-disciplinary applications. The application
of computers has revolutionized accounting system
and techniques .information system, information
technology (IT), E-commerce, management
sciences.
- Accounting is now becoming a multiple model
(pattern) science.

14. • European countries took the lead in developing
accounting principles , practices during the past 2
centaury.
• Various cost accounting , management
accounting , financial accounting associations
and institute came up in :
1- United Kingdom (UK).
2- Germany.
3- France.
4- Switzerland.
These Countries also contributed to the
development of accounting principles.

15. • All transaction of a business can be referred to this
basic equation :
Assets = Liabilities + Owners’ Equity
• To further explain the transaction of revenues,
expenses, losses , and gains, the equation can be
expanded thus :
Or Assets + Expenses = Liabilities + Revenue + Owners’ Equity
Or Assets = Liabilities + (Revenue- Expenses) + Owners’ Equity
• The equation must be in balance after every
transaction. For every Debit there must be a
Credit.

16. • Thus , there are five categories of accounts :
1- asset account.
2- liability account.
3- revenue account.
4- expense account.
5- capital or owners’ equity account.

17. Chapter
3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter
3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter
3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
EquityEquity
Chapter
3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal
Balance
Credit
Normal
Balance
Credit
Normal
Balance
Debit
Normal
Balance
Debit

18. • The USA can be called the leading country in
developing accounting theory during the past one
century.
• After world war I there was rapid growth ownership of
corporation.a major shift in basic accounting thought
was the change in the objective of accounting from
that of presenting information to management and
creditors to that of providing financial information for
investor and stockholders.

19. • The change in the objective of financial statement
led to the following changes in accounting
thought:
1- a deemphasize of balance sheet as a statement
of values, by adhering more closely to the going
concern concept.
2- increased emphasis on income statement and
uniform concept of income.
3- The need for full disclosure of relevant financial
information , by presenting more complete
financial statement and increasing the use of
footnote .
4- an emphasis on consistency in reporting ,

20. • The special factors have caused the US to act
the as leaderin the development of accounting
theory. The characteristics of American school
are:
1- the involvement of a relatively large number of
academics and practitioner in defining
,researching , and focus attention on the views
of accounting issues.
2- the existence of institutions which published
and focus attention on the views of accounting
theorists e.g. AICPA and AAA.

21. • The special factors have caused the US to act
the as leaderin the development of accounting
theory. The characteristics of American school
are:
3- the general acceptance of the neoclassical
economic theory of investments as adapted by
scholars in incorporation finance.
4- an experimental approach to accounting aimed
at producing framework which will justify and
explain a more significant social role for the
accountant than he has appeared to play in the
past.

22. • The AICPA ( through CAP ,APB and FASB) has been
harbinger of developing principles and techniques.
• Different committees , associations , boards, and institutes
have, based on the researches conducted , made
pronouncements from time to time to develop and improve
the principles of accounting. These pronouncements have
considerably influenced the principles , which are
commonly known as “ Generally Accepted Accounting
Principles “ (GAAP)
• Accounting guidelines are being issued in the form of
accounting standers.

23. • Accounting principles board (APB) was set
up accounting principles.
• Every business enterprise prepares its
financial statement in accordance with the
GAAP .
• The GAAP are guidelines for specific
accounting issues , which are to be
followed by the prepares of financial
statement , and are further subject to audit
by the auditors , who attest that the
financial statements have been prepared in
accordance with the GAAP.

24. • Since the GAAP are generally
acceptable to the preparers , auditors
and other categories of users , the
annual accounts have to be prepared
according to the “principles” laid
down.

25. • The FASB issued 137 standards based upon
the conceptual framework . The standards
helped in developing solutions to the specific
accounting issues.
• They became part of the generally acceptable
accounting principles (GAAP). In fact, they
should have been called generally acceptable
accounting standards (GAAS).

26. • A glance through the standard statements of different
countries will reveal that there are many alternative
treatments (all acceptable as GAAP)
• Annual financial statements have been prepared by a
company adopting any one of the acceptable
alternative, the auditor will have to certify that the
statements have been prepared in accordance with
GAAP.

27. • For example:
1-(Inventory Valuation): company A adopts FIFO
method , company B LiFO adopts method.
2- (depreciation Methods): company A adopts SLM
method , company B adopts DM method.

28. • The income statement prepared by these
companies, having been prepared on different
bases (all accepted as GAAP), will have to be
attested by certified auditor as having been
prepared in accordance with GAAP.
• However the income statements prepared by
these companies are not comparable. The
(EPS) will meaningless and will not provide a
true interpretation.

29. • IASB issued statement which reduce the
alternatives.