conventions, constriants, development, double entry system of Accounting

1. Presentation
on
Accounting Theories
Presented By
Course Title : Advanced Accounting-1
Course Code: BAN-391
Name Registration No.
Md. Jayed Husain 2012731011
Md. Nurnobi Miah 2012731013
Shihab Ahmed Shah 2012731016
A. B. M. Atiqur Rahman 2012731023
Md. Shakhawath Hussain 2012731026
Faysal Ahmed 2012731031

2. Accounting
Accounting is the means by which we measure and describe economic activities. It is the entire process of identifying, recording,
and communicating economic events.
Concepts of Accounting
Business entity - The business and its owner(s) are two separate entities
Going concern concept - The entity will continue to operate for a long period in future
Money measurement concept - Recording transactions or events which can be measured and expressed in terms of money
Accounting period concept - The working life of an entity is split into convenient short periods
Cost concept - An asset is recorded in the books of accounts at historical cost
Dual-aspect concept - Every transaction should have a two- sided effect of same amount
Matching concept - Revenues and expenses are recorded in the same accounting period
Conventions of accounting
Materiality - Showing transactions, important facts and items which are useful and material for the business
Full disclosure - Financial Statements and their notes should present all information to the users
Conservatism - Anticipating no profits but Providing for all losses
Consistency - The accounting practices and methods should remain consistent from one accounting period to another
Language of business
Accounting is called the “language of business “ because it is so widely used to describe all types of business activities

3. Origin & development of double entry system
Eight hundred years ago the seed of modern bookkeeping was sown in Florence, Italy. Fragments dated 1211 of the account
book of a Florentine banker present the earliest known evidence of the double entry-system. From this time the art of
bookkeeping began to bud and continued to grow in the fertile soil of commercial practice in Italy.
About three hundred years later the double entry concept came to full fruition in Venice. In 1494 an Italian monk, Luca Paciolo,
published a book, Summa de arithmetica, geometria proportioni et proportionalita, on mathematics which included 36
chapters, among these 5 chapters explaining double entry bookkeeping.
Benedetto Cotrugli is believed to have written the first double entry bookkeeping book in 1458. It and other hand written
manuscripts seem to have circulated in the Italian city states during the 15th century. Cotrugli's book was not published until
1573 so Paciolo may claim the first published text.
Some of the factors that contributed to the creation & development of double entry bookkeeping included techniques in math,
the invention of coins and money as a medium of exchange, the introduction of paper, the development of a banking system,
and various economic conditions that required a system of proper recording.
Advantages of double entry system
• Complete record of every transaction classified as assets, liabilities, expenses, revenue, capital
• Helps to prepare financial statements easily as it is a scientific system of recording financial transactions
• Trial balance helps to maintain the accuracy of all books of accounts
• Financial position of a company can be ascertained at the end of each accounting period by balance sheet
• Matching principle helps to accurately assess the profit earned or loss suffered during a period by profit and loss account
• Prevents frauds and misappropriations

4. Importance of accounting to a businessman
Systematic: It records financial transactions in a systematic and chronological order with suitable narration
Complete: It records not only each and every financial transaction, but also each aspect of the transaction
Accuracy: For every debit amount there is a corresponding credit amount which ensures accuracy of the recordings
Profit or Loss: It helps to ascertain the true profit or loss of a business by preparing the profit and loss account for a given period
Control: It keeps a detailed record of financial transactions which provides necessary information for cost control
Decision Making: It communicates financial information that is necessary for taking decisions by a business. It also provides
necessary information to different users such as owners, managers and creditors for their decision making purposes.
Features evolve in the need of modern accounting
Automated, Flexible Financial Processes: A modern accounting system should have automated features that lets manage,
analyze, and present financial information without adding complexity.
Project Performance: It should provide deep insights into project costs, margins, and profitability, improving forecast accuracy.
Business Insight: An effective accounting system should provide in-depth, real-time insight into the business
Cloud Architecture: It should reduce IT costs, technology risks & improve productivity and provide flexibility to choose best-in-
class solutions that focus on ease of integration with other leading software solutions
The role of accounting in modern business
Management: Management accounting gives information about cost of sales, sales on credit, financial status & company
performance
Government: Provide information about revenues which helps to calculate various taxes accurately
Controls: Helps to execute different policies to control different aspects of a company
Investment: Cash flow statement & balance sheet enables outsiders to sum up a company’s finances which may help to increase
the amount of investment

5. Luca Pacioli’s contribution in double entry system
The contribution of Luca pacioli in accounting was honored by accountants around the world who gathered in San
Sepulcro an Italian village to pay their huge tribute to his book published on double-entry accounting. The first
accounting book which was published in 1494 was based on five sections in his mathematical book title in which he
showed ‘Everything about Arithmetic, Geometry and Proportions’. Until the 16th century, this book written on
accounting served as the only textbook on accounting around the world and due to this significant contribution,
Luca Pacioli, was no doubt the father of accounting. He did not invent the system but he described the method
which was used by merchants in Venice during the period of Italian Renaissance. The system he introduced in his
book of accounting was mostly the accounting cycle which is well-known in the modern world of accounting. Luca
Pacioli introduced the use of journals and ledgers in accounting systems and warned that the accountant must not
sleep until the debits are equaled to credits. The ledgers he introduced were based on assets receivables and
inventories, liabilities, capital, expenditure and income accounts. Friar Luca also demonstrated the entries which the
companies can use for their year end and he proposed the entry of trial balance for a balanced ledger. He also
introduced wide range of topics ranging from accounting ethics to cost accounting. His proposed accounting entries
and year end closing entries became so famous that they were widely used in industrial and financial organizations
in the modern world. Today, no organization can ignore his proposed journal and ledger accounting system and then
showing the balance of debits and credits to get the desired results for the organizations

6. Historical growth of bookkeeping and accountancy
Ancient accountants of Egypt, Mesopotamia, Greece and Rome: ancient Egyptian bookkeepers kept records of the inventory of
goods in royal storehouses
14th century double entry bookkeeping: the most important event in accounting history is double entry bookkeeping invented by
Luca Pacioli in 14th century. In his book he described the double entry system in detail which laid the base of modern accounting.
19th century- the beginning of modern accounting: in 1854 quien Victoria granted a royal charter to the institute of accountants,
creating the profession of chartered accountant (CA). The first national U.S. accounting society was setup in 1887. The American
Association of Public Accountants was the forerunner to the current American institute of Certified Accountants (AICPA)
20th century: the accounting profession in 20th century developed for financial statement audits and then federal requirements
created by securities act passed in 1993 & 1994
The recent changes in the principles and practices of accounting
• When there are two or more generally accepted accounting principles that apply to a particular situation, and a company shift
to the other principle; or
• When the accounting principle that former applied to the situation is no longer generally accepted; or
• A company changes the method of applying the principle.

7. Branches of accounting and their importance
Cost Accounting: In any manufacturing to keep the records of daily stocks in hand, their issues and receipts, payment of wages,
calculated regarding overhead charges, fixing the sale-price of the products, to prepare the budget and thereby to help in cost
control.
Management Accounting: Management is very much dependent on the Accountant in all the levels of managerial activities.
Various necessary information required daily by management, the Accountant very ably helps in their work. Cost Control, Quality
Control, Budgetary Control, Planning etc.
Decision Accounting: the part of the functions of the Accountant by which he prepares and presents necessary information to
the Management for making decisions.
Household Accounting: Governments in all the countries are collecting taxes from the self-employed and professional
personalities. These types of persons are now required to maintain their professional accounts Household Income and
Expenditure Accounts separately.
Government Accounting: Any Government has to collect taxes, compute National Income, fix the Gross National Product Target,
ascertain the Balance of Payments position etc., therefore have their own system of Accounting which is called Government
Accounting.
Auditing: Whether the Books of Accounting have been maintained correctly or not has to be proved.
For this purpose, the Accounts are to be checked by some qualified persons every year.
Relationship between accounting and economics: accounting and economics are concerned with the effective and efficient
utilization of resources, both are meant to maximize the wealth, accounting provides the information upon which the economics
models are prepared.
Relationship between accounting and management: Accounting professionals use the data for providing the required
accounting information to management for facilitating in decision making process.
Relationship between accounting and Law – Accounting is connected with law, as it operates within a legal environment and
thus all the transactions are governed on the basis of different acts.

8. Scope and field of accounting
Business: In the modern world, most of the people are engaged in business sector and all businessmen follow Generally
Accepted Accounting Principle (GAAP) to find out profit, loss and financial position of business firm.
Government organizations: Though, Government organizations do not follow Generally Accepted Accounting Principle (GAAP),
its keep systematic records of all transactions in order to find the position of public fund.
Non-Government organizations: Non-government and service organizations play a vital role in the development of nation also
use accounting. The accounting system used in these organizations are called fund accounting.
Individuals: Individuals also perform economic activities to earn their livelihood. They also perform some form of accounting
tools to draw financial information for making personal economic decision.
Theories of accounting
Usefulness: Theory of financial accounting and reporting is that financial accounting information should provide information that
is useful for making business and economic decisions
Qualitative Characteristics: Accounting information should be relevant, reliable, comparable and consistent
Assumptions: Accounting theories operate on four assumptions: the economic entity assumption, the going concern assumption,
the monetary unit assumption and the periodicity assumption.
Historical Cost and Matching Principles: assets should be held at the historical cost of purchase and revenues and expenses are
matched into the period in which they occur.
Practices of accounting
• Always using the same calculation to determine the amount of overtime paid to employees
• Always issuing billings to customers on the same day that goods are shipped to them
• Always paying supplier invoices on the day when they are due
• Always using the same depreciation method for the same class of fixed assets
The theory and practices of accounting are dynamic because it is changing in the context of modern world

9. Conceptual bases upon which accounting methods & procedures have been built

10. Position of accounting as a profession in the world & Bangladesh
Every organization want a well qualified accountant in their organization. In banking profession accountant are
highly recommended. It is impossible to run a business without an accountant. Accounting as a profession holding
the top position in the world. The status of accounting education is increasing in our country. there are many
institutes who offer professional accounting courses. Institutes like ICAB, ICMAB, BIBM and other institutes provide
professional accounting courses. There are also many CA firms that also creating many certified accountants around
the country. the public and private universities of Bangladesh also provide BBA and MBA courses which creates
many business graduate students.
Qualities of a good accountant
• An accountant should have the knowledge about the latest accounting rules and theories
• An accountant should be organized and structured in nature
• He should be accurate and detail oriented
• He should be accountable to his weaknesses
• He should be client centric
• Creativity makes an accountant more fluent
• He should be an trustworthy person
• An good accountant should have good communication skills
• An good accountant should be ethical in his decision making

11. GAAP: Generally Accepted Accounting Principles (GAAP) is framework of accounting standards, rules and procedures defined by
the professional accounting industry, which has been adopted by nearly all publicly traded companies.
There are 41 accounting standards published so far. They are IAS 1-IAS 41
Publishing authorities of accounting standards
• International Accounting Standards are issued by the International Accounting Standard Council (IASC), endorsed and
amended by the International Accounting Standards Board (IASB)
• Securities & Exchange Commission (SEC)
• American Institute of Certified Public Accountants (AICPA)
• Financial Accounting Standards Board (FASB)
• Government Accounting Standards Board (GASB)
Defects of existing accounting practices in Bangladesh
Integration problem: In Bangladesh SEC dictates that public companies follow GAAP. Under several tax codes companies are
required to use modified accelerated cost recovery system for depreciation of assets.
Negative effects on small business: Integration of accounting standards will result in higher costs for small business due to
additional compliance mandates.
Advices for improvement
• Following only one rule in determination of taxes and depreciation
• Complying with international authorities
• Creating skilled accountants through professional accounting institutes