ACC2233 - Double Entry System

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Double Entry System Luca Pacioli (1445-1510) published a book in 1494 tittle ‘Summa Arithmetica, Geometrica, Proportioni et Proportionalita’ 

• He describe the practices of double entry system that is debit and credit which is being used by the Italians. 
• Pacioli indicate that ‘all entries must be double entries… if u make one creditor you must make someone debtor’ 
• He also indicate that the purpose of book – keeping is to give trader without delay information as to his assets and liabilities.
• Pacioli suggested that not only the name of the buyer and seller should be recorded but also the description of goods sold (weight, size, measurement, price and term of payment. 
• He also indicate the need having periodic recording and closing of books.

Development of Double Entry System 

• 16th century – specific journals for different type of transactions. 
• 16th to 17th centuries – practice of periodic financial statement and application of double entry system were expanded to other type of organizations. 
• 17th century – separate inventory account for different type of goods and the incorporation of East India Company where auditing, cost accounting and reliance on concepts of continuality, periodicity and accruals are needed.
• 18th century – methods of treating fixed assets evolved (assets are carried forward at original cost, assets account are closed at the balance sheet date and revaluation of fixed assets. 
• 19th century – depreciation of property, cost accounting and development of techniques of accounting for prepayments and accruals. 
• 19th – 20th centuries – development of funds statements 
• 20th century – complex issues such as EPF, accounting for business computations, inflations, long term leases and others.

Contributive Factors in the Evolution of Accounting 

• Evolution of accounting is related to the development of civilizations where the accounting practices developed to meet the needs of each civilization. 
• Professor Littleton’s ( 1900) identified seven pre-requisites to double entry book keeping which are classified into two categories, namely, material and language. 
• Materials – private property, commerce, capital and credit. 
• Private property relates to property and property rights. 
• Commerce – a significant volume of trade required systematic recording system. 
• Capital and credit are also essential in commercial activities and hence further enhanced the need for proper and systematic record keeping.

Taken from UiTM FAR350 slides..