International Accounting

Mieczysław Dobija (accountd@ae.krakow.pl)

Ireneusz Górowski (gorowski@ae.krakow.pl)

Marcin Jędrzejczyk (jedrzejm@ae.krakow.pl)

All information available: http://swed.ae.krakow.pl

http://gat.ae.krakow.pl/

International Accounting• Great History• Great Thinkers• Numbers, Fibonaci• Capital, Value,

Interest • Labour, unit of labour• Account unit • Capital and Income

To identify the key trends in the development of accounting through the

history• Accounting as a pillar of civilisation

• Accounting in prehistory

• Accounting since III rd millennia B.C.

• Accounting in Myccenian times

• Accounting in ancient Greece and Rome

• Fibbonaci and Pacioli

• An impact of the Industrial Revolution

• Formulating of Financial Accounting Principles

Key concepts of accounting

• Unit of account

• Concept of value

• Concept of interest

• Concept of capital

• Numbers

• Writings

• Ownership

• Laws and accounting Scribe - Sakkara about 2500 BC (Louvre)

Accounting HistoryThe history of accounting is as old as civilisation, key to

important phases of history, among the most important

professions in economics and business, and fascinating.

Accountants participated in the development of cities, trade,

and the concepts of wealth and numbers. Accountants

invented writing, participated in the development of money

and banking, invented double entry bookkeeping that

fuelled the Italian Renaissance, saved many Industrial

Revolution inventors and entrepreneurs from bankruptcy,

helped develop the confidence in capital markets necessary

for western capitalism, and are central to the information

revolution that is transforming the global economy.

Toykens. Small clay tokens of multiple shapes found in Near Eastern sites of 8000-3000 B.C. constitute the earliest

evidence for accounting

Ancient bookkeepers used small clay balls called tokens to count and keep track of existing wealth. Different shapes represented diffeent items: circles and spheres could represent sheep and grain.

ACCOUNTING WITH TOKENS IN THE ANCIENT NEAR EASTby Denise Schmandt-Besserat

Complex tokens representing (from right to left above:) 1 sheep, 1 unit of a particular oil (?), 1 unit of metal, 1 type of garment, (from right to left below), 1 type of garment, (?) and one measure of honey. from Susa, Iran, ca. 3300 B.C.

From the simple tokens, complex tokens evolved in Sumeria about 3700 BC. Comples tokens were covered with lines, notches, and other markings and represented a more sophisticated accounting system. These markings can be explained as abstract representations of both objects of wealth (possibly finished goods such as processed foods, textiles, or luxury goods such as perfume) and the development of numbers.

Account tablet with pre-cuneiform script

Tablets could represent summary document of inventories or transactions and contain additional explanatory markings. With stylized signs all information could be recorded directly on the tablets, eliminating the need for tokens. From this beginning writing developed--invented by scribes serving as accountants. The earliest texts were pictographs on tablets written with a stylus. The standardized script was called Cuneiform (Lation for wedge) because of its shape, invented between 3500-3100 BC, perhaps at Uruk. Soon, historical events were recorded and a written literature born.

Sumerians created cuneiform script over 5000 years ago. It was the world's first written language. The last known cuneiform inscription

was written in 75 AD.

The Philadelphia Tabletfound near Baghdad, Iraq3100-2900 BC

Uruk and Ur

• Oppenheim states, "In Uruk, in southern Mesopotamia, Sumerian civilization seems to have reached its creative peak. This is pointed out repeatedly in the references to this city in religious and, especially, in literary texts, including those of mythological content. From Uruk the center of political gravity seems to have moved to Ur."

• According to the Sumerian king list, Uruk was founded by Enmerkar, who brought the official kingship with him from the city of Eanna. Other historical kings of Uruk include Lugalzagesi of Umma (now Djokha) (who conquered Uruk), and Utuhegal.

• Uruk was first excavated by a German team led by Julius Jordan before World War I.

Significance of accounting Why are pictographs and the economy of ancient Sumeria worth mentioning? The answer is that the pictographic tablets did not only carry information. It is essential that the information they carried concerned the amount receivable for work of an individual. Money in the form of coins or banknotes was not needed. According to Polanyi (1957, p. 21), the state authorities kept accounts of equities and liabilities of each individual. The work of every citizen was precisely recorded and one was entitled to take as many goods from the temple’s storage as his or her amount recorded on an account allowed for. In this way, public authorities could guarantee that everyone in the state would spend no more than what he or she has earned. Tangible money represented by coins was not necessary thanks to the existing system of overwhelming accounting. Value of goods was based on the value of work needed to produce them. Metals, like gold or silver, served merely to facilitate calculations and exchanges.

Capital and Interest

Another kind of loan known in ancient Babylonia was called chubutattu. Let us quote an example of a ‘chubutattu contract’: “The governor Shamashnasir received from Ilushunasir and Nannaibni 133 gur, 1 pi, 4 sutu of seeds as a chubutattu loan. No percentage rate will occur within the first two years. If he does not give the seeds back in two years, a percentage will be added’ (Saggs, p.260).What has to be understood about the above contract, is that it actually referred to the loan of 100 gur, with a rate of 33,3 % after two years. Having translated this into an equation

100 gur (1 + r)2 = 133 1/3 gur

one can find that the yearly interest rate r was 15% in this case. This means that ancient people clearly understood both the concept of capital and the capitalisation process.

Accountants

The category of accountant called dub-sar, which meant ‘a man with a measuring table’ appeared in Mesopotamia about 2800 BC. In 25th century BC the organisation structure of a temple included numerous posts of accountants divided into sections led by managers called ugulas, who were in turn managed by a leader called dub-sar-mah. Tyumenew (1969) mentions a person called Igimu, who as a writer received a field to maintain, with an area of about 6 ha (1 bur), which confirmed his high position within the temple administration.

Accounting systems

Even though the system of economic administration is not fully understood, its one feature is with no doubt prevalent. The accounting registration concerns mainly the labour, that is, the work carried out according to a plan and norms of activities. A good example of the accountancy conducted by the ancient administrators comes form the city of Ur, from a loom workshop located there (Die Wirtschaftspruefung, no. 14/1993).

The contract is a document of a sales transaction that took place in New State (between 16th and 11th century BC.) The contract states as follows:

“Hay gives to brigadier Nebsmen:1 ox which is equivalent to 120 debens of copperIn return he receives:2 pots of lard which is 60 //5 skirts of fine cotton which is 25 //1 suit of Southern linen which is 20 //1 hide which is 15 //

The above contract confirms that the ox was bought for 120 debens of copper but the sum was paid in goods of equivalent value. However, as Ifrah points out, it is not merely an evidence of the existence of barter but of a real monetary system.

1955 B.C.: End of the Great Civilization

White Temple and Ziggurat, Uruk (Warka), 3600 -3200 B.C.

Wage payables Wage receivables

Products

Labour costsl.u.=wp*h

Wage payable6/8 * 10h = 7.5 l.u.

Wage receivable6/8 * 10h = 7.5 l. u.

6/8 * 10h = 7.5 l.u.

6/8 * 10h = 7.5 l.u.

Wage payoff

3.5 l.u.

3.5 l.u.

Three Account Model of Monetary Economy

Accounting in Myccenian Times“Figuring out the tablets from the Mykenian archives gave us a new view of that epoch. Of course, even prior to that it had been assumed that the poetic imagination had given a lot of blaster to its everyday prose. However, when the writing started to talk, it became obvious that the very epoch which was a background of almost all Hellenic myths, was primarily an epoch of extremely precise office activity; the highly centralised economy was controlled by armies of administrators, who were producing tons of accounting documentation. It does not matter whether it is paper or clay that one writes upon. The method of recording does not matter either. Just the opposite, considering the primitivism of the materials it has to be said that with their care to include the whole economic life in their evidence system, the Mykenians could compete with every system of controlled economy”.

Troya. Dark Ages

Alexander the Great

Alexander the Great (356-323 B.C.) traveled through many countries, had opportunities to see many strange and incredible things, and he was a very inquisitive man. It was not for nothing that he had been a pupil of the greatest scientist of the time, Aristotle!

Empire needs coined money; not accounting!

Origins of Double Entry Accounting are Unknown1300s A.D. crusades opened the Middle East and Mediterranean

trade routes Venice and Genoa became venture trading centers

for commerce.

1296 A.D. Fini Ledgers in Florence

1340 City of Massri Treasurers Accounts are in double entry form.

1494 Luca Pacioli's Summa de Arithmetica Geometria

Proportionalita (A Review of Arithmetic, Geometry and

Proportions). This is noted as the first book on algebra.

Although it is the first documented source of double entry

bookkeeping, double entry accounting is used primarily

as an illustration of algebraic equations.

Leonardo Pisano FibonacciBorn: 1170 in (probably) Pisa (now in Italy)Died: 1250 in (possibly) Pisa (now in Italy)

Contemporary Accounting Begins

Evidence suggests that double entry bookkeeping developed in the Genoa-Venice-Florence area in the 1200-1350 period, part of a vast commercial revolution. Accounting records of Rinierie Fini and Brothers (from 1296-1305) and Farolfi and Company (1299-1300) indicate complete double entry accounting. Each accounting entry had a separate debit and credit, with the equivalent of journals and ledgers.

Luca Pacioli (1447-1517), Franciscan monk and mathematician, published Summa de Arithmetica, Geometrica, Proportioni et Proportionalite in 1494. It was a summary of existing mathematical knowledge of the time and contained a section on "Details of Accounting and Recording" that described bookkeeping as used in Venice.

Luca PacioliBorn: 1445 in Sansepolcro, ItalyDied: 1517 in Sansepolcro, Italy

Limited liability Corporations (divorced

professional management from ownership shares)

1555 A.D. Russia Company

1600 A.D. East India Company

1670 A.D. Hudson's Bay Company

England's Joint Stock Companies Act of 1844

required depreciation accounting for railroads,

mining, and manufacturing (although the concept of

depreciation dates back to Roman times).

Going Concern and Accrual Accounting

Evolved in the 1500s

Venture accounting over the life of a

venture with interim statements evolved in

The Netherlands

1673 Code of Commerce in France

requires biannual balance sheet reporting

Stewardship Accounting in English trust

accounting.

The Industrial Revolution

The Industrial Revolution may be defined as the application of power-driven machinery to manufacturing. It had its beginning in remote times, and is still continuing in some places. In the eighteenth century all of western Europe began to industrialize rapidly, but in England the process was most highly accelerated. England's head start may be attributed to the emergence of a number of simultaneous factors.

A two consequences:

•Development of cost accounting.

•Development of thermodynamics. Entropy.

Latter consequences:

•Realization principle and matching principle.

•Capital as economic energy. Risk. Profit. Percent.