BUSINESS ACCOUNTING

ASSIGNMENT:

1. The History of Accounting

The history of accounting dates back to the earliest days of human agriculture
and civilization when the need to maintain accurate records of the quantities and
relative values of agricultural products first arose.
 Simple Accounting is mentioned in the Christian Bible in the book of Mathew
in the parable of the Talents.
 The Quran also mentions simple accounting for trade and credit
arrangements.
 Kautilya’s famous Arthashastra not only relates to Economics and Politics,
but also explains the art of account keeping.

Luca Pacioli also known as Friar Luca dal Borgo wrote a book, primarily on
mathematics, “Summa de Arithmetica, geormetrica, Proportioni et Proportionalita”
(Review of Arithmetics, Geometry and Proportions) in 1494. This book contains a brief
section under the chapter heading “Particularis de computis et scripturis” (Particulars of
Reckoning and their recording) on double entry system of Book-Keeping. Although
Pacioli codified rather than invented this system, he widely regarded as Father of
Modern Accounting.

Pacioli was a great philosopher of Italy. His book is the first printed book on Double
entry system. The review of literature suggests that Benedetto Cortugli completed a
book on double entry system in 1458 but it was not published till 1573. Pacioli used the
term ‘Debito’ (owed to) and ‘Credito’ (owed by); these came from the Latin words
‘debitur’ and ‘creder’. The t+erms used today have their origin from debitur and creder.

2. The evolution/history of money

 International:
In the Beginning: Barter

Barter is the exchange of resources or services for mutual advantage, and the
practice likely dates back tens of thousands of years, perhaps even to the dawn of
modern humans. Some would even argue that it's not purely a human activity; plants
and animals have been bartering—in symbiotic relationships—for millions of years. In
any case, barter among humans certainly pre-dates the use of money. Today
individuals, organizations, and governments still use, and often prefer, barter as a form
of exchange of goods and services.
 The barter system, however, has several limitations:

 No common measure of value

 The need for double coincidence of wants
 Indivisibility of certain goods
 Lack of standards for deferred payments
 Problems of storage

9000 - 6000 B.C.: Cattle

Cattle, which throughout history and across the globe have included not only
cows but also sheep, camels, and other livestock, are the first and oldest form of
money. With the advent of agriculture also came the use of grain and other vegetable or
plant products as a standard form of barter in many cultures.

1200 B.C.: Cowrie Shells

The first use of cowries, the shells of a mollusk that was widely available in the
shallow waters of the Pacific and Indian Oceans, was in China. Historically, many
societies have used cowries as money, and even as recently as the middle of this
century, cowries have been used in some parts of Africa. The cowrie is the most widely
and longest used currency in history.

1000 B.C.: First Metal Money and Coins

Bronze and Copper cowrie imitations were manufactured by China at the end of
the Stone Age and could be considered some of the earliest forms of metal coins. Metal
tool money, such as knife and spade monies, was also first used in China. These early
metal monies developed into primitive versions of round coins. Chinese coins were
made out of base metals, often containing holes so they could be put together like a
chain.

500 B.C.: Modern Coinage

Outside of China, the first coins developed out of lumps of silver. They soon took
the familiar round form of today, and were stamped with various gods and emperors to
mark their authenticity. These early coins first appeared in Lydia, which is part of
present-day Turkey, but the techniques were quickly copied and further refined by the
Greek, Persian, Macedonian, and later the Roman empires. Unlike Chinese coins which
depended on base metals, these new coins were made from precious metals such as
silver, bronze, and gold, which had more inherent value.
118 B.C.: Leather Money

Leather money was used in China in the form of one-foot-square pieces of white
deerskin with colorful borders. This could be considered the first documented type of
banknote.

A.D. 800 - 900: The Nose

The phrase "To pay through the nose" comes from Danes in Ireland, who slit the
noses of those who were remiss in paying the Danish poll tax.

806: Paper Currency

The first known paper banknotes appeared in China. In all, China experienced
over 500 years of early paper money, spanning from the ninth through the fifteenth
century. Over this period, paper notes grew in production to the point that their value
rapidly depreciated and inflation soared. Then beginning in 1455, the use of paper
money in China disappeared for several hundred years. This was still many years before
paper currency would reappear in Europe, and three centuries before it was considered
common.

1500: Potlach

"Potlach" comes from a Chinook Indian custom that existed in many North
American Indian cultures. It is a ceremony where not only were gifts exchanged, but
dances, feasts, and other public rituals were performed. In some instances, potlach was
a form of initiation into secret tribal societies. Because the exchange of gifts was so
important in establishing a leader's social rank, potlach often spiraled out of control as
the gifts became progressively more lavish and tribes put on larger and grander feasts
and celebrations in an attempt to out-do each other.

1535: Wampum

The earliest known use of wampum, which are strings of beads made from clam
shells, was by North American Indians in 1535. Most likely, this monetary medium
existed well before this date. The Indian word "wampum" means white, which was the
color of the beads.

1816: The Gold Standard

 Gold was officially made the standard of value in England in 1816. At this time,
guidelines were made to allow for a non-inflationary production of standard banknotes
which represented a certain amount of gold. Banknotes had been used in England and
Europe for several hundred years before this time, but their worth had never been tied
directly to gold. In the United States, the Gold Standard Act was officialy enacted in
1900, which helped lead to the establishment of a central bank.

1930: End of the Gold Standard

The massive Depression of the 1930s, felt worldwide, marked the beginning of
the end of the gold standard. In the United States, the gold standard was revised and
the price of gold was devalued. This was the first step in ending the relationship
altogether. The British and international gold standards soon ended as well, and the
complexities of international monetary regulation began.

The Present:

Today, currency continues to change and develop, as evidenced by the new

$100 U.S. Ben Franklin bill.

The Future: Electronic Money

In our digital age, economic transactions regularly take place electronically,

without the exchange of any physical currency. Digital cash in the form of bits and bytes
will most likely continue to be the currency of the future.

 Local

Pre-Hispanic Era

Long before the Spaniards came to the Philippines, trade among the early
Filipinos and with traders from the neighboring lands like China, Java, Borneo, and
Thailand was conducted through barter. The inconvenience of the barter system led to
the adoption of a specific medium of exchange – the cowry shells. Cowries produced in
gold, jade, quartz and wood became the most common and acceptable form of money
through many centuries. Since the Philippines is naturally rich in gold, it was used in
ancient times for barter rings, personal adornment, jewelry, and the first local form of
coinage called Piloncitos. These had a flat base that bore an embossed inscription of
the letters “MA” or “M” similar to the Javanese script of the 11th century. It is believed
that this inscription was the name by which the Philippines was known to Chinese
traders during the pre-Spanish time.
Spanish Era 1521-1897

The Spanish dos mundos were circulated extensively not only in the Philippines
but the world over from 1732-1772. Treasured for its beauty of design, the coin features
twin crowned globes representing Spanish rule over the Old and the New World, hence
the name “two worlds.” It is also known as the Mexican Pillar Dollar or the Columnarias
due to the two columns flanking the globes.
Revolutionary Period 1898-1899
Asserting its independence, the Philippine Republic of 1898 under General Emilio
Aguinaldo issued its own coins and paper currency backed by the country’s natural resources.
At the Malolos arsenal, two types of two-centavo copper coins were struck. One peso and five
peso revolutionary notes printed as Republika Filipina Papel Moneda de Un Peso and Cinco
Pesos were freely circulated. These were handsigned by Pedro Paterno, Mariano Limjap and
Telesforo Chuidian. With the surrender of General Aguinaldo to the Americans, the currencies
were withdrawn from circulation and declared illegal currency.
American Period 1900-1941
With the coming of the Americans 1898, modern banking, currency and credit systems
were instituted making the Philippines one of the most prosperous countries in East Asia. The
Americans instituted a monetary system for the Philippine based on gold and pegged the
Philippine peso to the American dollar at the ratio of 2:1. The US Congress approved the
Coinage Act for the Philippines in 1903.
The Japanese Occupation 1942-1945
The outbreak of World War II caused serious disturbances in the Philippine monetary
system. Two kinds of notes circulated in the country during this period. The Japanese
Occupation Forces issued war notes in high denominations. These war notes had no back up
reserves, thus, Filipinos dubbed it “Mickey Mouse” money. During the worst inflation in
Philippine history, Filipinos would go to the market laden with bayongs of Mickey Mouse bills,
since one duck egg cost 75 pesos, and a box of matches more than 100 pesos.
The Philippine Republic
A nation in command of its destiny is the message reflected in the evolution of Philippine
money under the Philippine Republic. Having gained independence from the United States
following the end of World War II, the country use d as currency old treasury certificates
overprinted with the word “Victory”.

3. The Nature of Business

The nature of business is a structured method of describing a company. This concept is a
synthesis of what type of business it is and what the business does. The nature of business also
highlights the specific problems a given business solves. It encompasses everything a business
does to reach its goals and describes the main focus of the company’s offerings.
A discussion of the nature of business of a company usually appears in a business plan that
describes how the company will operate. Entrepreneurs, investors and lenders use nature of
business statements to ensure that a company is viable before offering to fund it. They want to
know about the potential success of the company before deciding whether it’ll likely be a
profitable investment. Grant applications are another area where nature of business statements
can be necessary because this paperwork also involves funding.

A nature of business statement should thoroughly address the following elements of the
business:
Regular process: This separates businesses from hobbies. Businesses have
processes that repeat over and over again to produce the same result. That result is a
product or service for consumers and income for the business owner.

Economic activity: All businesses have the core goal of generating income.

Utility creation– To be useful to customers, the product or service must be delivered at

the right time and place, and it should solve a problem or meet a need. Goods that are
not accessible to consumers, for one reason or another, serve no use.

Capital requirement: In simple terms, it takes money to make money. Every business
requires employees, equipment and other goods that cost money. These are necessary
for producing the product or delivering the service that leads to income.

Goods and services: All businesses deliver something to the public. Some businesses
produce tangible goods, such as clothes or cars. Others produce intangible services,
such as computer repairs.

Anticipated risk: All businesses require some level of investment of time and money.
Sometimes a business owner makes money, and sometimes a business owner loses
money. There’s always a risk of losing money when doing business, and some risks are
more common in certain industries than others.

Profit-earning motive: The central motive for starting a business is to make a profit.

Satisfaction of consumers’ needs: Businesses operate on supply and demand. When

consumers express a want or need, wise businesses answer the call by supplying
something to meet that demand.

Involvement from the buyer and seller: In every business transaction, the customer
buys something and the business sells something.

Social obligations: Businesses have an impact on their communities at large. They

hire people, form relationships with other businesses and help communities by offering
a needed product or service. They may also give back to the community through
philanthropic efforts or enrichment programs.

A statement about the nature of a business should also explain what problem the
business will solve and what type of business the company is.
 4. The Role of Accounting in Business

The purpose of accounting is to provide financial information to the stakeholders of the

business: management, investors and creditors. Accounting measures and summarizes the
activities of the company and communicates the results to management and other interested
parties. Managers need accurate and timely financial data to make intelligent decisions, and
accountants are the ones who produce this information. While the accounting process collects
the data and presents it in various types of reports, the accountants help interpret the meanings
of the reports and suggest ways to use these details to solve business problems. Accounting
can be classified in two forms: management and financial. Management accounting helps to
run the business, while financial accounting reports on how well it's running.

5. Ethics in Business

Business ethics refers to the set of moral principles that guides a company's

conduct. These principles govern every aspect of the company's life, including its
interaction with government and other businesses, its treatment of its employees,
and its relationship with its customers. Whenever any ethical dilemmas or
controversies arise, a business will look to these foundational principles to help
resolve those situations.

A. Why Is Business Ethics Important?

First, it makes sure the company operates according to all applicable laws. Operating lawfully,
whether on a local or national level, maintains the company's respect among its peers and potential
clients or customers, and enables it to continue running.

A company's business ethics also help it attract quality employees. Businesses that care for their
employees at every level and treat them according to the highest ethical standards are attractive to job
seekers. Also, if you work for a company that respects its employees, you are more likely to perform well
and stay with the business for a long time.

Finally, a business that treats its customers or clients ethically builds trust with them, as well as an
ongoing relationship. These customers will be return customers, and they will likely recommend that
business to people within their sphere of influence. Also, a business known for its high ethical principles
can gain respect and elevate the quality of its brand.

Types of Business Ethics

I. Personal responsibility
Each person who works for a business, whether on the executive level or the entry-level, will be
expected to show personal responsibility. This could mean completing tasks your manager has
assigned to you, or simply fulfilling the duties of your job description. If you make a mistake, you
acknowledge your fault and do whatever you need to do to fix it.
II. Corporate responsibility
 Businesses have responsibilities to their employees, their clients or customers, and, in some
cases, to their board of directors. Some of these may be contractual or legal obligations, others
may be promises, for example, to conduct business fairly and to treat people with dignity and
respect. Whatever those obligations are, the business has a responsibility to keep them.
III. Loyalty
Both businesses and their employees are expected to show loyalty. Employees should be loyal
to their co-workers, managers, and the company. This might involve speaking positively about
the business in public and only addressing personnel or corporate issues in private. Customer or
client loyalty is important to a company not only to maintain good business relations but also to
attract business through a good reputation.
IV. Respect
Respect is an important business ethic, both in the way the business treats its clients, customers
and employees, and also in the way its employees treat one another. When you show respect to
someone, that person feels like a valued member of the team or an important customer. You
care about their opinions, you keep your promises to them, and you work quickly to resolve any
issues they may have.
V. Trustworthiness
A business cultivates trustworthiness with its clients, customers and employees through
honesty, transparency and reliability. Employees should feel they can trust the business to keep
to the terms of their employment. Clients and customers should be able to trust the business
with their money, data, contractual obligations and confidential information. Being trustworthy
encourages people to do business with you and helps you maintain a positive reputation.
VI. Fairness
When a business exercises fairness, it applies the same standards for all employees regardless of
rank. The same expectations with regard to honesty, integrity and responsibility placed upon the
entry-level employee also apply to the CEO. The business will treat its customers with equal
respect, offering the same goods and services to all based on the same terms.
VII. Community and Environmental Responsibility
Not only will businesses act ethically toward their clients, customers and employees, but also
with regard to the community and the environment. Many companies look for ways to give back
to their communities through volunteer work or financial investments. They will also adopt
measures to reduce waste and promote a safe and healthy environment.

Examples of Business Ethics

There are many ways businesses express their ethics. Commonly, a business will have a code of conduct
document that informs employees of their ethical responsibilities. Businesses may also publish a values
statement that advertises the ethical standards to which they hold themselves. These are some
examples of ways a business might practice its ethics.

1. Data Protection

Businesses often collect information about their customers. This may only be an email address, but it
could also be their physical address, or health or financial information, depending on the nature of the
business. Companies that collect customer data normally promise to secure that information and not
share it without the customer's permission. The same applies to employee information. Business ethics
usually protect employees' personnel records and allow access only to those with a valid need to know.

2. Customer Prioritization

One way a business shows respect for its customers is by prioritizing the customer's needs, even at the
expense of the company. For example, if a customer purchases goods or services that turn out to be
unsatisfactory, the business will do what it must to recompense the customer. If it is a faulty product,
the business will offer a replacement or a refund. If the customer experienced bad service, the company
will usually apologize and offer a discount or some other form of compensation.

3. Workplace Diversity

A business might express fairness is by placing a high importance on having a diverse workplace.
Achieving a diverse workplace means using recruiting practices that give equal opportunity to people
from different ethnic, gender and social groups. This can add time and effort to the hiring process, but it
is worthwhile. Employing a diverse range of people gives the business the benefit of different
perspectives. It also demonstrates that the company is serious about equality and treating all people
with respect.

4. Whistleblower Protection

As a business grows, it becomes harder to verify that employees are keeping to the ethical standards set
by the company. Sometimes the business will rely upon a whistleblower to draw attention to unethical
practices within the company. To encourage employees to come forward to report unethical practices,
businesses will often put in place protections against negative consequences. With these protections,
employees don't need to fear losing their jobs or facing disciplinary action for pointing out unethical
behavior.

5. Corporate Transparency

A business that practices transparency will be clear in its communications both with employees and to
clients or customers. The language used will be unambiguous so there is no doubt about the policies or
priorities that guide business decisions. Transparent corporate communications will also be honest and
truthful. Everyone working for or engaging with the company should be able to trust what it says.

6. Community Outreach

Companies often feel an ethical obligation to give back to the communities in which they do business.
This can take the form of volunteer programs to which employees are encouraged to donate time,
perhaps even at the company's expense. Such programs might include serving at a soup kitchen, helping
with home repairs, cleaning up after a natural disaster, or teaching skills at the local community center.
These programs not only help those in need, but also build respect and trust within the community.

7. Environmental Awareness

Many companies take concerns for the environment seriously, whether cutting down on waste or
cleaning up the land, water and air. There are various ways businesses act on this such as reducing air
travel and using teleconferencing technology as much as possible. Businesses might also promote
recycling in their offices by providing receptacles to collect recyclable waste and arranging for them to
be emptied regularly.

8. Employee Compensation

Companies adhering to principles of fairness and respect will pay their employees a fair wage for the
work they do based on their experience, education and the nature of the work. They will also regularly
review employee compensation and adjust it to make sure it continues to be a fair representation of the
employee's position and experience. Businesses will often reward outstanding performance with
employee bonuses. These are a good incentive for employees to work hard and remain with the
company. They are also a way for the business to express gratitude for the employees' efforts.

6. DEVELOPMENT OF ACCOUNTING PINCIPLES

Four phases of this process may be identified. In the first phase (1900-33), management had
complete control over the selection of financial Information disclosed in annual reports; in the second
phase (1933-59) and third phase (1959-731 the professional bodies played a significant role in
developing principles; and in the fourth phase, which continues to the present, it has become
increasingly noticeable that standard-setting bodies such as the Financial Accounting Standards Board
(FAST) in the USA and the Australian Accounting Standards Board in Australia (SAAB) ND various
pressure groups are moving towards a plasticization of accounting.

7.