Content Standard 1.2

History and Development of Accounting

Sejarah perakaunan dan perkembangannya

One-hour paid trial · Same-day reply · from RM50/hr

Explanation

Content Standard 1.2 introduces students to the origins of accounting and how it has developed into the sophisticated system we use today. Accounting is not a modern invention; it has existed since the earliest human civilisations. During the Babylonian era (about 4,000 years ago), merchants and rulers recorded transactions such as harvests, taxes and loans on clay tablets using cuneiform writing. The Egyptian, Greek and Roman civilisations later kept records of expenses and revenues to manage the state treasury. A major milestone came in 1494 when an Italian monk and mathematician, Luca Pacioli, published a book describing the double-entry system. He is regarded as the Father of Modern Accounting because his idea that every transaction has two effects, a debit and a credit that must balance, remains the foundation of accounting today.

After the Industrial Revolution in the 18th and 19th centuries, businesses became larger and more complex. The rise of limited companies, the separation between owners and managers, and the need to report to shareholders caused accounting to develop into an organised profession. Professional accounting bodies were established, accounting standards were created, and auditing was introduced to verify the accuracy of financial records. In Malaysia, the profession is regulated by bodies such as the Malaysian Institute of Accountants (MIA), which sets standards and ethics for accountants.

This standard also requires students to understand the development of the accounting process from manual to computerised methods. In the early stages, all records were written by hand in journals, cash books and ledgers, and balanced manually using a trial balance. The manual method was time-consuming, prone to calculation errors, and difficult to update. With the arrival of computers, the accounting process became faster, more accurate and more efficient. Transaction data only needs to be entered once, and the system automatically prepares the journals, ledgers, trial balance and financial statements without repeated calculation.

Modern accounting software makes accounting work even easier. Software allows users to record transactions, generate invoices, manage inventory, calculate wages and produce the income statement and the statement of financial position more quickly. Some modern cloud-based software allows data to be accessed from any location at any time through the internet. However, students must understand that software is only a tool; users still need to understand basic accounting principles such as double entry in order to enter data correctly and interpret the reports produced.

Finally, this standard emphasises the importance of the accounting information system (AIS). An AIS is a combination of people, procedures and technology that collects, processes and stores financial data to produce useful information. This information is important to various stakeholders: owners and managers for making business decisions, investors for evaluating performance, banks for considering loans, and tax authorities for assessing taxes. A good accounting information system ensures that financial information is accurate, up to date, secure and easily accessible, helping the business operate more effectively.

Worked examples

Comparing the manual and computerised process at Cahaya Grocery Shop

Cahaya Grocery Shop buys goods for resale worth RM1,200 on credit from a supplier. In a manual system, the clerk records the transaction in the journal, posts it to the Purchases Account and the Creditor's Account in the ledger, then calculates the balances manually and prepares a trial balance at month end.

The double entry for this transaction is: Debit Purchases RM1,200; Credit Creditor RM1,200.

In a computerised system, the clerk only enters the transaction once. The software automatically updates the Purchases and Creditor's accounts, calculates the balances, and prepares the trial balance and financial statements without repeated calculation. This shows how the development from manual to computerised methods saves time and reduces errors.

The role of the accounting information system for Maju Jaya Enterprise

Mr Rahim, the owner of Maju Jaya Enterprise, wants to apply for a bank loan of RM50,000 to expand his business. The bank asks for the latest income statement and statement of financial position.

Because Maju Jaya Enterprise uses an organised accounting information system, all sales, purchases and expense transactions have been recorded accurately throughout the year. The system produces an income statement showing a net profit of RM32,000 and a statement of financial position showing total assets of RM120,000.

With this accurate and up-to-date information, the bank can assess the business's ability to repay the loan. This example shows the importance of the accounting information system to external stakeholders such as banks.

Practice

Who is known as the Father of Modern Accounting and what was his main contribution to the field of accounting?

Answer: The person known as the Father of Modern Accounting is Luca Pacioli, an Italian monk and mathematician. In 1494, he published a book describing the double-entry system. His main contribution was introducing the concept that every transaction has two effects, a debit and a credit that must balance. This concept remains the foundation of the accounting system to this day.

Explain two advantages of a computerised accounting system compared to a manual accounting system.

Answer: First, a computerised system is faster and more efficient because transaction data only needs to be entered once, and the system automatically prepares the journals, ledgers, trial balance and financial statements without repeated calculation. Second, a computerised system is more accurate because it reduces the calculation errors that often occur when working by hand in the manual method. Additional advantages include neater data storage that is easy to update.

What is meant by an accounting information system? State two stakeholders who need information from this system.

Answer: An accounting information system is a combination of people, procedures and technology that collects, processes and stores financial data to produce information useful to users. Two stakeholders who need this information are: (i) the owner or manager, to make business decisions and evaluate performance; and (ii) the bank, to assess the business's ability to repay a loan before approving financing. Investors and tax authorities are also stakeholders.

Arrange the development of accounting in chronological order: Luca Pacioli's double entry, the Babylonian era, cloud-based accounting software. Briefly explain each one.

Answer: The correct order is: (1) The Babylonian era, when transactions were recorded on clay tablets using cuneiform writing about 4,000 years ago; (2) Luca Pacioli's double entry in 1494, which introduced the balanced system of debit and credit; and (3) Cloud-based accounting software today, which allows data to be recorded and accessed through the internet from any location. This sequence shows the development of accounting from simple ancient records to sophisticated digital systems.

Exam tips

Key terms

Double entry: An accounting system in which every transaction is recorded with two effects, a debit and a credit, that must balance.
Accounting information system: A combination of people, procedures and technology that collects, processes and stores financial data to produce useful information.
Accounting software: A computer program that helps record transactions and automatically produce financial reports.
Stakeholders: Individuals or groups who need accounting information to make decisions, such as owners, investors, banks and tax authorities.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4

Need help with History and Development of Accounting?