Ch: One
Answer:
1: Also known as Italian bookkeeping because it was promulgated by Italian traders Firstknown double-entry accounting books are those of Massari of Genoa in 1340 Luca Pacioli, a
Franciscan friar, is credited with introducing double-entry bookkeeping because his is the first
published discussion on the topic (1494).
Sixteen century: Introduction of specific journals for recording of different types of transactions
Sixteen and seventeen century: Practice of periodical financial statements, Separate inventory
accounts for different types of goods
Nineteen century:
Depreciating property was accounted for as unsold merchandise
Twentieth century: the development funds statements and Development of accounting methods
for complex issues (e.g., earnings per share)
2: Capitalism is an economic system in which capital assets are privately owned and goods and
services are produced for profit in a market economy. Two factors helped the development and
evolution of capitalism is: Separation of business from the household, and rational bookkeeping
Accounting is the study of the evolution in accounting thought, practices and institutions
in response to changes in the environment and societal needs.It is important to:
3: Accounting history: is the study of the evolution in accounting thought, practices and
institutions in response to changes in the environment and societal needs.
The origins and development of accounting should receive more attention today. Sometimes
accountants fail to appreciate accounting history due to their focus on current or emerging issues.
As a result, they ignore some practices that still have relevance today.
The paper
proposes
three to
strategies
that
are
important
these
accounting
strategies
history
is making
relevant
education,
memory/identity.
organisational
4: for improvement in standards of financial reporting from 1900, New York stock exchange
required corporations to publish annual financial statements calls for protection of investors
board of examiners established in 1917 to create a uniform certified practising accountant (cpa)
examination. Because all of them will use the final report and they want to make decisions also
when involvement the setting process political action and social the financial report will be
highly strong.
equation (A= L + C)
A causal double-entry: describes the cause-effect relationship between an
increment and a decrement. In this type of accounting, the value of an increment (debit)
is offset by an equal value of a decrement (credit)
Q4:
usage, and practical necessity and they encompass the conventions, rules, and procedures
necessary to define accepted accounting practices at a particular time. It is a guide to the
accounting profession in the choice of accounting techniques and the preparation of financial
statements. The conventions, rules and procedures included in GAAP have substantial
authoritative support
Q5: Income Smoothing Hypothesis:
Income smoothing represents an attempt on the part of the firms management to reduce the
fluctuations in earnings. It is deliberate normalization of income in order to reach a desired trend
or level, Using accounting techniques and methods to affect the net income to successive
accounting periods
Motivation for smoothing:
The reasons for smoothing: a stable level of future earnings and dividends, and has a favorable
effect on the firms shares. Counters the cyclical nature of reported earnings and reduces the
correlation of a firms expected returns with market returns
Constraints that lead to income smoothing:
which
an
Q7. Approaches and values between accounting practice and research has led to the use of two
methodologies:
Normative: is accounting theory attempts to justify what ought to be, rather than
what is, such theory is labeled to normative.
Q9. Deductive Approach: the construction of any theory begins begins with basic propositions
and proceeds to drive logical conclusions about the subject under consideration. This approach
moves from general (acc environment) to particular (acc principle first and acc techniques
second)
Inductive Approach: the construction of any theory begins with observations and measurements
and moves toward generalized conclusions. Inductive arguments are said from the particular
(Acc info depicting recurring relationship) to general ( postulates and principle accounting)
CHAPTER 4
QUESTIONS and ANSWERS
1. Define accounting standards?
Accounting standards provide practical and handy rules for the conduct of the
2.
3.
accountants work.
List the types of accounting standards and explain?
It consists three parts:
A description of the problem to be tackled
A reasoned discussion of solving the issue
The prescribed solution
List five of the institutions involved with setting accounting standards?
The five Institutions Involved with Setting Accounting Standards are:
Institute of Chartered Accountants, Australian Society of Certified Practicing
Accountants, Federal Attorney General (public prosecutor), Australian Accounting
CHAPTER 4 QUESTIONS
4.1 Discuss the role and function of accounting standards?
4.5 Discuss alternative arguments about the legitimacy of the accounting standard setting
process?
The pessimistic prognosis is the legitimacy of the standard setting process was
sometimes linked to its ability to produce optimal accounting systems.
The optimistic prognosis in fact, Cushing gave an optimistic prognosis about the sheer
responsibility of optimal accounting principal, provided that assumptions of
heterogeneous users are dropped.
4.7 What are the differences between public regulation and self-regulation? Present some of the
advantages of self-regulation in the accounting profession. Finally, what is the main mechanism
for self-regulation?
The private sector approach to the regulation of accounting standards rest on the
fundamental assumption that the public interest in accounting is best served if standard
setting is left to the private sector. Supported AASB and FASB.
Public sector regulation has gained a high degree of legitimacy and become part of
Australian and international tradition and legal frame work. Supporters: Elliot and
schuetze.