Reviewer in Legal Accounting

What is Accounting?

Accounting is the art of recording, classifying, and summarizing in a significant manner the
amount of money, transactions, and events, which are, in part at least of a financial character and
afterwards interpreting the results thereof.

Additionally, it is a service activity. Its function is to provide quantitative information,

primarily financial in nature, about economic entities that is intended to be useful in making economic
decisions. For this reason, accounting is called the language of business.

Technically, accounting is based on a double-entry system which means that the dual effects
of a business transaction is recorded. A debit side entry must have a corresponding credit side entry.
The total debits for a transaction must always equal the total credits.

Evolution of Accounting.
1. Primitive Accounting

The origin of keeping accounts has been traced as far back as 8500 BC. The date
archaeologists have established for certain clay tokens like cones, disks, spheres, and pellets as
found in Mesopotamia.

These tokens represented such commodities as sheep, jugs of oil, bread or clothing and
were used in the Middle East to keep records.
•Bulae- were the first bills of lading. Clay balls where tokens were sealed.
(Beginning of the art of writing and record keeping).
•China, Babylonia, Greece, and Egypt maintained various types of records of
8500 BC business activities.

•1st dynasty of Babylonia. Its law which was based on the Code of Hammurabi,
requires merchants trading goods to give buyers a sealed memorandum
2286-2242 containing the agreed price before it can be considered enforceable.
BC •Agreed upon transaction was recorded by the Scribe.

•Clay tablets also recorded payments of wages. Like in Egypt, were they used
the same to keep track of labor costs.
3600 BC •Bookkeeping was then attributed.

Seven Preconditions for the emergence of systematic bookkeeping

a. Art of Writing
 b. Arithmetic – since the mechanical aspect of bookkeeping consists of a sequence of simple
computations;
c. Private Property – recording of facts about property and property rights
d. Money
e. Credit
f. Commerce
g. Capital – since without capital commerce would be trivial and credit would be inconceivable.
2. Middle Ages

The use of credit was prevalent and a semblance of an international banking system.
Marked the development of more formal account-keeping methods as attributed to the
merchants and bankers of Florence, Venice and Genoa.

Said period also includes various approaches like those of Florentine, Giovanno Farolfi &
Company, Amatino Manucci, the Method of Venice, and the Savary and Napoleonic Commercial
Code.

3. Industrial Revolution

This period marked the formation of the accounting profession. Industrial Revolution
started in regard of the expanded business operations that require increasingly large amount of
funds to build factories and purchase machinery. This period also includes the model chart of
accounts, imposition of income tax and conflicts with financial accounting.

4. Information Age

Marked the start of VisiCalc, the first electronic spreadsheet, the most important business
application for the personal computer.

Phases of Accounting
a. Before transactions can be recorded, they must be measured. In order that accounting
information will be useful, it must be expressed in terms of a common financial denominator
– money. Money serves as both a medium of exchange and a measure of value.
b. After measuring and recording transactions, the recorded data must be classified and
summarized. Classification reduces the effects of numerous transactions into useful groups
or categories. Summarization of financial data is achieved through the preparation of financial
statements.
c. Interpretation. Accounting provides the decision-makers with information to make reasoned
choices among alternative uses of scare resources in the conduct of business and economic
activities.
Types of Business (MRI-FITS)
a. Manufacture
b. Raw Materials
c. Infrastructure
d. Financial
e. Insurance
f. Trader