Accounting Theory And History Accounting Essay

Accounting Theory And History Accounting Essay Accounting has evolved since it was first developed and has continued to evolve. The aim of this essay is to explore and discuss why accounting, both financial and management has changed over the last millennium. In order to achieve this aim an in-depth approach will be taken into the origins of accounting, its purpose and need. This will mean examining history papers which are evidence-based but are intertwined with value judgement. Many alternative theoretical and practical explanations are offered in literature for the development of accounting over time. These course literatures will be evaluated and there theories will subsequently be accepted or rejected. In order to explore the question and because the definitions provided by accounting bodies are themselves are subject to change, it is crucial to first define accounting and its purpose. The purpose of accounting is to provide information based on relevant data that aids users in making economic decisions. Financial accountin g is designed mainly to produce financial reports which provide information regarding the firm’s performance to external users such as Tax authorities, Investors, Customers and Creditors. Financial Accounting is highly regulated in order to ensure they have certain characteristics. These characteristics enhance the usefulness of the financial reports to users. These characteristics are relevance, comparability, timeliness, fairness and objectivity. Management accounting is used to prepare accounts and reports that provide accurate and up to date information that allows management to make decisions. Accounting developed as people needed a method of recording their assets and property. If property was recorded and accounted for, it would be easy to prove legal ownership. Accountancy has been around for thousands of years. Professor L. Plunkett of the College of Charleston calls accounting the â€Å"oldest profession† In this millennium there have been countless changes a nd developments in accounting. From more primitive methods of simple accounting for property and assets, in order to record for evidence of legal ownership to a complex regulated form. Management Accounting â€Å"British Entrepreneurs and Pre-Industrial Revolution Evidence of Cost Management† a paper by Richard K. Fleischman and Lee D. Parker examines the use and developments of cost accounting in 1760 to 1850. The four main areas looked at in cost management will be: cost control techniques, accounting for overhead, costing for routine and special decision making, and standard costing. These firms used cost data to control raw material input materials. The iron firms broke down costs using raw material controls, whilst taking into account the differential costs of mining and smelting. Textile firms were concerned about the profitable raw mixtures and the cost of raw materials input. Marshall textile firm employ the practise of using performance cards, which is an effective m ethod and is still used by firms today. Performance cards are used daily to monitor and control expenses.. These management accounting practises benefited the business greatly. It allowed marshal to be cost effective and efficient by minimising costs. Gregs was another textile firm which kept wage and expense books to calculate control costs. This helps to identify trends, weaknesses and areas for improvement. For example they experienced losses in 1829 and where able to identify and attribute these to heightened production costs and outdated machinery.