Financial Accounting – Development and Problems
Accounting is called "the language of business" because it is the process of identifying, measuring, and communicating ﬁnancial information to many diﬀerent groups of people, necessitating diﬀerent types and uses of accounting, for instance, Managerial Accounting for managers, Tax Accounting for governments, and Forensic Accounting for litigants. The focus of this paper is Financial Accounting, the preparation and issuance of ﬁnancial statements to help external users, primarily the owners and creditors of a business, make informed investment decisions. Surprisingly, most accountants know little about the history of ﬁnancial accounting because it is not generally taught in accounting courses. However, everyone knows something about its current problems that aﬀect the economy and their lives, the enormity of the accounting scandals since 2001– Enron, World Com, and Lehman Brothers, to name just a few.
The initial development of accounting is older than civilization itself and plays a key role in a number of important phases of history. There is ample evidence showing that written language developed from early bookkeeping, the recording of assets. As long as 10,000 years ago in Mesopotamia, alongside the development of agriculture, small clay cones, spheres, and other geometrical shapes or tokens, were sealed in hollow clay containers or balls and then baked, with the purpose of accounting for the amount of commodities owned or transacted: grain, cattle, wine, etc. Two-dimensional outlines and later picture symbols, representing the tokens inside the balls, were drawn on the outside of the balls while the clay was still soft, before baking, until users eventually realized that neither the tokens nor the balls were needed – the symbols for the tokens could simply be drawn onto clay tablets. This was a revolution in information technology. The symbol representing the number one was a wedge (the impression made by the reed stalks used for drawing), and this early symbolic writing is now known as cuneiform, from the Latin word for wedge…
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