CHAPTER ONE
Introduction
1.1 Background of study
The accounting system can be regarded as a universal phenomenon needs not only by individual but also by organization. For these reason bookkeeping and accounting records need to be properly scrutinized and analyzed. It can be truly said that the accounting system has become the foundation on which the whole fabric of modern commerce rest. Business transaction can only be carried out in the crudest forms and development for the modern credit system. With it obvious advantages of convenience would have been totally impossible. Accounting as a record keeping process has worked out gradually over many countries to save the changing and economics needs of society. As early as 300 B.C. clay table were used in Babylonian Empire to record various fact. Many of these records contain list of events as they occurred or list of good belonging to an individual or temple.
Similar records have also been discovered describing business activities in ancients Greece, Egypt and Rome. While this early record contained most inventories of goods and debt, later record began a concern for compiling profit and loss for different ventures. Some addition advances in record keeping were made by church officials and government during the middle ages. Although these early record are interesting. They add little insight to the development of modern day accounting, which is based on the double entry method. Modern day accounting has its origin in the double entry keeping method by Italian merchant during 12th and 13th century. Probably the most condition giving rise to this development was the rise in trade between medieval Italian cities and the east. The first complete description of the double entry system included in a book called Suma de Arithmetica, Geometria, proportion et protionalita (1494) by Franciscan monk named Luca paciolo two years after Columbia discover America. Although, the Suma was essentially a treatise on mathematics, it contained records that have developed gradually over the preceding 2 or 3 countries. Paciolo’s description of the double process was included in other books and was used widely throughout Europe during the 15th , 16th and 17th centuries. The double entry process becomes a basis for modern accounting procedures. The industrial revolution in Europe during the 18th and 19th century produced many significant social and economic changes including a change from the hand craft production system to the factory system.
The factory system was based on the use of machinery and equipment to produce many identical products at low cost. During the 19th and 20th century, corporations have become a dormant factor in financing, producing and distributing goods and services. These corporations are often large complex organization whose owners demand accounting system that can provide relevant and reliable information for use in evaluating the efficient of operations. Government organization and income tax legislation have resulted in increased demand on accounting system. In both their record keeping communicating functions, The double entry system developed by the Italian merchants is essentially the same system used today to satisfy the increased demand for accounting information and the change of handicraft production system to factory system, helps in producing many identical product at low cost with the use of machineries which helps in Maximization profit.