S10 Lec 1 - Accounting Theory Introduction Accountants...

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Accounting Theory Introduction Accountants participated in the development of cities, trade, and the concepts of wealth and numbers. Accountants invented writing, participated in the development of money and banking, invented double entry bookkeeping that fueled the Italian Renaissance Accountants used “money” to record transactions, so unlike items could be compared in common terms Distinguish between: Capital (owner’s investment) - Profits (earnings of the business) a crucial distinction - why? Developed large associations and partnerships that pooled capital - hence the need to account for each persons capital and the allocation of earnings- why?
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Accounting Theory Introduction Egyptian bookkeepers attached to each storehouse kept meticulous records, checked by an elaborate internal verification system. These early accountants had good reason to be honest and accurate, because irregularities disclosed by royal audits were punishable by fine, mutilation or death. Although such records were important, ancient Egyptian accounting never progressed beyond simple list-making in its thousands of years of existence.
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Accounting Theory Introduction Perhaps more than any other factors, illiteracy and the lack of coined money appears to have stymied its development. What does money do for us? Two plus two=? While the Egyptians tracked movements of commodities, they treated gold and silver not as units of fungible value, but rather as mere articles of exchange. The inability to describe all goods in terms of a single valuation measure made cumulation and summation difficult and development of a cohesive accounting system all but impossible.
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Accounting Theory Introduction Fungibility is an attribute of money . Fungibility has nothing to do with the ability to exchange one commodity for another. It has everything to do with exchanging one example of a commodity with another example of the same commodity in satisfaction of an obligation oil, wheat, and lumber are fungible commodities
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Accounting Theory Introduction Capital: assets available for use in the production of further assets wealth in the form of money or property owned by a person or business and human resources of economic value Issue is how to denominate, measure, account, add and subtract
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Accounting Theory Introduction In economics , capital or capital goods or real capital are factors of production used to create goods or services that are not themselves significantly consumed (though they may depreciate ) in the production process. Capital goods may be acquired with money or financial capital .
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Accounting Theory Introduction In finance and accounting , capital generally refers to saved-up financial wealth , especially that used to start or maintain a business. A financial concept of capital is adopted by most entities in preparing their financial reports. Under a financial concept of capital, such as invested money or invested purchasing power, capital is
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This note was uploaded on 10/18/2011 for the course ADMS 4510 taught by Professor Skdmks during the Spring '10 term at York University.

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S10 Lec 1 - Accounting Theory Introduction Accountants...

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