The Founder’s Dilemma – Startup Finance
Entrepreneurship is all about making decisions in the face of uncertainty. Entrepreneurship involves beginning a journey that the founder does not currently have the resources to complete. For instance, when any start-up is first formed it does not have the money, assets, or human capital required to create value. It is the central job of […]
What is Single Entry System ? – Pros and Cons
What is Single Entry System ? Single entry accounting systems record only one side of every transaction. This happens because they use one entry to record every transaction. Therefore single entry system does not use nominal and real accounts. The emphasis is on cash and accounts receivable. Single entry accounting system can be described as […]
The Inherent Conflict of Interest in Interest Rates Determination
The global financial system is not perfect by any means. However, most of the imperfections seem to be minor. As a whole, individuals and corporations feel safe transacting and investing based on the rules defined in the current system. This is possible because the stalwarts of modern day finance have been ignoring the elephant in […]
Return on Invested Capital (ROIC)
Return on Invested Capital (ROIC) is another popular metric that is used widely in financial analysis. The reason for its popularity is that like ROA, ROIC can be used by both equity and debt holders. Also, like ROA, it provides data about return to the company as a whole and is not affected by leverage. […]
Accounting for Player Contracts
Sporting franchise clubs are business entities at the end of the day. Even though some of them may not be running their operations to maximize their profit, they are still considered to be “for-profit” entities. Hence, ideally, their accounting is supposed to be similar to other business entities. However, this is not the case. There […]
One can never really understand a subject, unless they know where it came from. Therefore, a short history of the subject of accounting may be of interest to students of accounting. Here is a very brief history of how accounting evolved:
Accounting is as old as financial transactions themselves. As soon as credit was invented, humans began to use accounting to simplify their lives. As expected, the oldest system of accounting used single entry accounting. This is the most intuitive form of accounting but is also incomplete. Records have been found on clay tablets in ancient Mesopotamia that show the existence of single entry accounting in that time.
Prior to rise of European commerce in the Medieval Ages, India was the primary center for bustling trade and commercial activity. Although there has been no record of this fact, but is claimed that Indian merchants had very advanced accounting systems at that time. These systems were called the Bahi Khata system. It is rumored that the westerners designed the double entry system based on the principles of Bahi Khata system but once again there is no conclusive proof.
The birthplace of modern day accounting is Venice. In the Medieval Ages, Venice was a center of trade and commercial activity. Merchants had giant businesses and they were struggling to run these corporations efficiently.
It is then that Luca Pacioli developed the double entry accounting system. There is still debate about whether he developed it or just improved it and made it available to the merchants. However, debate or no debate, Luca Pacioli is considered to be the “Father of Modern Day Accounting”.
In the era of colonialism, chartered corporations were common. The government would approve certain companies and give them exclusive rights to trade with certain colonies. Citizens were encouraged to invest in such companies. Shares of a few such companies had paid rich dividends and hence it was common to invest in such companies.
However, the performance of such companies had to be reported to the shareholders on a periodic basis. Therefore accounting systems were further developed. They were now providing information to external shareholders apart from providing information to internal management.
The chartered companies have long gone. The world is now a free market. But information still needs to be provided to the external shareholders about the conduct of operations. Accounting, therefore has been further developed and is highly regulated in most countries.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
