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CHAPTER 2
THEORETICAL FOUNDATION
2.1 Accounting Standard Overview
2.1.1 Accounting history & definition
Accounting is “a process of identifying, recording and summarizing economic
information
and
reporting
it to
the
decision
makers”
(Hongren
et
al,
2004,
p.
4).
The
nature of accounting is to provide the economic information by organizing and
summarizing
it so that the decision
makers can
use.
The process
to
measure
accounting
information
is
not
straight-forward.
To prepare
the
information,
accountants
should
analyze, record, classify, summarize and report the economic events and their financial
impacts to the organization.
Accounting is firstly founded by Luca Pacioli in 1494 on his mathematic book
titled “Everything about Arithmetic, Geometry and Proportions” (Weygandt et al, 2007,
p.7).
It
is
written
as
a
guide to
explore
the
content
and
the
existing
mathematical
knowledge, and accounting is just one of the five topics covered. He described the
method by
using
journals and
ledgers. It also consists on the discovery of double-entry
bookkeeping. The purpose was to
make sure that the
financial
information
was recorded
accurately and efficiently.
Debit
was
located on the
left side because
"debit"
means
the
left. The figures on the right are called "credit". If everything is done properly, it can do
the
accounting
trial
balance
(“summa
summarium").
Add
up
the
entire
debit
and
then
add up all the credit. If everything is done correctly, the total should match. If not match,
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