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The Impact of the Industrial Revolution on Accounting - Coggle Diagram
The Impact of the Industrial Revolution on Accounting
In which period did this occur?
CA. 1760-1840
Accounting Representation Technologies:
Using accounting representations in purely abstract forms such as profit and which was then used to evaluate entity and managerial performance.
Accounting information which was recorded in the past was then used as a basis for developing forecasts of future accounting information such as budgets, predetermined cost rates and standards which were then used as comparisons for events of "economic and commercial activity".
More advanced accounting representation technologies and systems were required in order to accurately record financial information that was brought about by new economic operations such as:
Big corporations
Banks
Secondary industries, i.e. manufacturing
Money economy
Taxes, which were formalised as a result of urbanisation
Increased wealth of national citizens
Role of Accountants
The definite change of accountants from controlling physical aspects of the production and manufacturing process to the internal recording of cost allocations which were first developed by manufacturing engineers and then incorporated into the double-entry bookkeeping sytem.
Accounting Emphasis:
Financial information became internally orientated and was focussed on the costs of manufacturing and production operations which were overseen by managers.
This created a need for separate costing accounting systems namely, management accounting and cost accounting.
Cost Accounting
Wages expense
The factory system of production
Overhead expenses
Sales
Production
Administration
Distribution
Material expenses
Management Accounting
Strategy
Business Management
Profit Maximisation
These costing accounting systems additionally provided verifiable evidence for relationships between direct and indirect costs.
Cost allocations were incorporated into the accounting system with an increased emphasis on wages and overhead costs caused from the introduction of industrial technologies and a much larger labour force as a result of mass production.
The accounting purpose changed from only recording the financial information of economic or commercial activity to a method of management in which accounting information was used to evaluate managerial and business performance.