History of Accounting
Introduction
The word
accounting is defined as an information system that identifies records and
communicates the economic events of an organization to interested users.
The history
of accounting or accountancy as it is interchangeably called is thousands of
years old and can be traced to ancient civilizations. The early development of
accounting dates back to ancient Mesopotamia, and is closely related to developments
in writing, counting, money and early auditing systems by the ancient Egyptians
and Babylonians. At that time, the Emperor
Augustus, the Roman government had access to detailed financial information.
According to
some Indian scriptures, the Indian Chanakya wrote a manuscript similar to a financial
management book, during the period of the Mauryan Empire. His book
"Arthashasthra" contains few detailed aspects of maintaining books of
accounts for a Sovereign State.
The Italian
Luca Pacioli, recognized as The Father of accounting and bookkeeping was the
first person to publish a work on double-entry bookkeeping, and introduced the
field in Europe.
Accounting
began to transition into an organized profession in the nineteenth century, with
local professional bodies in England merging to form the Institute of Chartered
Accountants in England and Wales in 1880.
Early
Development of Accounting
Accounting
records dating back more than 7,000 years have been found in Mesopotamia, and documents
from ancient Mesopotamia show lists of expenditures, and goods received and
traded. The development of accounting, along with that of money and numbers,
may be related to the taxation and trading activities of temples.
The early
development of accounting was closely related to developments in writing,
counting, and money. In particular, there is evidence that a key step in the
development of counting—the transition from concrete to abstract counting— was
related to the early development of accounting and money and took place in
Mesopotamia. Other early accounting records were also found in the ruins of
ancient Babylon, Assyria and Sumeria, which date back more than 7,000 years. The
people of that time relied on primitive accounting methods to record the growth
of crops and herds. Because there was a natural season to farming and herding,
it was easy to count and determine if a surplus had been gained after the crops
had been harvested or the young animals weaned.
Expansion of the Role of the
Accountant
Between the
4th millennium BC and the 3rd millennium BC, the ruling leaders and
priests in ancient Iran had people oversee financial matters. In Godin Tepe and
Tepe Yahya, cylindrical tokens that were used for bookkeeping on clay scripts
were found in buildings that had large rooms for storage of crops. In Godin Tepe's
findings, the scripts only contained tables with figures, while in Tepe Yahya's
findings; the scripts also contained graphical representations. The invention
of a form of bookkeeping using clay tokens represented a huge cognitive leap
for mankind.
During the
1st millennium BC, the expansion of commerce and business expanded the role of the
accountant. The Phoenicians invented a phonetic alphabet "probably for
bookkeeping purposes", and there is evidence that an individual in ancient
Egypt held the title "comptroller of the scribes". There is also evidence
for an early form of accounting in the Old Testament; for example the Book of
Exodus describes Moses engaging Ithamar to account for the materials that had
been contributed towards the building of the tabernacle.
By about the
4th century BC, the ancient Egyptians and Babylonians had auditing systems for
checking movement in and out of storehouses, including oral "audit
reports", resulting in the term "auditor" (from audire, to hear
in Latin). By the 2nd century BC, the importance of taxation had created a need
for the recording of payments, and the Rosetta stone also includes a
description of a tax revolt.
The Roman Empire
By the time
of Emperor Augustus (63 BC - AD 14), the Roman government had access to
detailed financial information as evidenced by the Res Gestae Divi Augusti
(Latin: "The Deeds of the Divine Augustus"). The inscription was an
account to the Roman people of the Emperor Augustus' stewardship, and listed
and quantified his public expenditure, including distributions to the people, grants
of land or money to army veterans, subsidies to the aerarium (treasury), building
of temples, religious offerings, and expenditures on theatrical shows and gladiatorial
games, covering a period of about forty years. The scope of the accounting information
at the emperor's disposal suggests that its purpose encompassed planning and
decision-making.
The Roman
historians Suetonius and Cassius Dio record that in 23 BC, Augustus prepared a rationarium
(account) which listed public revenues, the amounts of cash in the aerarium (treasury),
in the provincial fisci (tax officials), and in the hands of the publicani
(public contractors); and that it included the names of the freedmen and slaves
from whom a detailed account could be obtained. The closeness of this information
to the executive authority of the emperor is attested by Tacitus' statement
that it was written out by Augustus himself.
Records of
cash, commodities, and transactions were kept scrupulously by military
personnel of the Roman army. An account of small cash sums received over a few
days at the fort of Vindolanda circa AD 110 shows that the fort could compute
revenues in cash on a daily basis, perhaps from sales of surplus supplies or
goods manufactured in the camp, items dispensed to slaves such as cervesa
(beer) and clavi caligares (nails for boots), as well as commodities bought by
individual soldiers. The basic needs of the fort were met by a mixture of
direct production, purchase and requisition; in one letter, a request for money
to buy 5,000 modii (measures) of braces (a cereal used in brewing) shows that
the fort bought provisions for a considerable number of people.
The Heroninos
Archive is the name given to a huge collection of papyrus documents, mostly letters,
but also including a fair number of accounts, which come from Roman Egypt in 3rd
century AD. The bulk of the documents relate to the running of a large, private
estate is named after Heroninos because he was phrontistes (Koine Greek
manager) of the estate which had a complex and standardized system of accounting
which was followed by all its local farm managers. Each administrator on each sub-division of the
estate drew up his own little accounts, for the day-to-day running of the estate,
payment of the workforce, production of crops, the sale of produce, the use of
animals, and general expenditure on the staff. This information was then
summarized as pieces of papyrus scroll into one big yearly account for each
particular sub-division of the estate. Entries were arranged by sector, with
cash expenses and gains extrapolated from all the different sectors.
Accounts of
this kind gave the owner the opportunity to take better economic decisions because
the information was purposefully selected and arranged.
Medieval and Renaissance Periods
(Double-Entry Bookkeeping)
When medieval
Europe moved towards a monetary economy in the 13th century, sedentary merchants
depended on bookkeeping to oversee multiple simultaneous transactions financed
by bank loans. One important breakthrough took place around that time; the introduction
of double-entry bookkeeping, which is defined as any bookkeeping system in which
there was a debit and credit entry for each transaction, or for which the majority
of transactions were intended to be of this form. The historical origin of the
use of the words "debit" and "credit" in accounting goes back
to the days of single-entry bookkeeping, which had as its chief objective
keeping track of amounts owed by customers ((debtors) and amounts owed to creditors.
Debit in Latin means "he owes" and credit in Latin means "he
trusts".
The earliest
extant evidence of full double-entry bookkeeping appears in the Farolfi ledger
of 1299-1300. Giovanno Farolfi & Company, a firm of Florentine merchants
headquartered in Nimes, acted as moneylenders to the Archbishop of Arles, their
most important customer. The oldest discovered record of a complete double-entry
system is the Messari (Italian: Treasurer's) accounts of the city of Genoa in
1340. The Messari accounts contain debits and credits journalized in a bilateral
form and carry forward balances from the preceding year, and therefore enjoy
general recognition as a double-entry system.
"Review
of Arithmetic, Geometry, Ratio and Proportion") was first printed and
published in Venice in 1494. It included a 27-page treatise on bookkeeping,
Financial and Management Accounting
The development
of joint-stock companies (especially from about 1600) built wider audiences for
accounting information, as investors without firsthand knowledge of their operations
relied on accounts to provide the requisite information. This development resulted
in a split of accounting systems for internal (i.e. management accounting) and external
(i.e. financial accounting) purposes, and subsequently also in accounting and
disclosure regulations and a growing need for independent attestation of external
accounts by auditors.
Modern Professional Accounting
The modern profession
of the chartered accountant originated in Scotland in the nineteenth century. During
this time, accountants often belonged to the same associations as solicitors,
and the latter solicitors sometimes offered accounting services to their clients.
Early modern accounting had similarities to today's forensic accounting:
"Like
forensic accountants today, accountants then incorporated the duties of expert
financial witnesses into their general services rendered.
An 1824
circular announcing the accounting practice of one James McClelland of Glasgow promises
he will make “statements for lying before arbiters, courts or council.”
By the middle
of the 19th century, Britain's Industrial Revolution was in full swing, and London
was the financial centre of the world. With the growth of the limited liability
company and large scale manufacturing and logistics, demand surged for more
technically proficient accountants capable of handling the increasingly complex
world of high speed global transactions, able to calculate figures like asset
depreciation and inventory valuation and cognizant of the latest changes in
legislation such as the new Company law, then being introduced. As companies
proliferated, the demand for reliable accountancy shot up, and the profession
rapidly became an integral part of the business and financial system.
References:
- a b c d A History of ACCOUNTANCY , New York State Society of CPAs, November 2003, retrieved December 28, 2013
- The History of Accounting, University of South Australia, April 30, 2013, retrieved December 28, 2013.
- a b Oldroyd, David & Dobie, Alisdair: Themes in the history of bookkeeping, The Routledge Companion to Accounting History, London, July 2008, ISBN 978-0-415-41094-6, Chapter 5, p. 96.
- History of Accounting (www.wikipedia.orglhistoryofaccounting).
Photo Credit: United States Department of Labor
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