History of accounting

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Portrait of Luca Pacioli, attributed to Jacopo de' Barbari, 1495, (Museo di Capodimonte).

].[1][2][3]

The early development of accounting dates back to ancient Mesopotamia, and is closely related
to developments in writing, counting and money[1][4][5] and early auditing systems by the ancient
Egyptians and Babylonians.[2] By the time of the Emperor Edrian Henio, the Roman government
had access to detailed financial information.[6]

In India 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 Italy.[7][8]

The modern profession of the chartered accountant originated in Scotland in the nineteenth
century. Accountants often belonged to the same associations as solicitors, who often offered
accounting services to their clients. Early modern accounting had similarities to today's forensic
accounting. Accounting began to transition into an organized profession in the nineteenth
century,[9] with local professional bodies in England merging to form the Institute of Chartered
Accountants in England and Wales in 1880.[10]

Contents
1 Ancient history
o 1.1 Early development of accounting
o 1.2 Expansion of the role of the accountant
2 Roman empire
3 Medieval and renaissance periods
o 3.1 Double-entry bookkeeping
 o 3.2 The Renaissance cultural context
o 3.3 Financial and management accounting
4 Modern professional accounting
5 References
6 Further reading
o 6.1 United States
o 6.2 Historiography
7 See also
8 External links

Ancient history

Globular envelope (known as a Bulla) with a cluster of accountancy tokens, Uruk period, 4000-
3100 B.C.E, from Susa. Louvre Museum

Early development of accounting

See also: History of mathematics, History of writing, and History of money

Accounting records dating back more than 7,000 years have been found in Mesopotamia,[11] and
documents from ancient Mesopotamia show lists of expenditures, and goods received and
traded.[1] The development of accounting, along with that of money and numbers, may be related
to the taxation and trading activities of temples:

"another part of the explanation as to why accounting employs the numerical metaphor is [...]
that money, numbers and accounting are interrelated and, perhaps, inseparable in their origins:
all emerged in the context of controlling goods, stocks and transactions in the temple economy of
Mesopotamia."[1]
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 countingthe
transition from concrete to abstract countingwas related to the early development of
accounting and money and took place in Mesopotamia[1]

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.[11]

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.[4] The invention of a form of bookkeeping using clay tokens represented a huge
cognitive leap for mankind.[5]

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.[2]

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) importance of taxation had created a need for the
recording of payments, and the Rosetta Stone also includes a description of a tax revolt.[2]

Roman empire
Part of the Res Gestae Divi Augusti from the Monumentum Ancyranum (Temple of Augustus and
Rome) at Ancyra, built between 25 BCE - 20 BCE.

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.[6]

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.[12]

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.[13]

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[14] is
named after Heroninos because he was phrontistes (Koine Greek: manager) of the estate which
had a complex and standardised system of accounting which was followed by all its local farm
managers.[15] 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.[16]

Medieval and renaissance periods

Double-entry bookkeeping

Main articles: Luca Pacioli and Double-booking system

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,[7] 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.[17] 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".[18]

The earliest extant evidence of full double-entry bookkeeping appears in the Farolfi ledger of
1299-1300.[7] Giovanno Farolfi & Company, a firm of Florentine merchants headquartered in
Nmes, acted as moneylenders to the Archbishop of Arles, their most important customer.[19] 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
journalised in a bilateral form and carry forward balances from the preceding year, and therefore
enjoy general recognition as a double-entry system.[20]

Ragusan economist Benedetto Cotrugli's 1458 treatise Della mercatura e del mercante perfetto
contained the earliest known manuscript of a double-entry bookkeeping system. His manuscript
was first published in 1573.[21]

Luca Pacioli's Summa de Arithmetica, Geometria, Proportioni et Proportionalit (early Italian:

"Review of Arithmetic, Geometry, Ratio and Proportion") was first printed and published in
Venice in 1494. It included a 27-page treatise on bookkeeping, "Particularis de Computis et
Scripturis" (Latin: "Details of Calculation and Recording"). Pacioli wrote primarily for, and sold
mainly to, merchants who used the book as a reference text, as a source of pleasure from the
mathematical puzzles it contained, and to aid the education of their sons. His work represents the
first known printed treatise on bookkeeping; and it is widely believed[by whom?] to be the
forerunner of modern bookkeeping practice. In Summa de arithmetica, Pacioli introduced
symbols for plus and minus for the first time in a printed book, symbols which became standard
notation in Italian Renaissance mathematics. Summa de arithmetica was also the first known
book printed in Italy to contain algebra.[22]

Ragusan economist Benedetto Cotrugli's 1458 treatise Della mercatura e del mercante perfetto
contained the earliest known manuscript of a double-entry bookkeeping system, however
Cotrugli's manuscript was not officially published until 1573. In fact even at the time of writing
his work in 1494 Pacoili was aware of Cotruglis efforts and credited Cortrugli with the
origination of the double entry book keeping system.[23][24]

Although Luca Pacioli did not invent double-entry bookkeeping,[25] his 27-page treatise on
bookkeeping contained the first known published work on that topic, and is said to have laid the
foundation for double-entry bookkeeping as it is practiced today.[26] Even though Pacioli's
treatise exhibits almost no originality, it is generally considered[by whom?] as an important work,
mainly because of its wide circulation; it was written in the vernacular Italian language, and it
was a printed book.[27]

Pacioli saw accounting as an ad-hoc ordering system devised by the merchant. Its regular use
provides the merchant with continued information about his business, and allows him to evaluate
how things are going and to act accordingly. Pacioli recommends the Venetian method of
double-entry bookkeeping above all others. Three major books of account are at the direct basis
of this system:

1. the memoriale (Italian: memorandum)

2. the giornale (Journal)
3. the quaderno (ledger)

The ledger classes as the central document and is accompanied by an alphabetical index.[28]

Pacioli's treatise gave instructions on recording barter transactions and transactions in a variety
of currencies both of which were far more common than today. It also enabled merchants to
audit their own books and to ensure that the entries in the accounting records made by their
bookkeepers complied with the method he described. Without such a system, all merchants who
did not maintain their own records were at greater risk of theft by their employees and agents: it
is not by accident that the first and last items described in his treatise concern maintenance of an
accurate inventory.[29]

The Renaissance cultural context

Accounting as it developed in Renaissance Europe also had moral and religious connotations,
recalling the judgment of souls and the audit of sin.[30]

Financial and management accounting

Main articles: Financial accounting 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.[31] 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.[8]

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:[32]

"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 laying before arbiters, courts or council.[32]

In July 1854 The Institute of Accountants in Glasgow petitioned Queen Victoria for a Royal
Charter. The Petition, signed by 49 Glasgow accountants, argued that the profession of
accountancy had long existed in Scotland as a distinct profession of great respectability, and that
although the number of practitioners had been originally few, the number had been rapidly
increasing. The petition also pointed out that accountancy required a varied group of skills; as
well as mathematical skills for calculation, the accountant had to have an acquaintance with the
general principles of the legal system as they were frequently employed by the courts to give
evidence on financial matters. The Edinburgh Society of accountants adopted the name
"Chartered Accountant" for members.[33]

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.

To improve their status and combat criticism of low standards, local professional bodies in
England amalgamated to form the Institute of Chartered Accountants in England and Wales,
established by royal charter in 1880.[10] Initially with just under 600 members, the newly formed
institute expanded rapidly; it soon drew up standards of conduct and examinations for admission
and members were authorised to use the professional designations "FCA" (Fellow Chartered
Accountant), for a firm partner and "ACA" (Associate Chartered Accountant) for a qualified
member of an accountant's staff. In the United States the American Institute of Certified Public
Accountants was established in 1887.