HISTORY OF ACCOUNTING

 

                                                                                  Introduction
Unlike most other modern professions, accounting has a history that is usually discussed in terms of one seminal event – the invention and dissemination of the double entry bookkeeping processes. But a view of accounting history that begins with Luca Pacioli’s contributions overlooks a long evolution of accounting systems in ancient and medieval times. Accounting was born before writing or numbers existed, some 10,000 years ago, in the area known as Mesopotamia, later Persia, and today the countries of Iran and Iraq. This area contains the Tigris Euphrates river valley, a large fertile area 10,000 years ago with a large thriving population and active trading between towns and cities up and down the two rivers.

Writing and numbers would be not be invented for about another 5,000 years. And what happens next will directly lead to the invention of both writing and number systems.

At that time, merchants faced many of the same problems businesses face today. They had to ship their merchandise up and down the rivers, and that meant trusting a boatman with their goods. Unfortunately, not all boatmen were honest, and disagreements often arose about how much was shipped versus what was received at the other end.

It is hard for us today to imagine a world without writing and numbers. Try to imagine yourself in their position.... what would you do?

To deal with the problem, merchants came up with an ingenious plan. They made small clay tokens, in various shapes and with various markings, to indicate different products. One would mean a basket of grain, another would mean a pot of oil, etc. They had over 200 such tokens to indicate a large variety of common goods, including food, leather, clothing, utensils, tools, jewelry, etc.

Luca Pacioli: Father of Modern Accounting
By the time Christopher Columbus was trying to sail west, a new form of accounting was in use by merchants in Venice . Luca Pacioli (pot-chee-O-lee) set down in writing for the first time a description of the double-entry system of accounting, which we still use today in much the same form. Although he didn't actually invent the system he is called "the father of accounting" for his contributions and for documenting the system in his fifth book on mathematics Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportion).

Written as a digest and guide to existing mathematical knowledge, bookkeeping was only one of five topics covered. The Summa's 36 short chapters on bookkeeping, entitled De Computis et Scripturis (Of Reckonings and Writings) were added "in order that the subjects of the most gracious Duke of Urbino may have complete instructions in the conduct of business," and to "give the trader without delay information as to his assets and liabilities" (All quotes from the translation by J.B. Geijsbeek, Ancient Double Entry Bookkeeping: Lucas Pacioli's Treatise, 1914).


THE MODERN ACCOUNTING
Modern accounting follows the same principles set down by Luca Pacioli over 500 years ago. However, today it is a highly organized profession, with a complex set of rules for the fair disclosure and presentation of information in financial statements. Every day trillions of dollars in transactions are recorded by business, government and financial institutions world-wide. They all follow the same general set of rules.

In the United States, we follow Generally Accepted Accounting Principles (GAAP) as specified by the Financial Accounting Standards Board (FASB). We use the US Dollar for all financial statements and transactions. Other countries use similar accounting rules as the US, but there are differences from country to country. If you had a business in France, you would use the French equivalent to our GAAP.

GAAP developed over 500 years from the basic concepts Luca Pacioli set forth in the 1400s. There is a great deal of similarity in accounting practices around the world because they all have a common origin.

What Accountants Do...
Many people incorrectly believe that accountants' work primarily consists of bookkeeping. Most professional accountants do little or no bookkeeping. Accountants are involved in the preparation of financial statements, and the interpretation of financial information, rather than day-to-day recording of routine transactions. This work includes making sure the financial statements comply with GAAP, provide adequate disclosure of essential financial information, and are free from material errors and misstatements. Source: Wikipedia