History of Accounting

Early History

Accountancy's roots date back almost to the days of pre-history when man toiled the fields in early civilisations, such as the Sumerians, located in southern Mesopotamia, an area geographically located between the Tigris and Euphrates rivers, who are known to be one of the earliest known civilisations in the world.

Basic economic thinking established in the Near East instigated the establishment of accurate records of the quantities and relative values of agricultural products, methods that were formalised in trading and monetary systems by 2000 BC.

There is a record in the New Testament, under the Parable of the Talents, of the application of basic accounting principles. The use of simple accounting methods has even been mentioned in the Islamic Koran. An Arab writer in the 12th century A.D mentioned detailed accounting systems used by Muslims as early as in the mid-7th century A.D.

The Roman and the Persian civilisations had a profound influence on the application of such accounting principles. There is documentary evidence of a complex governmental accounting system, around the 12th century A.D, under the control of the second Caliph of Islam, in which all income and expenditure was recorded.

Such a system has been described in detail by various Islamic historians and was used by Muslim rulers in the Middle East, with subsequent revisions, until the fall of the Ottoman Empire.

Birth of Modern Accountancy

Throughout history, the one person attributed as being the “father” of Accountancy is the monk Luca Pacioli (1445-1517). As a cleric, he was also known as Friar Luca dal Borgo.

In Venice in 1494, he wrote a series of texts on the subjects of arithmetic, geometry, proportions and proportionality. Each of these works were designated as Summa, and represented texts that 'sum up' knowledge in a particular field or speciality, and which were used both as textbooks in the schools and as books of reference during the Middle Ages.

Accordingly, in the case of Pacioli, such textbooks were used in the abbaco schools of northern Italy, where the sons of merchants and craftsmen were educated.

As such, these Summa represented a compendium of the mathematical knowledge available at that time. Most importantly, they included the first printed description of the method of keeping accounts that Venetian merchants used on a daily basis. Such a method was known as the double-entry accounting system.

Although he did not invent the system, his detailed work of coding the prevailing methodology established him as preeminent in the filed of Accountancy. The system he devised was the forerunner of that in general use today.

He described the use of journals and ledgers and emphasised the fact that, until the debits and credits were equal, then “a person should not go to sleep at night.” In his ledger, there were accounts covering assets, such as receivables and inventories, together with liabilities, capital, income, and expenses. In fact, these are many of the important account categories that are to be found in a company’s profit and loss account and balance sheet.

Further, he discussed the processes involved in the year-end close and even suggested the use of a trial balance in order to verify that all the ledgers balanced. Finally, his writings embraced a wide range of related topics, which included subjects as diverse as accounting ethics and cost accounting.

Accounting – How To Succeed

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