A Brief History of the Practice of Accounting
Accounting’s early years
The history of accounting is closely linked to the development of human society and commerce. In fact, accounting has made significant contributions to both over the past five and a half thousand years.
The origins of accounting can be traced back to at least 3600BC when trade between tribes in the region of Mesopotamia required records to be kept on stone and clay tablets. In those times the ‘scribes’ who possessed a knowledge of writing also served as bookkeepers.
It is believed that many of the first examples of what we call ‘writing’ were actually records of transactions carried out more than 5,000 years ago. Some scholars believe that even then there were accounting systems in use that had counterparts for our modern ledgers and receipts.
Accountants and auditors in ancient Egypt
The ancient Egyptians had a far more sophisticated system, thanks largely to their having advanced systems of distribution that required quantities of various commodities to be stored in warehouses and disbursed over periods of time as required.
To keep track of where goods were and what had been consumed, there was one set of scribes that recorded amounts brought into the warehouse and another set of scribes that recorded outward movements.
A third set of scribes functioned as auditors, comparing both sets of records and checking them against the quantities remaining in the warehouses. It was a simple way to ensure that the Pharaoh wasn’t being cheated in the transactions that were carried on.
Rulers of that period also required accounting records to be compiled for the purpose of taxation. The Roman Empire was run for profit and needed to identify the location and ownership of wealth so a share could be extracted and returned to finance the expenses and extravagances of its emperors.
Currency made calculations easier
The development of currency gave impetus to the growth of accounting when it made it much easier to prepare records of transactions. Instead of assessing the worth of domestic animals or agricultural products, it was much simpler to record details of precious metals or minted coins.
At first clay tokens etched with symbols to represent commodities were used as trading pieces, then later around 600BC coins made of precious metals came to have their own representative worth and could be exchanged for commodities.
Accounting as we know it today developed in the 14th century in the Italian city-states of Florence, Genoa and Venice. These cities were centers of maritime trade and banking and their wealthy merchants needed to keep accurate records of financial transactions.
The first double entry accounting
We know that double entry accounting was in use by by 1300 AD. Accounts from that era prepared by Amatino Manucci, a partner in the firm of Giovanni Farolfi & Co. in Florence, have been recovered and show a complete double entry bookkeeping system in place.
Thanks in no small part to its advanced system of accounting, Italy soon became Europe’s banking capital and the wealthiest country on the continent. The concentration of wealth and power in Italy led to further refinement and standardization of accounting practices based on the “Italian method” that quickly spread throughout Europe.
Perhaps most surprising is how little bookkeeping methods have changed since the Middle Ages. The writings of Luca Pacioli, a monk who in 1494 produced a book on mathematics that described the accounting systems in use at the time, describe procedures that would be recognized by modern accountants.
The principal differences between modern bookkeeping practices and what was called the "Method of Venice" are refinements made necessary to accommodate the greater size of contemporary business enterprises than existed in Pacioli’s time.
The relatively small proprietorships of 15th century Italy didn’t need specialized journals, subsidiary ledgers, controlling accounts, formal audit systems, cost accounting or highly-detailed budgeting. These are evolutionary developments that nonetheless were built on foundations laid more than 500 years ago.
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