Question

Two pages of accounting history ?

Answer 1

ACCOUNTING HISTORY:

Today’s accountants are masters of wide variety of art, with knowledge of finance, legislation, and more. But how did it all begin?

Earliest Methods of Accounting:

Accounting was born before writing or numbers existed, some 10,000 years ago, in the area known as Mesopotamia. At that time, merchants faced many of the same problems business 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.

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, etc.

Before shipping their goods, a merchant would take one token for each item in the shipment, and encase the tokens in a ball of clay, called a "bollae" (pronounced "bowl-eye") - meaning ball. The ball would be dried in the sun, given to the boatman, and then broken by the buyer on the other end of the transaction. The buyer would match the tokens with the items in the shipment, to verify that everything sent was accounted for.

This is the function of protection of assets, and is a major function of all modern accounting systems. It was important 10,000 years ago and is just as important now. Today we see merchants doing the same thing as their counterparts 10 millennia ago - today they get a bill of lading - a listing of the merchandise entrusted to a shipper.

At that time, people also relied on accounting to keep a record of crop and herd growth. They used accounting techniques that are still used today to determine if there was a surplus or shortage after crops were harvested each season.

New symbols were soon created representing multiple items, and suddenly both writing and number systems were invented. Written accounting records are some of the oldest writings that have survived until today, and they date back to circa 3300-3200 BC. These early records were simple single-entry listings of wages paid, temple assets, taxes and tributes to the kings. This simple system was used until the mid-1400s.

Accounting during the middle Ages:

During the middle Ages, bartering was the primary form of money-changing, but when Europe changed to a monetary economy in the 13th Century, merchants began relying on book keeping to maintain record of multiple transactions. This is when double-entry bookkeeping got its start, which is when a debit and credit value is entered for each transaction by the accountant. Merchants at the time used accounting as an ad-hoc ordering system. It provided them with constant information that they could use in decision-making to grow their business. This laid the foundation of how we use and understand accounting today.

Luca Pacioli’s Contribution to the Accounting Profession:

Accounting history can be traced back to a book called Summa de Arithmetica, Geometria, Proportioni et Proportionalita, written by the Italian mathematician, Luca Pacioli, in 1494.

Today, this book is regarded as an important document in accounting history. It included the first printed work on algebra and also recorded/documented for the very first time the system of the double entry accounting that became popular with Italian merchants during the Renaissance.

The book also included illustrations and diagrams drawn by Pacioli's friend, Leonardo Da Vinc.

Pacioli’s book became the reference text and teaching tool on the subjects of bookkeeping and accounting for the next several hundred years. This was the first time that symbols for plus and minus appeared in a printed book. In this book, Luca Pacioli described the use of journals and ledgers, and warned that a merchant should not rest until the debits equalled the credits. His ledger had accounts for assets, liabilities, capital, income and expenses. He also demonstrated year-end closing entries and proposed a trial balance to be used to prove a balanced ledger.

Even today, the double-entry accounting method is used today to record entries in both the Profit and Loss register and the Balance Sheet. Luca Pacioli is regarded as The Father of Book keeping and Accounting.

Accounting basics are also mentioned in the New Testament of the Bible in the Book of Matthew as well as in other religious texts such as the Qur’an.

Conclusion:

Modern accounting follows the same principles set down by Luca Pacioli over many years ago. However, today it is a highly organized profession, with a complex set of standards and 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). GAAP is developed over 500 years from the basic concepts Luca Pacioli set forth in the 1400s. Other countries use similar accounting rules as the US, but there are certain differences from country to country based on their economic and financial conditions.

However there is a great deal of similarity in accounting practices around the world because they all have a common origin.