The History Of Accounting

History Of Accounting


here is no correct record as to when accounting began, but some available information suggests that record keeping is as old as man himself. The starting point for accounting can be traced to the merchants in the Babylonian and Assyrian civilizations, about 4000 years BC. 

The method of keeping records then was to make marks on the wall or stone or papyrus or wax tablets. The method of keeping financial records was highly primitive in nature.

The history of accounting will not be complete without mentioning the name of an Italian monk and mathematician LUCCA PACIOLO. In 1949, the introduction of the double entry principle system in Italy described as the “Italian method”. In his famous treatise Summa De. Arithmetical Geometrical Proportion et  Proportionalita in 1494 in venice, Reverend Father Lucca Paciolo described the double-entry system by giving insight into the reasoning behind accounting records. He postulated that all the entries must have double-entry one a debtor, and one a creditor. Even though during this period the records were prepared to show statement for the business rather than the owner, but the yearly preparation was still lacking.

After Paciolo, a Dutch advocated the concept of the profit and loss account at yearly interval. The rapid growth of civilization and technological advancement helped in the development of modern methods of accounting. During the era of Industrial revolution there was need for a world acclaimed accounting methods.

With the developments of new methods of accounting, ownership of business was separated from management. Since the double entry principle was discovered, there has been massive development in the accounting theories and methods. The introduction of micro and mini computers also brought enhanced and more advanced performance but the fundamental principles of accounting remain unchanged.

Both currency and accounting began through ‘concrete counting’, which means counting being object-specific. So five boats would be represented by a different word or object than five apples.

It was only when objects, words and symbols began to be used to represent abstract numbers, such as in Mesopotamia around 3,000 BC, that more complex forms of accounting could be developed. This also allowed the birth of arithmetic. With concrete counting, representations didn’t extend past a certain number of units, and different amounts could not be added together. Abstract counting introduced the kinds of mathematical flexibility needed for systems like double entry bookkeeping.

Early forms of double entry bookkeeping started in various locations at different times, example of such is the ‘four-element bookkeeping system’ which stated in Korea in the 11th century.

Futhermore, the double entry bookkeeping system which we’re familiar with today was first properly described by Luca Pacioli in 1494.  He is referred to as ‘the father of bookkeeping and accounting’, he defined much modern day knowledge about debits, credits, journals, and ledgers. He set out a comprehensive accounting cycle, which described a clear process for those involved with accounts to follow. Some of the things he introduced are ledgers based on assets receivables and
inventories, liabilities, capital, expenditure, and income accounts.

For double entry to flourish, a number of factors needed to be established and combined. This included private property, capital, large-scale commerce, credit, systematized writing, money, and arithmetic. In 15th century Europe, these things we coming together in just the right ways to set the scene for huge advances in accounting.

With industrialisation, there became a need for more advanced accounting methods. The large corporations of the industrial revolution required cost accounting systems that addressed external sources of finance like shareowners, and needed to be able to calculate and predict profits accurately, basing their operations on real financial data.

All of this called for dedicated accounting professionals who had highly specialized knowledge, and could be trusted with great financial responsibility. Accountants also needed to be more aware of legislative changes than ever before. The idea of the chartered accountant came about in mid-19th century Scotland, after a group of accountants petitioned Queen Victoria for a Royal Charter. It was time for formal recognition of the respectability of the profession, and of the varied expertise of those working within it.

Towards the end of the 19th century, the Institute of Chartered Accountants was formed in England and Wales. Growing quickly, it later introduced formal examinations for its members, with the designations of Fellow Chartered Accountant (FCA) and Associate Chartered Accountant (ACA) becoming highly sought after.
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