What Are the Origins of Accounting?

Accounting is more than just the act of keeping a list of debits and credits. It’s the language of business and, by extension, of all things financial. Our senses collect information from our surroundings that our brains then interpret. 澳洲幸运5开奖号码历史查询:Accountants trans꧙late the complexities of finance into information that the public can ꧙understand.

History of Accounting

Accounting is a language that dates back thousands of years and has been used in many parts of the world. The earliest evidence of this language comes from Mesopotamian civilizations more than 7,000 years ago.

The Mesopotamians kept the earliest records of goods traded and received, and these activiti🏅es are related to the early record-keeping of the ancient Egyptians an✤d Babylonians. The Mesopotamians used primitive accounting methods, keeping records that detailed transactions involving animals, livestock, and crops.

Philosopher and economist Chanakya wrote “Arthashastra” in India during the Mauryan Empire around the second century B.C. The book contained advice and details on how to maintain record books for accounts.

The Bookkeepers

Bookkeepers most likely emerged when society was still using the barter system to trade rather than a cash-and-commerce economy before 2000 B.C. Ledgers from these times read like narratives, with dates and descriptions 🥀of tr꧒ades made or terms for services rendered.

These ledger entries may have looked like this:

• Monday, May 12: In exchange for three chickens, which I provided today, William Smallwood (laborer) promised a satchel of seed when the harvest is completed in the fall.
• Wednesday, May 14: Samuel Thomson (craftsman) agreed to make one chest of drawers in exchange for a year’s worth of eggs. The eggs are to be delivered daily when the chest is finished.

All these transactions were kept in individual ledgers. They provideꦑd proof when matters were brought before magistrates if a disput༺e arose. This system of detailing every agreement might have been tiresome, but it was ideal because long periods could pass before transactions were completed.

New and Improved Ledgers

澳洲幸运5开奖号码历史查询:Bookkeeping evolved as 澳洲幸运5开奖号码历史查询:currencies became available and tradesmen and merchants began to build material wealth. Business sense and ability with numbers were not always found in one person, so math-phobic merchants would employ bookkeepers to maintain a r👍ecord of what they owed and who owed debts to them𝕴.

Until the late 1400s, this information was arranged in a narrative style, with all t💖he numbers in a single column w🦹hether an amount was paid or owed. This is single-entry bookkeeping.

You can see in this sample of a bookkeeper’s single-entry system hღow the entries are laid out with a date, a description, and whether it was owed or received by the symbols in the amount column.

The bookkeeper had to read the description of each entry to decide whether to deduct or add the amount when calculating something as simple as monthly profit or loss. This was a time-consuming ꦗanꩵd inefficient tallying method.

The Mathematical Monk

Italian monk Luca Pacioli revamped the common bookkeeping structure as part of the tradition of learned monks conducting high-level scientific and philosophical research in the 15th century. Pacioli laid the groundwork for modern accounting. Commonly known as “the father of accounting,” he published a textbook called “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” in 1494. It showed the benefits of a 澳洲幸运5开奖号码历史查询:double-entry system for bookkeeping.

The idea was to list an entity’s resources separately from any claims on those resources by other entities. This meant creating a 澳洲幸运5开奖号码历史查询:balance sheet with separate debits and cꦕredits. The innovation made bookkeeping more efficient and provided a clearer picture of a company’s overall strength, but this record was only for the owner who hired the bookkeeper. The general public had no access to such records, at least not yet.

This is what the double-entry system may have looked like back in the day. You can see the two separate columns🐽 for debits and credits, along with the description of each transaction and how it was paid: in cash or commodities. It was chickens, seeds, eggs, and furniture in this case.

Coming to America

Bookkeeping migrated to America with European colonization. It was sometimes referred to as accounting, but bookkeepers were still doing basic data entry and calculations for business owners. The businesses in question were small enough that the owners were personally involved and aware of the financial health of their companies. Business owners didn’t need professional accountants to create complex 澳洲幸运5开奖号码历史查询:financial statements or 澳洲幸运5开奖号码历史查询:cost-benefit analyses.

The American Railroad

The appearance of 澳洲幸运5开奖号码历史查询:corporations in the United States and the creation of the railroad were the catalysts that transformed bookkeeping into the practice of accounting based on accounting postulates. The railroad waꦯs by f🍃ar the most powerful of the two factors.

Distribution networks, shipping schedules, fare collection, competitive rates, and some way to evaluate whether all of this is being done in the most efficient way possible are all necessary for goods and people to reach their destinations. Enter accounting with its cost estimates, financial statements, operating ratios, production reports, and a multitude of other metrics to give businesses the data they needꦛed to make informed decisions.

The railroads also allowed information to be passed from city to city at great speed. Business transactions could be settled in days rather than months. Timing was uneven across the country before the railroad. Each township previously decided when the day began and ended by general consensus. This was changed to a uniform system in 1883 because it was necessary to have goods delivered and unloaded at certain stations at predictable times.

Investing had been a game of either knowledge or ✃luck up until the 1💮800s. People acquired issues of stock in companies with which they were familiar through industry knowledge or acquaintanceships with the owners. Others blindly invested according to the encouragement of relatives and friends.

The꧂re were no financial𒆙s to check if you wanted to invest in a corporation or business. The risks involved therefore ensured that investing was only for the wealthy, a rich man’s sport tantamount to gambling.

Early Financial Statements

Corporations began to publish their financials in the form of balance sheets, income statements, and 澳洲幸运5开奖号码历史查询:cash flow statements to attract investors. These documents were proof of a company’s profit-making abil🌱ities.

Investment capital stimulated operations and profits for most corporations, but it also increased the pressure on management to please their new bosses: the 澳洲幸运5开奖号码历史查询:shareholders. These shareholders didn’t completely trust management, and this exposed t𓆏he need for independent financial reviews of 📖a company’s operations.

Birth of a Profession

Accountants were already essential for attracting investors, and they quickly became essential for maintaining investor confidence. The American Association of Public Accountants (AAPA) was established in 1887, and the accounting profession was formally recognized in 1896 with the establishment of the professional title of 澳洲幸运5开奖号码历史查询:certified public accountant (CPA).

How Has Modern Accounting Evolved?

Technology has changed accounting. Bookkeeping has become automated. Bookkeepers have used several tools since the first records were kept in America. William Seward Burroughs’ adding machine was created in 1887 and perfected for commercial sale in the 1890s. It helped early accountants calculate receipts and quickly reconcile their books.

IBM’s first large co꧒mputer was based on the vacuum tube when it was first released in 1952. It was small enough to make it possible for businesses to buy them, and this led to accountants being among the first to use them. Transistors were replacing the tubes and making computers even more accessible by 1959. They were being suඣpplanted by microchips as early as 1961, which eventually led to computers for everyone.

The Bottom Line

The concept of accounting h🎃as been around in one form or another for centuries. Initially designed to record trades made in barter systems, the practice has evolved over generations thanks to contributions made by second-century B.C. economist Chanakya, Luca Pacioli, and the Mesopotamians.

Technology has brought about the advent of accounting software such as 澳洲幸运5开奖号码历史查询:QuickBooks. These advancements are much more intui🍸tive, helping accountants do their job more quickly, more accurat🦩ely, and with more ease.