History of Accounting

Part 2 - Ancient Accounting: Dawn of Man through Luca Pacioli

In attempting to explain why double entry bookkeeping developed in 14th century Italy instead of ancient Greece or Rome, accounting scholar A. C. Littleton describes seven “key ingredients” which led to its creation.

• Private property: The power to change ownership, because bookkeeping is concerned with recording the facts about property and property rights.
• Capital: Wealth productively employed, because otherwise commerce would be trivial and credit would not exist.
• Commerce: The interchange of goods on a widespread level, because purely local trading in small volume would not create the sort of press of business needed to spur the creation of an organized system to replace the existing hodgepodge of record-keeping.
• Credit: The present use of future goods, because there would have been little impetus to record transactions completed on the spot.
• Writing: A mechanism for making a permanent record in a common language, given the limits of human memory.
• Money: The “common denominator” for exchanges, since there is no need for bookkeeping except as it reduces transactions to a set of monetary values.
• Arithmetic: A means of computing the monetary details of the deal.

Many of these factors did exist in ancient times, but, until the Middle Ages, they were not found together in a form and strength necessary to push man to the innovation of double entry. Writing, for example, is as old as civilization itself, but arithmetic – the systematic manipulation of number symbols – was really not a tool possessed by the ancients. Rather, the persistent use of Roman numerals for financial transactions long after the introduction of Arabic numeration appears to have hindered the earlier creation of double-entry systems.

Nevertheless, the problems encountered by the ancients with record keeping, control and verification of financial transactions were not entirely different from our current ones. Governments, in particular, had strong incentives to keep careful records of receipts and disbursements – particularly concerning taxes. And in any society where individuals accumulated wealth, there was a desire by the rich to perform audits on the honesty and skill of slaves and employees entrusted with asset management.

But the lack of the above-listed antecedents to double entry bookkeeping made the job of an ancient accountant extraordinarily difficult. In societies where nearly all were illiterate, writing materials costly, numeration difficult and money systems inconsistent, a transaction had to be extremely important to justify keeping an accounting record.

Article courtesy of John R. Alexander at Net Gain