Accounting is the basic process of record keeping, analysis, and reporting of business information. It is a practice that appeared in early civilizations and its developments have been tied to evolutions in writing and currency. Without a system of accounting business wouldn’t be possible because nobody would be able to track what is happening, or they would quickly forget. The earliest examples “…were found over 7,000 years ago among the ruins of Ancient Mesopotamia.” (Fremont… 2019). These early accounting systems were used to track agricultural surpluses and shortages as well as “…crop and herd growth.” (Fremont… 2019). This system of surplus and shortages might have worked similar to today’s system of debiting and crediting and developed into financial management, which is how ancient civilizations built themselves.
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Taxation and auditing have also been around with early examples of ancient Egyptian “…tax collectors as scribes.” (Tax… 2006) These scribes conducted audits be going forth and physically checking homes for cooking oil to “…ensure that oil was not recycled – perhaps the first historical record of ‘avoidance’” (New… 2008). In other words, the scribes were sent to ensure that the tax law was being followed to guard against tax evasion. The implementation of taxes by government, which in ancient society came most often in the form of a royal rulership, have funded civilizations to this very day. Ancient forms of taxation usually came in the form of a physical resource such as salt, meat, or produce and were eventually replaced by currency, which is non-perishable.
An excellent example civilization building through taxation would be the Qin Dynasty (221-206 BCE). Founded by Qin Shi Huangdi after ending the Warring States period and uniting ancient China, the Qin Dynasty operated through legalism and established a centralized bureaucracy (Columbia… 2009). In order to assimilate the previously “warring states” “Qin (Shi Huang) also standardized the Chinese script, currency, and system of measurements.” (Metropolitan… 2000). Through taxation public works like roads and canals became possible as well as funding for ancient wonders like the Great Wall. While there was unfortunately slave labor involved in the building of the Great Wall and other great wonders such as the Great Pyramids in Egypt, these projects wouldn’t have been possible without taxation or the basic principles of accounting.
The position of the accountant has been around for as long as the need to take account of things as well. An example of from the ancient archives of Theophanes (758-817 A.D.), an ancient roman chronicler, show accounting errors from a “…dispensator, a term for accountant (possibly a slave), present with him, likely to do much of the accounting.” (Lagrue… 2014). The Deeds of the Divine Augustus was the last will and testament of Julius Caesar (100-44 B.C.E.), which detailed the life and accomplishments of Julius Caesar as well as his will after death. In the will enormous sums of ancient Roman currency are pledged to the people of the Roman Empire in the form of public gifts. The pledged money also paid for temples, public works, roads, canals and “…the Flaminian road.” (Sandra Silver). This goes to show that there was a significant range and scope between levels of ancient accounting from rudimentary record keeping to imperial civilization scale financial management.
Double-entry bookkeeping is accredited to Fra Luca Bartolomeo de Pacioli (1445-1517), or Luca de Pacioli for short. Luca de Pacioli taught mathematics to Leonardo da Vinci, wrote several mathematic compendia and is known as the father of modern accounting after he “He popularized the system of double accounting for keeping financial records” (New World… 2018). The Summa de arithmetica, geometria, proportioni, et proportionalita published by Luca Pacioli in 1494 C.E. “…contained not only practical arithmetic, but also algebra, practical geometry and the first published treatment of double-entry bookkeeping.” (Katz & Swetz 2011). The accounting system that Luca Pacioli describes involved “…the use of journals and ledgers… His ledgers had accounts for assets…liabilities, capital, income and expenses.” (New World 2018). As well as how to close the entries at year end and prepare a trial balance to prove the accuracy of the ledgers. Other topics regarding accounting that are covered in the Summa are “…the ethics of accounting, as well as the Rule of 72, a method of determining economic return” (Famous… 2013).
Typically banking and currency were controlled and closely tied to religious entities and government when it came to ancient civilizations. However, merchant capitalism drove trade routes between civilizations and as a result loans existed between not only individuals but nations as well. One hundred years prior to Luca de Pacioli, two Italian families, the Peruzzi and the Bardi, loaned the king of England Edward the III 600,000 and 900,000 gold florins respectively, to fund the Hundred Years’ War with France. (Checking…) After King Edward defaulted on the loans both Italian families went bankrupt which created a power vacuum for the Medici family to take power. Giovanni di Bicci de’ Medici (1360-1429) restored the family and “…made the Medici the wealthiest family in Italy, perhaps Europe” (Helden 1995). The Medici family formed the Medici bank which grew to immense power after partnering with the Catholic church. The partnership was so powerful that “…half the bank’s revenue came from the Rome “branch”, which was…a mobile bank that followed the Pope.” (PBS). The Medici family is accredited with the invention of limited liability after Giovanni di Bicci implemented a franchise banking system, where regional managers shared a stake in the business. (PBS).
The issuance of bank bonds is tied to English goldsmiths in the 17th century. People would deposit money in the form of gold coins or ore, in exchange for paper promissory notes. This in turn allowed the goldsmiths to use the gold they held to lend against the money that was deposited with them. (Lambert 2019). These small individual bank-like operations weren’t large enough to fund governments however so “…in 1694 the Bank of England was founded to provide a loan to the government.” (Lambert 2019). A year later the Bank of Scotland was founded where modern accounting begins its true origins.
Two pioneering Scottish accounts in the 17th century were Robert Colinson who wrote the Idea Rationaria, and Thomas Steven the accountant general for the East India Trading Company. (O’Neill 2016). While not specifically Scottish, Josiah Wedgwood (1730-95) was a pottery merchant is accredited as the first cost accountant. Through his analysis of business records, he was able to “…(recognize) the sense in recording not just the cost of materials and (labor) but calculations for coal, storage and transport.” (O’Neill 2016). Through careful cost management he was able to build a respected business and contribute to the local English community of North Staffordshire through “…his involvement in the development of canal and road networks.” (Wedgwood N.D.). Josiah Wedgwood was also a prolific abolitionist who contributed to helping freed slaves during the late 1700’s by supporting the Sierra Leone Company and participating in a sugar boycott. During the sugar boycott he even used his own factories to reproduce a pro-abolition image to help support the movement. (Abolition… 2009).
- Abolition Project. (2009). Josiah Wedgwood (1730-1795): The Industrialist. The Abolition Project. MLA East of England. Retrieved from http://abolition.e2bn.org/people_33.html
- Checking Account.org (N.D.) The History of Banking Throughout the Ages. Retrieved from http://checkingaccount.org/the-history-of-banking-throughout-the-ages/
- Columbia University. (2009). The Early Chinese Empire: The Qin and the Han. Columbia University. Retrieved from http://afe.easia.columbia.edu/main_pop/kpct/kp_qinhan.htm
- Famous Mathematicians. (2013). Luca Pacioli. Famous Mathematicians. Retrieved from http://famous-mathematicians.org/luca-pacioli/
- Fremont College. (2019). History of Accounting. Fremont College. Retrieved from https://fremont.edu/history-of-accounting/
- Helden, Al V. A.V.H (1995) The Medici Family. The Galileo Project. Retrieved from http://galileo.rice.edu/gal/medici.html
- Katz, Victor J. Swetz, Frank J. (2011). Mathematical Treasures – Pacioli’s Summa. Mathematical Association of America. Retrieved from https://www.maa.org/press/periodicals/convergence/mathematical-treasures-paciolis-summa
- Lagrue, Lance E. L.E.L. (2014) Accounting and Auditing in Roman Society. University of North Carolina, Chapel Hill. Lance Elliot Lagrue. Retrieved from https://pdfs.semanticscholar.org/2d4d/49742f44741c1cc025c77c545e41651815d5.pdf
- Lambert, Tim. T.L. (2019). A Brief History of Banks. LocalHistories.org. Retrieved from http://www.localhistories.org/banking.html
- Metropolitan Museum of Art. (2000). Heilbrunn Timeline of Art History: Qin Dynasty (221–206 B.C.). The Metropolitan Museum of Art. Retrieved from https://www.metmuseum.org/toah/hd/qind/hd_qind.htm
- New Internationalist. (2008). A Short History of Taxation. New Internationalist. Retrieved from https://newint.org/features/2008/10/01/tax-history/
- New World Encyclopedia. (2018). Luca Pacioli. New World Encyclopedia. Retrieved from http://www.newworldencyclopedia.org/entry/Luca_Pacioli
- O’Neill, Eleanor. E. O. (2016). Accountants who made their mark on history. Institute of Chartered Accounts of Scotland. Retrieved from https://www.icas.com/ca-today-news/accountants-who-made-their-mark-on-history
- PBS.org (N.D.) Medici: Godfathers of the Renaissance. Public Broadcasting Service. Retrieved from https://www.pbs.org/empires/medici/medici/bankers.html
- Silver, Sandra S. S.S.S. (N.D.) Caesar Augustus and his Deeds. Early Church History. Retrieved from https://earlychurchhistory.org/politics/caesar-augustus-and-his-deeds/
- Tax World. (2006). A History of Taxation. Tax World. Retrieved from http://www.taxworld.org/History/TaxHistory.htm
- Wedgwood Museum. (N.D.). Josiah Wedgwood I (1730-95). Wedgwood Museum. Retrieved from http://www.wedgwoodmuseum.org.uk/learning/discovery_packs/pack/lives-of-the-wedgwoods/chapter/josiah-wedgwood-i-1730-95