History & Development of Accounting
Accounting is an ancient discipline dating back approximately 10,000 years. The accumulation of wealth required methods to keep inventories. The use of money, banking, and credit were important elements of developing civilizations. The first accounting system probably consisted of stones used to represent wealth. The Medieval Italian merchants relied upon double-entry bookkeeping. Mass production, mass transportation and big business resulted from the Industrial Revolution and required sophisticated accounting methods.
Other People Are Reading
-
Transition to Farmers
-
The establishment of human civilization can be marked by the transition of man from hunter-gatherer to farmer. Specialized occupations emerged as crop surpluses appeared. This resulted in trade and barter between the farmers and craftsmen. Possessions such as grain, sheep and cattle were signs of wealth and became the medium of exchange.
Tokens
-
Archaeologists found relics in the Near East related to inventory from approximately 5,000 B.C. These included clay artifacts of different sizes and shapes and with different markings. Archaeologists labeled these artifacts "tokens." Later tokens were often found in hollow clay balls labeled "envelopes." Experts believe this was a voucher system.
-
Records and Money
-
The earliest record of transactions is subject to debate. Sumerian city-states were probably the birthplace of writing. There were attempts to define wealth with money. The shekel was an early monetary unit equal to the value of an ox. The Code of Hammurabi contained regulations for contracts and transactions as early as 2000 B.C.
Roman Bureaucracies
-
The rise of the Roman civilization created a need for a variety of financial records. Wealthy Roman families kept such records. Bankers keep formal records as possible protection against legal action. Records were necessary for taxes collected for the Temple of Saturn. Public records included a monthly register of payments and receipts.
Double-Entry Bookkeeping
-
Double-entry bookkeeping was based upon a system where every transaction is shown as a debit and a credit. The credits and debts had to equal in the ledger book. Italian merchant Luca Pacioli developed the system and published a book describing the method in 1544. Modern accounting is based upon this method.
From the Italian Merchants to the Industrial Revolution
-
With Columbus' discovery of the New World, new opportunities arose for accumulation of wealth. European countries became great sea powers. The use of short-term stocks raised working capital for voyages. The South Sea Bubble caused such stock ventures to lose public favor and expanded the role of accountant to auditor.
The Industrial Revolution changed countries to industry-based economies. Goldsmiths served as the first banks by keeping gold and silver for customers and lending the metal. The Bank of England became the first central bank in 1694.
Expanding Role of Accounting
-
Josiah Wedgwood was the grandfather of Charles Darwin and owner of a successful pottery business. Wedgwood began to analyze costs of materials and effects on profits. By this method, he was able to price products by cost and increase profit and demand. Wedgwood's system of cost accounting allowed his business to survive a poor economy.
The British Companies Act of 1862 recognized accountants as auditors. The Cooper brothers founded the Institute of Accountants in 1870. The firm provided services around the world.
The DuPont cousins established their U.S. company in 1903. The DuPonts used an advanced accounting system. This allowed accurate long-range planning. DuPont bought a large interest in GM and brought the accounting system to the company.
Most modern accounting practices were in place by 1925.
-
References
Resources
- Photo Credit accounts image by Alexey Klementiev from Fotolia.com
