Accounting has a very long history and has been in existence for thousands of years. The development of accounting can be traced back to ancient civilizations, where people needed a systematic way to record economic activities and manage financial information.
Early Development of Accounting
One of the earliest developments in accounting took place in ancient Mesopotamia. The growth of accounting during this period was closely connected with the development of writing, counting, and money. As trade and commercial activities increased, people required proper records of transactions, which led to the development of basic accounting practices.
Evidence of early forms of bookkeeping has also been found in ancient Iran. Similarly, ancient Egyptians and Babylonians developed early systems of auditing to check and verify financial records. These early practices helped in maintaining accuracy and accountability in financial matters.
During the reign of Emperor Augustus, the Roman government maintained detailed financial information. This shows that accounting was already being used by governments for recording and managing financial activities.
Development During Medieval Europe
The introduction and spread of Arabic numerals in place of the Roman numerals traditionally used in Europe made accounting procedures more efficient. Arabic numerals simplified calculations and improved the accuracy and speed of maintaining financial records.
Mediterranean merchants widely adopted these numerals and further improved accounting methods. As trade expanded during medieval Europe, accounting practices became more systematic and well-organized.
Development of Financial Accounting and Management Accounting
With the growth of joint-stock companies, accounting gradually developed into different branches. It was divided into financial accounting and management accounting to meet different information needs.
Financial accounting focused on preparing financial information for external users, while management accounting focused on providing information to management for internal decision-making.
Double-Entry Bookkeeping
A major milestone in the history of accounting was the development of the double-entry bookkeeping system.
The first published work explaining this system was Summa de Arithmetica, which was published in Italy in 1494 by Luca Pacioli. Because of his important contribution to the development and documentation of the double-entry bookkeeping system, Luca Pacioli is widely known as the “Father of Accounting.”
Accounting as a Profession
Accounting gradually evolved from a record-keeping activity into an organized profession during the 19th century.
In England, various local professional accounting bodies came together and merged to establish the Institute of Chartered Accountants in England and Wales (ICAEW) in 1880. This marked an important step in the professional development and recognition of accounting.