History of Accounting

The history of accounting is thousands of years old and can be traced back to ancient civilisations. Accounting developed along with the growth of economic activities and the need to maintain records of transactions. One of the earliest developments in accounting can be traced to ancient Mesopotamia. The development of accounting in Mesopotamia was closely connected with the development of writing, counting, and money. These developments made it possible to record and manage economic information in a more systematic manner.

Evidence of early forms of bookkeeping has also been found in ancient Iran. Similarly, the ancient Egyptians and Babylonians developed early systems of auditing. These historical developments indicate that the need to record and verify economic transactions existed even in ancient societies.

Accounting practices also became more developed during the Roman period. By the time of Augustus, the Roman government had access to detailed financial information. This shows that financial records had become important for government administration and the management of economic activities.

Development of Accounting in Medieval Europe

An important development in accounting occurred with the increasing use of Arabic numerals in place of Roman numerals that had traditionally been used in Europe. Arabic numerals made numerical calculations easier and improved the efficiency of accounting procedures.

The use of Arabic numerals particularly benefited Mediterranean merchants. As commercial activities expanded, these merchants further improved and refined accounting practices in medieval Europe. The growth of trade created a greater need for efficient methods of recording and calculating financial transactions.

Another major development occurred with the growth of joint-stock companies. As business organisations became larger and more complex, accounting developed into separate areas. This led to the division of accounting into financial accounting and management accounting. Financial accounting developed to deal with financial reporting, while management accounting focused on information required for managing business activities.

Luca Pacioli and Double-Entry Bookkeeping

A major milestone in the history of accounting was the publication of the first work describing a double-entry bookkeeping system. In 1494, Luca Pacioli published Summa de arithmetica in Italy.

This work contained a systematic explanation of the double-entry bookkeeping system. Because of his important contribution to the development and documentation of accounting, Luca Pacioli is commonly known as the “Father of Accounting.”

The double-entry bookkeeping system became an important foundation of modern accounting. The publication of Summa de arithmetica in 1494 is therefore considered an important event in the historical development of accounting.

Accounting as an Organised Profession

Accounting gradually developed from a method of recording financial transactions into an organised profession. This transition became particularly important during the 19th century.

During this period, professional accounting bodies began to develop. In England, various local professional bodies eventually merged and formed the Institute of Chartered Accountants in England and Wales in 1880. The formation of professional bodies contributed to the organised development of accounting as a recognised profession.

Thus, by the 19th century, accounting was no longer limited to maintaining financial records. It had developed into a structured professional activity supported by professional organisations.

Etymology of Accounting and Accountancy

The terms “accounting” and “accountancy” were both in use in Great Britain by the middle of the 1800s. These words developed from the terms “accompting” and “accountantship”, which were used during the 18th century.

In Middle English, which was used approximately between the 12th century and the late 15th century, the verb “to account” was written as “accounten.” The word accounten was derived from the Old French word “aconter.”

The Old French word aconter was related to the Vulgar Latin word “computare,” meaning “to reckon.” The word computare itself is based on the word “putare.” The term putare had several meanings, including to prune, purify, correct an account, count, calculate, and think. Over time, these linguistic developments contributed to the modern use of the word accounting.

Origin of the Word Accountant

The word “accountant” is derived from the French word “compter.” This French word is also connected with the Italian and Latin word “computare.”

Earlier, the word accountant was written in English as “accomptant.” However, the letter “p” was generally not pronounced while speaking the word. Over time, because the “p” sound was dropped in pronunciation, both the pronunciation and spelling of the word gradually changed. Eventually, the modern form “accountant” came into use.

Terminology of Accounting

The term accounting has been defined in different ways. In general, accounting refers to the keeping or preparation of financial records relating to the transactions of a firm. It includes the systematic maintenance of records of financial transactions.

Accounting also includes the analysis, verification, and reporting of financial records. Therefore, accounting is not limited to simply recording transactions. Financial information may also be analysed, verified, and presented through appropriate reports.

The term accounting may also refer to the principles and procedures of accounting. These principles and procedures provide the basis for carrying out accounting activities. In addition, accounting can refer to the job or activity of being an accountant.

The term accountancy generally refers to the occupation or profession of an accountant. This meaning is particularly common in British English. Thus, while accounting may refer to the process, principles, and activities connected with financial records, accountancy is commonly used to describe the professional occupation of an accountant.

Exam Focus

The history of accounting can be traced to ancient civilisations, particularly ancient Mesopotamia, where its development was connected with writing, counting, and money. Early bookkeeping existed in ancient Iran, while early auditing systems were used by the Egyptians and Babylonians.

The use of Arabic numerals instead of Roman numerals improved the efficiency of accounting procedures among Mediterranean merchants. The development of joint-stock companies contributed to the division of accounting into financial accounting and management accounting.

For examination purposes, remember that Luca Pacioli is known as the Father of Accounting. His work Summa de arithmetica, published in Italy in 1494, was the first published work on a double-entry bookkeeping system. Accounting developed into an organised profession during the 19th century, and the Institute of Chartered Accountants in England and Wales was formed in 1880.

The word computare means “to reckon,” while accountancy generally refers to the occupation or profession of an accountant, particularly in British English.