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Luca Pacioli: The Father of Accounting

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DOI: 10.2139/ssrn.2320658

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Luca Pacioli: The Father of Accounting

L. Murphy Smith
Professor of Accounting
Department of Accounting, Finance & Business Law
Texas A&M University-Corpus Christi
O’Conner Building - Room 333
6300 Ocean Drive, Unit 5808
Corpus Christi, TX 78412-5808
Email: [email protected]

WORKING PAPER
Luca Pacioli: The Father of Accounting

Abstract

In 1494, the first book on double-entry accounting was published by Luca Pacioli.
Since Pacioli was a Franciscan friar, he might be referred to simply as Friar Luca. While
Friar Luca is regarded as the "Father of Accounting," he did not invent the system.
Instead, he simply described a method used by merchants in Venice during the Italian
Renaissance period. His system included most of the accounting cycle as we know it
today. The first accounting book actually was one of five sections in Pacioli's
mathematics book, titled Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything About Arithmetic, Geometry and Proportions). This section
on accounting served as the world's only accounting textbook until well into the 16th
century. Accounting practitioners in public accounting, industry, and not-for-profit
organizations, as well as investors, lending institutions, business firms, and all other users
for financial information are indebted to Luca Pacioli for his monumental role in the
development of accounting.
Luca Pacioli: The Father of Accounting

Introduction

While there are many famous names from the Renaissance, such as Leonardo da

Vinci, Michelangelo, Galileo Galilei, and Christopher Columbus. One who is not as well-

known is Luca Pacioli. Yet, Pacioli’s impact on history, notably the development of

accounting for record-keeping and financial reporting, was enormous. Without effective

accounting, the development of business would have been substantially impaired, thereby

limiting economic development and in turn, the rising standards of living enjoyed by

peoples around the world. While not as well-known as some other Renaissance figures,

Pacioli wrote a book that changed everything, well, everything accounting, that is.

Friar Luca’s Book

In 1494, the first book on double-entry

accounting was published. The author, Luca

Pacioli, was an Italian friar. His impact on

accounting was so great that five centuries later,

accountants from around the world gathered in

the Italian village of San Sepulcro to celebrate

the anniversary of the book's publication. The

first accounting book actually was one of five

sections in Pacioli's mathematics book, titled Everything about Arithmetic, Geometry,

and Proportions. This section on accounting served as the world's only accounting

textbook until well into the 16th century.

1
Since Pacioli was a Franciscan friar, he might be referred to simply as Friar Luca.

While Friar Luca is often called the "Father of Accounting," he did not invent the system.

Instead, he simply described a method used by merchants, aka businesspersons, in Venice

during the Italian Renaissance period. His system included most of the accounting cycle

as we know it today. For example, he described the use journals and ledgers, and he

warned that a person should not go to sleep at night until the debits equaled the credits!

His ledger included assets (including receivables and inventories), liabilities, capital,

income, and expense accounts. Friar Luca demonstrated year-end closing entries and

proposed that a trial balance be used to prove a balanced ledger. He further alluded to a

wide range of topics from accounting ethics to cost accounting.

Pacioli was 49 years old in 1494, just two years after Columbus discovered

America, when he returned to Venice for the publication of his fifth book, Summa de

Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic,

Geometry and Proportions). The book was written as a digest and guide to existing

mathematical knowledge, and bookkeeping was only one of five topics covered. The

Summa's 36 short chapters on bookkeeping, entitled De Computis et Scripturis (Of

Reckonings and Writings) were added "in order that the subjects of the most gracious

Duke of Urbino may have complete instructions in the conduct of business," and to "give

the trader without delay information as to his assets and liabilities" (Geijsbeek, 1914).

Vecchio and Nuovo

Friar Luca emphasized that accounts had “both likes and opposites,” such as

payable and receivable accounts, and that business managers should be cognizant of the

“dual aspect” of transactions (Littleton, 1933). The two primary ledger books in use in

2
Venice were the libro reale vecchio and the libro reale nuovo. Within the vecchio, each

opposing page acts as a pair and both were assigned the same page number. The left page

is designated for the debit of the account and the opposing right was for the credit. Table

1 provides an example of entries in the vecchio (Axtell et al., 2017).

[Insert Table1]

Over time the vecchio went of use and was replaced by the nuovo, which featured

single pages split vertically, allowing for debits on the left and credits on the right, much

like contemporary accounting ledgers. Table 2 provides examples of entries in the nuovo.

Most business managers recorded transactions in ledgers, which were reconciled with

those retained by the business owners. The accounts were closed into a profit and loss

account, much like modern practice, which was then closed into an owner’s capital

account. Before posting entries to a ledger, business managers initially recorded

transactions in a journal. While this accounting methodology was well established in

Venice prior to Friar Luca’s book, his book facilitated the spread of double-entry

accounting worldwide.

[Inert Table 2]

Historical Impact

Numerous tiny details of bookkeeping technique set forth by Friar Luca were

followed in texts and the profession for at least the next four centuries, as accounting

historian Henry Rand Hatfield put it, "persisting like buttons on our coat sleeves, long

after their significance had disappeared" (Johnsson & Kihlstedt, 2005). Perhaps the best

proof that Friar Luca's work was considered potentially significant even at the time of

publication was the very fact that it was printed on November 10, 1494. Guttenberg had

3
just a quarter-century earlier invented metal type, and it was still an extremely expensive

proposition to print a book. Modern translations Pacioli’s revolutionary book were made

by Brown & Johnson (1963), and by Green (1968),

To attain business excellence, effective business governance is indispensable.

From past times to the present, accountants, internal auditors and external auditors are

called upon to fulfill critical roles in the governance function, notably in measuring and

benchmarking business performance. The fundamentals for measuring and benchmarking

were succinctly laid down by Friar Luca. His work provided a foundation for the future

work of rule-setting bodies such as the Financial Accounting Standards Board (FASB)

and the International Accounting Standards Board (IASB). Table 3 provides a historical

framework for the friar’s work among the key events regarding accounting and financial

reporting.

[Insert Table 3 here]

The profession of accounting has a rich history that includes ancient roots and

diverse cultures. While new standards were developed and technology improved, the key

stewardship role of accounting stayed the same, from the scribes of ancient Mesopotamia,

to the Roman bookkeepers, to the manorial accountants of medieval Britain, to the

Venetian accountants of Friar Luca’s time, to the modern-day accountants of the 21st

Century. Friar Luca’s book presented numerous accounting topics that remain essentially

unchanged, from the classification of inventories to the handling of debts (Axtell et al.

2017).

4
Conclusion

Friar Luca Pacioli changed the world of accounting, which in turn revolutionized

how business managers were able to keep track of internal operations, and thereby attain

greater efficiency and profitability. The fundamentals of double-entry accounting have

been largely unchanged for over 500 years. These fundamentals were essential to the

progress of business, including the development of the capital market system and modern

economies, that facilitated the ever-rising standards of living for peoples around the

world. Accounting practitioners in public accounting, industry, and not-for-profit

organizations, as well as investors, lending institutions, business firms, and all other users

for financial information are indebted to Luca Pacioli for his monumental role in the

development of accounting.

5
References

Axtell, Jenifer M., Smith, L.M., & Tervo, W. (2017). The Advent of Accounting in
Business Governance: From Ancient Scribes to Modern Practitioners.
International Journal of Business Governance and Ethics, 12(1): 21-46.

Brown, R. (1968) History of Accounts and Accountants, New York, NY, Augustus M.
Kelly Publishers.

Brown, G. & Johnson, K. (1963). Paciolo on Accounting, New York, NY, McGraw-Hill
Book Company.

Geijsbeek, J.B. (1914). Ancient Double Entry Bookkeeping: Lucas Pacioli's Treatise,
1914)

Green, W. L. (1968) ‘Brief Resume of the Life of Luca Pacioli and His Book Entitled
Summa de Arithmetica, Geometria, Proportioni et Proportionalita’ in: Chatfield,
M., Contemporary Studies in the Evolution of Accounting Thought, New York,
NY, Augustus M. Kelly Publishers.

Johnsson, H. V., & Kihlstedt, P. E. (2005). Performance-based reporting: new

management tools for unpredictable times. New York: John Wiley & Sons.

Kojima, O. (1995) Accounting History, Osaka, Japan, A. N. Offset Co., Ltd.

Littleton, A. C. (1933) ‘The Antecedents of Double-Entry Bookkeeping’ in: Littleton,

A.C. Accounting Evolution to 1900, New York, NY, Russell & Russell.

Smith, L.M. (2018). Timeline of Key Events Regarding Accounting and Financial
Reporting. Retrieved on 7 March 2018 from https://goo.gl/tQs22T).

6
Table 1

The Libro Reale Vecchio

_____
Source: Kojima (1995).

7
Table 2

The Libro Reale Nuovo

_____
Source: Brown (1968).

8
Table 3

Timeline of Key Events Regarding Accounting and Financial Reporting

4000 BC Archeological findings in lower Mesopotamia show that scribes accounted

for temple income on clay tablets.
27 BC In Ancient Rome, an account-keeper, also called dispensator or procurator,
is employed to maintain stewardship of financial matters.
33 AD Jesus of Nazareth affirms a citizen’s duty to pay taxes: “Render to Caesar
the things that are Caesar’s, and to God the things that are God’s.”
60 The Bible describes internal control procedures such as the use of
accounting
reports to monitor a steward's performance (Jesus’s parable of the ‘unjust
steward’) and dual custody of assets (Apostle Paul’s handling financial
gift).
1086 William the Conqueror’s Doomsday Book is compiled, providing detailed
information about England and Wales from which taxes were levied.
1200s The development and spread of manorial accounting, the proffer system,
and tallies throughout England, Scotland, and Ireland.
1455 Johann Gutenberg invents the movable type printing press.
1494 Friar Luca Pacioli authors first book on double-entry accounting.
1600 East India Company, early joint-stock corporation, established with royal
charter by Queen Elizabeth I.
1629 Appointment of auditors to examine the accounts of Massachusetts Bay
colony.
1792 New York stock exchange established.
1853 Institute of Accountants is established in Edinburgh, Scotland, UK.
1883 First US college accounting course offered at the University of
Pennsylvania.
1896 New York is first US state to pass CPA legislation.
1899 First woman CPA, Christine Ross of New York.
1928 Helen Lowe, Chartered Accountant, starts her own accounting practice in
Scotland.
1930s US securities acts of 1933 and 1934 require filing and public disclosure of
audited
financial statements to the SEC.
1946 The first electronic computer, ENIAC, is constructed at the University of
Pennsylvania.
1969 ARPANET, the forerunner of the Internet, established with four nodes:
UCLA, Stanford, UC-Santa Barbara, and University of Utah.
1973 International Accounting Standards Committee established, forerunner of
the International Accounting Standards Board (IASB).
1980s Widespread use of microcomputers, particularly for word processing and
spreadsheet applications.

9
Table 3: Timeline – Continued

1991 Sir Tim Berners-Lee, working at CERN in Geneva, develops the World
Wide Web in a relatively innocuous newsgroup, "alt.hypertext." Later,
people refer to the Internet itself as the Web. The impact on e-commerce is
profound.
1995 The Bottom Line is Betrayal authored by K.T. Smith, L.M. Smith, and
D.L. Crumbley: the first business educational novel combining
accounting, international trade, global marketing, and emerging
technologies (7th edition published in 2014).
1998 Olivia F. Kirtley becomes first woman Chair of the American Institute of
CPAs (AICPA).
2002 Sarbanes-Oxley Act signed into law by President George W. Bush,
contains provisions regarding corporate governance, auditing, and
financial reporting of public companies, including provisions designed to
prevent and punish corporate accounting fraud and corruption.
2005 European Union requires use of International Financial Reporting
Standards (IFRS) by publicly traded companies in the EU.
2007 US Securities and Exchange Commission accepts IFRS for financial
reporting by non-US companies listed in the US stock market (no Form
20-F reconciliation to USA GAAP) if those companies use IFRS in their
home country.
2009 The implementation of the Codification of U.S. GAAP.
2014 Olivia F. Kirtley becomes first woman President of the International
Federation of Accountants (IFAC).
2018 International Financial Reporting Standards accepted or required in over
140 countries.

_____
Adapted from: Smith (2018).

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