HISTORY OF ACCOUNTING

The history of accounting is aligned with the history and progress of man’s commerce and trading
activities.

ACCOUNTING IN ANCIENT HISTORY

(ANCIENT HISTORY COVERS EEVENT TO THE FALL OF THE WESTERN ROMAN EMPIRE IN
476 A.D)

The oldest known records of commerce came from the Assyrian, Chaldean-Babylonian and Sumerian
civilizations in the Mesopotamian Valley. Mesopotamian banks used standard measures of gold and
silver, and also extended credit. Failure in record keeping was penalized in Sumari. Scribes recorded
transactions under seal on specially prepared clay as required by the code of Hammurabi. The
Mesopotamian scribes were the equivalent of today’s accountant.
In ancient Egypt, royal storehouses kept records that were subjected to verification, and irregularities
were punishable by fine, mutilation or death. Easy and detailed record keeping was made possible by the
use of papyrus. However, summation was difficult because gold and silver were not used as standard and
measures and exchange. Instead, gold and silver were considered goods or items of sale/exchange.
Illiteracy and lack of coined money impended the development of accounting.
In ancient Greece, the citizenry maintained authority and controlled government finances through
‘public accountants’. Bank were more developed; bankers kept books, loaned money, changed money
and arranged cash transfers to distant cities through affiliate banks. The most significant contribution of
ancient Greece to accountancy was the introduction of coined money, whose widespread use was a very
important factor to enhance the development of accounting.
In ancient Rome, heads of the families kept daily records of household expenses and submitted regular
statements of assets and liabilities. These reports showed the citizen’s ability to pay. The principal
contributions of ancient Rome to accountancy were the levy of taxes based on the citizens’ ability to pay
and the use of annual budget. Government expenditures were limited to the amount of estimated receipts
from taxes. However, the us of roman numerals delayed the development of record keeping.
In ancient China, accounting was used during the Chao dynasty to evaluate the efficiency of government
programs and determine the efficiency of civil servants administering these programs.

MEDIAVAL ACOUNTING (Middle Ages 500 A.D to 1450 A.D)

Outside Italy, history referred to the Middle Ages until the end of the tenth century of the Dark Ages.
During the Dark Ages, the rest of the world was marked by the ignorance and accounting stagnation.
Under the Roman Empire, centralized legal codes governed accounting. Medieval bookkeeping was
centered on the local feudal manors. Medieval accounting was characterized by monitoring the
accountability of stewardship and delegation of authority.
In England, the oldest surviving accounting record was the Great Roll of the Exchequer' or the Pipe Roll
which contained a description of the rents, fines and taxes due the King. The Pipe Roll was the final
record on parchment of the use of markings on a wooden stick as a basis of account-keeping.
The earliest proof of double-entry bookkeeping was found in the fragments dated 1211 from the account
book of a banker in Florence, Italy. These fragments were proof that double-entry bookkeeping, the
method used for modern accounting, was started and practiced in the commerce of Italy.
Accounting during the Renaissance (14th, 15th, and 16th Centuries)
The Renaissance was marked by the revival of the arts, literature, and learning. This revival started in
Italy and spread to other countries in Europe.
In 14th century Italy, private property, capital, commerce, credit, writing, money, and arithmetic led to the
development of double-entry accounting. Bookkeeping recorded the facts about property. The use of
capital led to more commerce, the interchange of goods and credit. Writing, money and arithmetic
allowed bookkeeping to more commerce, the interchange of goods and credit. Writing, money and
arithmetic allowed bookkeeping to have a record of the details of business transactions.
By the 15th century, modern double-entry bookkeeping came to full use in Venice, Italy and by bankers
in Florence, Milan, Genoa, and Pisa. During the 16th and 17th centuries, the use of double-entry
bookkeeping spread to the rest of Europe. Double-entry bookkeeping is still used in recording financial
transactions to this day. The most essential contribution of the Italians of the Renaissance to the
development of accounting was the regular use of the Arabic, instead of Roman numerals. The Italians of
the Renaissance were recognized as the fathers of modern accounting.
Frater Luca Bartolomes Pacioli was a learned Franciscan friar in 15th century Italy who wrote Summa de
Arithmetica, Geometria, Proportioni et Proportionalita ("All about Arithmetic, Geometry, Ratios and
Proportion”). The Summa was printed on November 10, 1494, in Venice, Italy. Handwritten manuscripts
on double-entry system already circulated Italy but the Summa was the first published book on the
system.
The Summa contained thirty-six (36) chapters entitled De Computis et Scripturis ("Of
Reckonings/Computations and Writings"). In De Computis, Pacioli described the need for three (3)
books: the memoriate, a journal, and the ledger. Business transactions were recorded chronologically in
the memoriale or daybook. The. journal was the merchant’s own private account book and the ledger was
used in the same manner as today’s ledger. The accounting cycle ended with the trial balance, very
similar to today’s trial balance. Frater Luca Bartolomes Pacioli is revered today as the father of modern
accounting.
In France, Louis XIV promulgated the 1673 Ordonnance de Commerce or the Code Marchant of 1673,
also known as Le Code Savary, after Jacques Savary. Savary led the commission that came up with the
body of laws containing articles on Books and Registers, Bills of Exchange, Interests, Bankruptcy and
Partnerships; and prescribed relevant requirements for authentication of books, bound and continuous
documents; and inventory-taking, among others.
In Britain, the money economy was strengthened with the establishment of the Bank of England in 1694.

The Industrial Revolution (1750-1850)

Economic changes during the Industrial Revolution, led to the rise of entrepreneurship, the beginnings of
professions, expansion of trade, capitalism, finance, and credit. Machines, power tools, inventions and
machineries, coke and iron, steam and steel, and chemical innovations, as well as electricity and the
gasoline. engine made industry the dominant factor in the economy.
Many businesses were organized as corporations. Entrepreneurs combined to provide capital for the |.
manufacture of inventions and the construction and operation of railroads and railway cars. Big
companies, banks, automobile factories and other gigantic industries were organized as corporations.
Canals, roads, and highways with railroads and steamships broadened the market for manufactured
goods.
In Britain, coal mines became the textile centers for the manufacture of cotton textiles, that was the key
industry during the 18th century. Industrial towns progressed. The industrial transformation in Britain
was followed in France, Germany, the United States, Netherlands, and Japan.
Napoleon Bonaparte established in 1804, the Napoleonic Code aimed to improve uniformity of civil law
throughout France. The rules pertaining to commerce, professional ethics, and conduct were known as
the Napoleonic Commercial Code, which became a model for the commercial codes of many other
nations.
Archeological discoveries and artifacts point to the scribes, as the first to develop writing. The
development of money, banking and credit; and the accountants who used double-entry bookkeeping
were recognized as the main reasons for the survival of certain businesses during the Industrial
Revolution.
Accounting developed, expanded and became innovative to cope up with the information needs of big
businesses and the capital market during the Industrial Revolution. Railroads and infrastructures that
wear out and become obsolete, led to the accounting for fixed assets and depreciation. Mass production
led to costs and inventory accounting.
Reporting techniques were developed in accounting to allow corporate control of vast and spread-out
businesses. Improvements in cost accounting also made possible the management of large manufacturing
companies. Bookkeeping and financial reporting, hitherto geared to the needs of sole proprietorships and
partnerships, had developed to adapt systems that would best meet corporate demands.

ACCOUNTING DURING THE LATE 19TH CENTURY

During the late 19th century, existing and new businesses extended their operations beyond the original
locations by putting up branches and granting franchises.
With the arrival of income taxation, business relied more on accountants especially in the preparation of
financial statements, wherein accountants strove to lessen the income of tax payable by the business with
the application of principles that would minimize the reported income, within the law.

Accounting during the 20th Century

prof. Eugen Schmalenbach _
Prof. Eugen Schmalenbach (1873-1955) of Cologne, West Germany, was a professor who earned a
reputation in teaching, research and journal editing, consultancies and membership in official
commissions. His publications covered varied topics in accounting, costs and finance. His reputation was
so overwhelming that it pre | protected him and his Jewish wife from Nazi Germany.
Schmalenbach’s reputation magnified with the publication of his books on Financing, Credit and Finance,
Price-level Accounting and National Balance Sheets. He advocated management by prices and marginal
costing. He compared the constitutions of corporations with that of democratic states and the dictatorship
of the majority stockholders in financial capitalism. He proposed a neutral data base to store information
for retrieval at a later time in another more useful form.
Uniform Chart of Accounts
The Chart of Accounts is a list of all the account titles a business uses to record transactions and report
the results thereof. Schmalenbach is most remembered for his uniform chart of accounts, with which
comparison could be made of the results of operations between periods of the same company; or between
different organizations belonging to the same industry, Schmalenbach’s uniform chart of accounts
facilitated inter-firm comparison and consolidation of information in the financial statements of
businesses with decentralized management.

Consolidated or Inter-company Accounts

Businesses during the 20th century developed into groups of companies, industrial empires, and
multinational corporations. Innovative reports of accountants helped investors understand complex
business transactions. The books of each corporate member included consolidated or inter-company
accounts and the over-all financial condition and results of operations of the group of companies were
presented in consolidated statements.

Current Internationalization of Markets

Entrepreneurs and multinationals considered international money and capital markets as possible sources
of financing or an advisable investment of funds. Corporate transactions are characterized by
transnational commerce, imports, and exports, mostly denominated in foreign currency. Corporate
operations crossing borders and territorial boundaries are conducted through foreign branches and
subsidiaries.

Accounting in the Globalized Business Environment

Accounting has a two-fold answer to the recording and reporting demands created by the current
internationalized business environment.
The first and most direct answer is the inclusion of International Accounting in the academic preparation
of the professional accountant. Business schools provide knowledge of the accounting principles and
procedures already developed for the recording of transactions unique and distinct in international
operations.
The second and ongoing, very vital response of the accounting profession to the needs of the globalized
business environment is the promulgation of accounting standards that lend uniformity to recording and
reporting. The stockholders of giant multinational corporations and entrepreneurs engaged in
international operations, are able to make well-informed decisions based on interpretations of financial
statements that are prepared on a uniform international standard of reporting.