History of Accounting
That's Summa Story!
From the oaves to Cafe Paoioli
By Derry Cotter, FCA
Accountants are generally recognised as making a valuable contribution to society, by providing the information that allows entrepreneurship to flourish, business to operate efficiently, stakeholders' interests to be protected, shares to be fairly priced, and taxation and audit requirements to be satisfied. Accounting, however, has not always enjoyed such an established position, and today there is often a tendency to take our profession's status for granted. It is interesting, therefore, to examine the factors that have brought accounting to the preeminent place that ...view middle of the document...
Traders therefore began to seek a unit of value, or currency, in which the worth of all commodities could be measured. Woolf observes how the Lydians are credited with the invention of coinage around 900 BC, and how gradually this became the common unit of currency. Paper money was invented in China at the end of the 8th century AD. A system of numeration was then required. Woolf recalls Sir Francis Galton's travels of Africa where '... he found men from whom he was required to buy one sheep at a time, because they could not understand that for two sheep, at two plugs of tobacco each, he must give them a lump sum of four plugs of tobacco.'
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1
It was common at that time to represent numbers with pebbles arranged in sets of ten, a practice which was to lead to the invention of the abacus. Although these pebbles jirovided the stepping stones for the advancement of accounting, Chatfield describes how the backwardness of accounting systems used by the Greeks and Romans can be attributed to their methods of numerical notation. These methods were inferior partly due to the large variety of symbols used for numbers (the Greeks, for example, used twenty eight). A second problem was that the Greeks and Romans failed to represent the value of a number by reference to its position in relation to other numbers. Thus, as numbers could not be added like Arabic numbers, there was little point in arranging amounts in columns. As C^hatfield points out, without a columnar separation of receipts and payments, giving rise to the concept of debit and credit, double-entry bookkeeping was not possible. Ihis problem was overcome by the development of Arabic numerals in India by the Hindus around 600 AD. The most important event in the history of accounting, however, occurred in 1494, with the publication by Italian friar, Luca Pacioli, oí Summa de Arithmetica, Geometría, Proportion i et Proportionalita (everything about
Arithmetic, Geometry and Proportion). The Summa contained the first printed description of double entry bookkeeping, and facilitated by improved literacy levels, and the invention of paper two centuries earlier, the Summa was translated into five languages as the Italian Method spread throughout Europe.
Aithough double-entry bookkeeping facilitated the move from a feudal to a commercial society its use was limited mainiy to summarising accounting records, and bringing order to the venture accounts of business merchants.
No effort, however, was made to match income with the expenditure incurred in creating it, and consequently there was no clear concept of profit, nor any means of evaluating the performance of a business over time. Given the lack of outside investment in firms, there was little external accountability and the production of financial statements was not considered important. Nonetheless, a knowledge of double entry bookkeeping was seen as promoting economic expansion at the beginning...