History of Accounting

Written By Hitesh Desai

The history of accounting is quite fascinating. Let’s take a quick trip down memory lane to explore and understand how bookkeeping and accounting have evolved from humble beginnings to the services we use (and rely so heavily on) today.

You may be surprised to learn that accounting is, in fact, one of the oldest professions in the world. We can trace its roots back to the civilization of Mesopotamia - a region spanning present-day Iraq, Kuwait, Turkey, and Syria that dates back to almost 8000 BC, 10,000 plus years ago! The development of "bookkeeping" resulted from a need to keep track of goods and services exchanged between private citizens, trading and charitable activities of temples/religious structures, public expenditures, and taxation by the local government. As no formal currencies were established during this period, societies and civilizations used a barter system to trade goods and services. Check out a few examples of what historic bookkeeping entries may have looked like in a barter system.

  • Received two chickens in return for a bale of hay

  • Carpenter agrees to build a chest with drawers in exchange for ten eggs to be delivered daily for six months.

  • I will perform housework for you every day for a month in exchange for childcare for two children.

As civilizations and societies adopted traditional currencies, the bookkeeping process became more focused on writing, counting, and auditing money for all economic activities related to private citizens, trade, temples, governments, military pursuits, etc. Between 7000 BC and 800 AD, the Sumerian, Assyrian, Akkadian, Egyptian, Babylonian, Phoenician, Roman, Greek, Persian, Islamic, East Asian, and Indian societies all contributed to the development of the accounting profession.

The Quran's requirement that all Muslim citizens keep detailed records of their indebtedness and how an inheritance would be passed on to the heirs challenged Persian scholars during the 8th century. Notably, after funeral costs and debts are paid, how does one determine whether the remaining assets of an individual can be allocated to the remaining family members? Muhammad ibn al-Khwarizmi solved this inheritance arithmetic around 830 AD in his book The Compendious Book on Calculation by Completion and Balancing, with the last chapter dedicated to the earliest known documentation of a double-entry bookkeeping system.

Between the 9th and 15th centuries, Khwarizmi's work was widely circulated and accepted by Arab, Jewish, and European scholars. The double-entry bookkeeping method slowly gained acceptance among European and Middle Eastern bankers, traders, and trade centers. The Vatican and Italian banking center operations, merchants, and traders in Genoa, Florence, and Venice also widely used the double entry system.

Born in Ragusa (present-day Dubrovnik in Croatia), Benedetto Cotrugli documented the first double-entry bookkeeping system around 1458 in his manuscript  Della mercatura e del mercante perfetto based on the accounting processes used by Venetian merchants during the Italian Renaissance. Nevertheless, the father of modern accounting is Luca Bartolomeo de Pacioli, an Italian mathematician and Leonardo da Vinci collaborator who officially published detailed material describing the double-entry accounting system in his 1494 manuscript  Summa de Arithmetica, Geometria, Proportioni et Proportionalità. The manuscript included a 27-page treatise that detailed the subject of bookkeeping. Although Pacioli did not invent bookkeeping, his publication formally described methods involving debits/credits in journals and ledgers, year-end closing dates, trial balances, etc. (which are still used today!).

From the start of the Industrial Revolution (around 1760 AD) through the present day, the emergence of railroads, corporations, distribution networks, manufacturing units, mass production, new sources of power, electronics, automation, internet, and artificial intelligence has been a constant catalyst for establishing and expanding formal accounting standards and profession. 

For reference, below is a brief timeline spanning ten thousand years detailing how the current accounting profession evolved from its conception to the present day with key milestones. 

8000 BC to 7000 BC

Mesopotamia's earliest accounting records show expenses incurred, goods received, and services traded primarily driven by the economic activities of government taxation and temples. Ancient tabulation and transactional documents discovered in Babylonia, Assyria, and Sumer show that the early development of accounting was closely associated with developments in writing, counting, and money. 

4000 BC to 2000 BC 

Rulers and priests in Persia (ancient Iran) allowed people to oversee their financial affairs. Cylindrical tokens used for bookkeeping on clay scripts were found in large rooms to store crops at the archeological sites of Godin Tepe and Tepe Yahya in Iran. These clay scripts contained tables with figures and graphical representations. 

2900 BC 

There is evidence that the first roll of papyrus was manufactured in Egypt during the fourth millennium BC, but the earliest known roll of papyrus discovered dates back to around 2900 BC. The Egyptians used papyrus (a paper-like material derived from the papyrus plant) for keeping records.

2700 BC to 2300 BC 

While the exact origin of the abacus remains unknown, the earliest appeared during the Sumerian era. Similar calculating tools were used by civilizations populating the Middle East, Europe, Russia, China, other Asian regions, North & South Americas, and Africa. 

2000 BC to 1001 BC 

In the second millennium, commerce and trade expanded the importance of accounting and the accountant's role. The Phoenicians (eastern Mediterranean countries of Lebanon and Syria) invented a phonetic alphabet for bookkeeping purposes based on Egyptian hieratic script. In addition to Moses engaging Ithamar to record a list of the materials that contributed to the Tabernacle's construction, accounting can also be found in the Old Testament.

400 BC to 301 BC 

The Egyptians and Babylonians designed sophisticated auditing systems, including oral "audit reports," to track the movement of goods from warehouses. Chanakya, a polymath, developed a financial management system in his book Arthashastra during the Maurya Empire's rule in India.

100 BC to 100 AD 

In "The Deeds of the Divine Augustus," the Romans recorded detailed financial information concerning public and military expenditures, temple construction, religious offerings, land grants, tax revenues, etc.

700 AD to 800 AD 

Persian mathematician Muhammad ibn Musa al-Khwarizmi developed double-entry bookkeeping based on three accounting principles: debits equal credits, real accounts, and nominal accounts. From the 9th to the 14th centuries, Arab, Jewish, and European scholars, traders, and lenders widely accepted the practice.

1300 AD to 1500 AD 

Venetian merchants used the double-entry bookkeeping system adopted by the Vatican and Italian banking centers in Genoa, Florence, and Venice during the Italian Renaissance.

1458 AD 

Benedetto Cotrugli documented (did not invent) the first official double-entry bookkeeping system used by the Venetian merchants in his book Della mercatura e del mercante perfetto.

1494 AD

Italian mathematician Luca Pacioli writes and publishes Summa de Arithmetica, Geometria, Proportioni et Proportionalità, which officially documents the entire bookkeeping system, including trial balances, balance sheets, real and nominal accounts, etc. 

1623 AD to 1642 AD 

The first mechanical calculator was invented by Wilhelm Schikard, a German professor of Hebrew and astronomy, in 1623. Later, in 1642, a French mathematician and physicist, Blaise Pascal, invented the first mechanical calculator to help his father with his exhaustive tax collection calculations. The machine was capable of addition and subtraction only and was known as ‘Pascaline.’

1760 AD to 1840 AD

The First Industrial Revolution, which began in Great Britain and eventually spread across the world through its colonies, represented a global transition from an agricultural economy to more efficient and stable mechanized manufacturing processes. The Industrial Revolution became the catalyst for expanding and advancing the accounting profession. 

1850 AD to 1914 AD 

Abundant natural resources and labor supply, government policies, new power sources, railroads, and rapid industrial innovations and inventions triggered the Second Industrial Revolution.

1862 AD 

President Abraham Lincoln and Congress passed the Revenue Act of 1862 to create the office of Commissioner of Internal Revenue and a temporary Income Tax to fund the American Civil War.

1882 AD 

The Institute of Accountants and Bookkeepers of the City of New York became the first accounting firm to support the needs of accountants and for educational purposes.

1887 AD

Companies published their financials to attract investors; however, investors were skeptical of the management, which created the need for independent financial verification of a company’s operations. The American Association of Public Accountants (known today as AICPA) was established to maintain investor confidence by setting uniform ethical and auditing standards. Before it was known as the AICPA, it went through several name changes over the years: The Institute of Public Accountants in 1916, The American Institute of Accountants in 1917, The American Society of Public Accountants in 1921

1896 AD

The title of Certified Public Accountant (CPA) was established. On April 17th, Chapter 312 of the Laws of the State of New York established that the Regents of the University of the State of New York would provide a Certificate of Public Accountancy to those over the age of 21 who passed a state exam appropriate experience and or educational training in accounting.

1913 AD

The demand for CPAs skyrocketed as the US Government needed money to finance World War I and began charging income taxes. 

1930s 

IRS accountant Frank Wilson's use of forensic accounting (the first of its kind) led to Al Capone's arrest. Frank Wilson was the Chief of the Secret Service and a former Agent of the Treasury Department’s Bureau of Internal Revenue (later known as the IRS).

1934 AD

The Wall Street Crash of 1929 triggered the establishment of the Securities and Exchange Commission to create and enforce laws against market manipulation. Later, its broader mission became to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

1952 AD

IBM released the first computer, and accountants ranked among the first to use it.

1955 AD

General Electric bought a computer to perform computerized accounting functions for the company.

1973 AD

In the early 1970s, the president of the AICPA appointed a board of seven men to operate the American Principles Board and determine the adjustments needed to facilitate more accurate and timely results. The committee proposed establishing the Financial Accounting Foundation, which the board would oversee. Eventually, the Financial Accounting Standards Board (FASB) was created to establish and improve the Generally Accepted Accounting Principles (GAAP), and the SEC formalized the FASB via ASR No. 150 in 1973.

1978 AD

Dan Bricklin and Bob Frankston invented VisiCalc (short for “visible calculator”), the first spreadsheet software for personal computers. It was initially released for Apple II on October 17, 1979. It became such a popular business tool that it sold over 700,000 copies in six years.

1983 AD

Mitchell Kapor and Jonathan Sachs of Lotus Development Corporation designed the Lotus 1-2-3 spreadsheet, which was released for the PC market.

1985 AD

Microsoft Excel was initially released for Macintosh computers and became available for PCs in 1987. During the 1990s, as Microsoft Windows & Office became very popular, the use of Excel grew exponentially in the accounting world.

References & Citations

Hitesh Desai https://www.yourbookslive.com
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