The History of Accounting
The history of accounting dates back to ancient civilisations, however the birth of double-entry bookkeeping in the 14th century is seen as being the beginning of the modern accounting period.
The Renaissance period in Italy (14th to 16th century) saw many major developments in accounting practice. At this time, Arabic numerals were first used to keep records of business transactions in place of Roman numerals, and record keeping developed on a large scale. In 1494 Luca Pacioli, a Franciscan friar, published the Summa de Artihmetica, Geometria, Proportioni et Proportionalita. In it were 36 chapters on bookkeeping in which Pacioli described double-entry bookkeeping and other commerce-related concepts. Double entry bookkeeping is a system in which a debit and credit entry is entered for each transaction : “Every debit has its credit – every amount that is charged to on account must be placed to the credit of another”.
Although Pacioli did not invent double-entry bookkeeping, he is credited with being the first person to widely disseminate this knowledge, and the principles published in his Summa remain largely unchanged to this day. Developments that came later included the splitting of records into different books “suited to the nature of the business carried on, each [book] containing such transactions as exclusively apply to its title”, for example cash books for recording money received and payed, and invoice books for recording goods purchased and sold. Variations in bookkeeping also developed between different industries & professions (e.g. Shipping, newspapers and printing).
Colonial expansion in the 17th century and demand for foreign goods saw the rise of ‘chartered companies’, the first corporations. The scale of these endeavors required large investment, the reward for investors being that assets were divided between stock holders at the end of each voyage. However this was not always possible, with permanently invested capital required to support future voyages. Bookkeeping had to develop to keep track of the assets and profits of many distinct trading ventures at different stages of completion.
In 1657, the company ruled that stock was to be valued, and four years later the governor of the company stated that “future distributions would consist of the profits earned (dividends) and not “divisions” as in the past”.
This was a big progression towards the modern conditions under which corporations operate and was the first large-scale example of stock exchange, investment and corporate finance. These accounting practices continued to develop through the next centuries. Many guides for investors and accountants were written during this development period. Examples include Stock Exchange Accounts; with an appendix of forms which details stock exchange bookkeeping, Haight and Freese Co’s Guide to Investors which lists the stock prices for various companies between 1890-1900 and A Corporate Venture which states that “unless the stockholder in a corporation knows the ropes they may be pulled to his disadvantage”.
The Phonopore Company Limited certificate is an example of a shares certificate from 1893 indicating that William Robert Pullman Esquire was the holder of 120 shares in the Phonopore Company, valued at £1 each.
During the Industrial Revolution, methods were required which could be used to track costs related to large scale production in factory-manufacturing operations. Josiah Wedgwood, the founder of famous pottery manufacturer Wedgwood is considered by many to be a pioneer in cost accountancy. After examining business accounts, Josiah Wedgwood discovered that his head clerk had been embezzling from the company and so after hiring a new clerk he implemented weekly account reviews to keep track of his finances. These reviews allowed him to calculate detailed costs for materials and labour, leading to the discovery of overhead costs and economies of scale.
The early evolution of accounting was dominated by advances in bookkeeping practice. There are numerous books chronicling this progression. The century following the industrial revolution saw great progress from the “method of systematically recording [financial] exchanges into a means of giving business management an effective control over its affairs”.
1816 - John Croaker, a bank clerk from England, was caught and charged with embezzling from the bank and was sent to the colony of New South Wales. Upon arrival he was granted an immediate ticket of leave and began working as a clerk in the justiciary and set himself up as a commodities dealer. At this time, the first Bank of New South Wales opened, and John Croaker helped to establish their bookkeeping practices, instigating double-entry bookkeeping for the first time in Australia.
1854 - On the 6th of July 1854, a petition was signed by forty-nine accountants in Glasgow asking Queen Victoria for the grant of a Royal Charter. Thus the formal accounting profession emerged in Scotland with the formation of Edinburgh Society and Glasgow Institute of Accountants. The title ‘Chartered Accountant’ was decided upon and adopted for members of the Society, and was soon adopted by the Glasgow Institute and the later formed Aberdeen Society. However the Institute of Chartered Accountants of Scotland was not formed until the three societies merged in 1951.
1880 - In 1880, the Institute of Chartered Accountants in England and Wales was formed, bringing together members from a number of individual accounting organisations. The newly formed institute developed standards of conduct and examinations for admission.
Books such as Book-keeping exercise for accountant students, The student’s business methods and commercial correspondence and Australian elementary bookkeeping represent examples of the shift towards professional education and accreditation in the accountancy profession.Double Entry Bookkeeping for technical classes and schools gives examples of civil service examination papers for accountants from this period.
1887 - During the rapid growth of American industry in the 1800s, many Scottish and British accountants travelled to the United States to audit and keep track of British investments in the country. A number of these professionals remained in the US and are thought to have begun the practice of accountancy in America. In 1887 the American Association of Public Accountants was formed.
On the 19th of June 1928, a Royal Charter was granted by George the Fifth, establishing The Institute of Chartered Accountants in Australia upon recognition that the “profession of Public Accountants in the said Commonwealth [Australia] is practiced by a considerable number of persons and the duties and functions of such public accountants are of great and growing importance in respect of their employment in the capacities of Liquidators acting in the winding up of Companies and of Receivers under Decrees and Trustees in Bankruptcy or Insolvency, arrangements with creditors and in various positions of trust under the Courts of Justice in the said Commonwealth of Australia, and also in the auditing and certification of the accounts of Public Companies and other business, and various other kindred matters, in all of which a technical knowledge of the duties imposed is of essential importance.”
Professor Lee Parker collection
Childs, C.W. 1901, New essentials of book-keeping, The Whitaker & Ray Co., San Francisco
Brown, R. 1968, A history of accounting and accountants, Cass, London
Webster 1868, All about bookkeeping, Ward, Lock & Typer, London
Carter, F.H. 1885 Practical book-keeping adapted to commercial and judicial: with outlines of forms of accounts for different professions and trades, John Menzies, Edinburgh
Kojima, Osamu 1995, Accounting history, A.N. Offset Co., Ltd, Osaka
Killik, S.H. 1895, Stock exchange accounts ; with an appendix of forms, Waterlow & Sons Ltd, London
Haight and Freese Co. 1901, Haight and Freese Co’s guide to investors, Haight and Freese Co., New York
Alexander Hamilton Institute 1919, The corporate venture, Alexander Hamilton Institute, New York
Booker, J.; Craig, R. 2000, John Croaker: Convict embezzler, Melbourne University Press, Carlton South
Dicksee, L.R. 1899, Book-keeping exercise for accountant students, Gee & Co. Ltd., London
Fieldhouse, A 1913, The students business methods and commercial correspondence, Simpkin, Marshall and Co. Ltd., London
Barton, A.E. 1924, Australian elementary bookkeeping, Dymock’s Book Arcade, Sydney
On loan from Deakin University Library Special Collections
All about bookkeeping : a comprehensive treatise, exemplified in complete sets of account books, Ward Lock and Tyler, [18?]
UniSA Library collection
Ten Have, O. 1976, The history of accountancy, Bay Books, Palo Alto
Littleton, A.C. 1981, Accounting evolution to 1900, University of Alabama Press, Alabama, US