History of Accounting

The accounting system, one of the integral disciplines of accountancy is as old as the civilization itself. The fundamental concepts of classifying, analyzing and interpretation of financial transactions evolved over a period of 7000 years, when trade started in the form of barter system. As the human civilization evolved and started living in a community, they realized, it was not possible for each and every household to produce the daily requirements, all by themselves. They exchanged goods in return of goods and as the scope of exchange widened, it became increasingly necessary to keep a track of the system, rather maintain an account of the goods sold and received.

Pacioli marks the history of accounting distinctly into two parts – an unwritten practice and a written practice of accounting.

The primitive form of accountancy discovered in the civilization of Babylon, Assyria and Sumeria started with keeping a track of the agricultural or the animal produce in the harvesting season and the surplus over a period of time. 10 tokens in 7000 BC primarily created to recognize the different types of produce and the transaction status grew to 350 in 3500 BC, which was increasingly used by urban shops when exchange of goods or redistribution included others forms, like garments, textiles, jewellery. The shapes of tokens – cones, spheres, were used to identify the varied forms of surplus. Complex tokens and clay tablets were made by the Sumerian people who managed the book keeping with the help of these tokens and introduced a systematic approach of accounting by employing the combination of literature and arithmetic skills. They documented financial transactions which preceded the cuneiform writing. It was found that the Neolithic accountants did not just follow the existing book keeping practices but were actively involved in coding and decoding the data and manually moved and removed the counters with the help of mathematical operations like addition, subtraction, multiplication and division.

The Romans brought the bookkeeping and accounting into limelight, they used it not only for business and financial transactions but for administrative purposes as well. They associated a value for each transaction, the expenditure on public, army, temples, religious offerings and distribution of grants. Accounting documents were accessible to the executive authority which equipped them for better planning and decision making. A yearly account of the day to day transaction, sale produce, earnings from production and expenditure helped them operate the cash in the required direction. Luca Pacioli, referred as the father of accounting first documented the rules of book keeping in written form which was widely used by merchants and their off springs to educate them on book keeping and keep a track of the their business spread overseas.

With the industrial revolution and renaissance, accounting got immense prominence, as it saved several firms from bankruptcy. The professional who provides the service of accounting is known as an accountant and his roles and responsibilities grew, and noticed refinement, as trade and business expanded. Auditing became an inevitable part of accountancy to keep out fraud and leakages from the accounting cycle. The accountant’s profession was recognized by Great Britain in 1854 and by the United States, New York in 1887. The major reasons of the systematic accounting were the complex tax laws and regulations and maintenance of uniform account for the government and public disposal. Over a period of time, accountancy was not limited to accounting cycle alone, but played a major role in several managerial decisions of the organization. It helped an entity recognize its areas of improvement and leverage the performance.