Bookkeeping

History of Accounting: How Its Evolved Over Time

The Alliance for Responsible Professional Licensing (ARPL) was formed in August 2019 in response to a series of state deregulatory proposals making the requirements to become a CPA more lenient. The ARPL is a coalition of various advanced professional groups including engineers, accountants, and architects. When medieval Europe moved toward a monetary economy in the 13th century, merchants depended on bookkeeping to oversee multiple simultaneous transactions financed by bank loans. These new advancements are much more intuitive, helping accountants do their job quicker, more accurately, and with more ease. As currencies became available and tradesmen and merchants began to build material wealth, bookkeeping evolved. Then, as now, business sense and ability with numbers were not always found in one person, so math-phobic merchants would employ bookkeepers to maintain a record of what they owed and who owed debts to them.

  1. However, the businesses in question were small enough that the owners were personally involved and aware of the financial health of their companies.
  2. However, lenders also typically require the results of an external audit annually as part of their debt covenants.
  3. That same year saw Peachtree Software launch an accounting software package for the personal computer.
  4. He established the modern version of forensic accounting when he helped convict Al Capone of tax evasion in the 1930s.

Accountants help businesses maintain accurate and timely records of their finances. Accountants are responsible for maintaining records of a company’s daily transactions and compiling those transactions into financial statements such as the balance sheet, income statement, and statement of cash flows. Accountants also provide other services, such as performing periodic audits or preparing ad-hoc management reports. From its earliest origins, accounting and the professionals who practice it have helped shape — and have been shaped by — some of the most influential events in global history. Those historical shifts continue today, with technology driving many of the latest developments in accounting, just as digital tools grow in importance throughout society. From maintaining balance sheets to investigating business records to analyzing financial data, accountants play a crucial role in business operations.

Why Accounting Is Important

Born in 1445 in Tuscany, Pacioli is known today as the father of accounting and bookkeeping. He wrote Summa de Arithmetica, Geometria, Proportioni et Proportionalita (“The Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality”) in 1494, which included a 27-page treatise on bookkeeping. His book was one of the first published using the historical Gutenberg press, and the included treatise was the first known published work on the topic of double-entry bookkeeping.

Key Takeaways

Financial accounts have two different sets of rules they can choose to follow. These rules are outlined by GAAP and IFRS, are required by public companies, and are mainly used by larger companies. By 1880, the modern profession of accounting was fully formed and recognized by the Institute of Chartered Accountants in England and Wales. This institute created many of the systems by which accountants practice today. The formation of the institute occurred in large part due to the Industrial Revolution.

Traditional Accounting vs. Modern Accounting

Managerial accounting uses much of the same data as financial accounting, but it organizes and utilizes information in different ways. Namely, in managerial accounting, an accountant generates monthly or quarterly reports that a business’s management team can use to make decisions about how the business operates. Managerial accounting also encompasses many other facets of accounting, including budgeting, forecasting, and various financial analysis tools. Essentially, any information that may be useful to management falls underneath this umbrella. Accounting history dates back to ancient civilizations in Mesopotamia, Egypt, and Babylon.

Early Financial Statements

Accounting is a language that dates back thousands of years and has been used in many parts of the world. The earliest evidence of this language comes from Mesopotamian civilizations more than 7,000 years ago. The Mesopotamians kept the earliest records of goods traded and received, and these activities are related to the early record-keeping of the ancient Egyptians and Babylonians. The Mesopotamians used primitive accounting methods, keeping records that detailed transactions involving animals, livestock, and crops. Various technological tools assist in tracking the various types of transactions that modern accounting captures.

This became particularly difficult when it came to inheritance, which demanded detailed accounting for the estate after death of an individual. The assets remaining after the payment of funeral expenses and debts were allocated to every member of the family in fixed shares, and included wives, children, fathers and mothers. This required extensive use of ratios, multiplication and division accounting history that depended on the mathematics of Hindu-Arabic numerals. The difference between these two accounting methods is the treatment of accruals. Some accounting software is considered better for small businesses such as QuickBooks, Quicken, FreshBooks, Xero, SlickPie, or Sage 50. Larger companies often have much more complex solutions to integrate with their specific reporting needs.