A BRIEF HISTORY OF ACCOUNTING:
FROM PREHISTORY TO THE INFORMATION AGE
By James deSantis
In the Summer of 1995 I enrolled in courses sponsored by both the Society of Management Accountants of Saskatchewan and Athabasca University. In particular, I remember taking two classes, the first was an introduction to financial accounting and the other course was in microcomputer business applications. It was during this time that my father became by academic mentor. My father introduced me to the management philosophy of the Learning Organization; I remember his comments and laughs when in studying accounting we realized that even professional accountants and authors would not provide the needed ethical guidance for young business students(1) . I also remember that when studying the accounting component of the microcomputer business applications course he mentioned that accounting and computerized accounting should take a new direction altogether. He emphasized this new direction by pointing out how the Quicken(2) financial package doesn't require the closing of accounts/categories for reporting the financial statements. Later, he showed me how another accounting package, Pacioli 2000 for Windows(3) , would treat all the accounts, be balance sheet or income statement accounts, as registers. These experiences and my appreciation for new technologies have motivated the writing of this paper.
Origin of accounting and bookkeeping
In her notes compiled in 1979, Professor Linda Plunkett(4) of the College of Charleston S.C., calls accounting the "oldest profession"; in fact, since prehistoric times families had to account for food and clothing to face the cold seasons. Later, as man began to trade, we established the concept of value and developed a monetary system. Evidence of accounting records can be found in the Babylonian Empire (4500 B.C.), in pharaohs' Egypt and in the Code of Hammurabi (2250 B.C.). Eventually, with the advent of taxation, record keeping became a necessity for governments to sustain social orders.
The Italian Renaissance brought the artistic accomplishments of man to new heights. At this time, Venice was the business cradle of Europe, and it was here among merchants that double entry accounting was invented and practised. During this period Fra Luca Pacioli wrote his "Summa" dealing with record keeping and double-entry accounting, one of the very first published books of the time that would become the accounting "textbook" for the next 500 years.
Fra Luca Pacioli(5) was born during 1445 in Sansepolcro, Tuscany. He was a mathematician and friend of Leonardo da Vinci. He wrote and taught in many fields including mathematics, theology, architecture, games, military strategy and commerce. In 1494, Pacioli published his famous book "Summa de Arithmetica, Geometria, Proportioni et Proportionalita" (The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality(6) ). One section of this book was dedicated to the description of double-entry accounting. The Summa was one of the first books published on the Gutenberg press, became an instant success and was translated into German, Russian, Dutch, and English. The Summa made Pacioli a celebrity and insured him a place in history, as "The Father of Accounting."(7)
Fra Luca did not invent double-entry accounting, instead, he superbly described a method used by merchants in Venice during the Italian Renaissance. His system included most of today's accounting routines such as the use of memorandums, journals and ledgers. His ledger included assets--receivables and inventories--liabilities, capital, income, and expense accounts. He described the year-end closing entries and proposed that a trial balance be used to prove a balanced ledger. In addition, his Summa made reference to the certification of books, ethics and cost accounting.
There would be little modification to Pacioli's system for the next 500 years. The present day trial balance sheet did not get its form until 1868 and the income statement was developed before WWII(8). In the 1980s, statements of financial position were developed with the purpose to provide relevant "information about the operating, financing, and investing activities of an enterprise and the effects of those activities on cash resources" (CICA 1540).
The Information Age
The cost of today's products is mostly made up of R&D, intellectual assets and services(9). Pacioli's accounting system has not changed practically for the last 500 years, and as long as our wealth was physical and our costs included mostly material and labour, this system was adequate. The double-entry accounting system relied on historical information and has traditionally provided financial reports and statements two weeks after the month-end closing period(10). Businesses today, require information not two weeks after month-end but immediately; accounting information, activities and indices of performance must be available at the push of a button/key. The trends in the information age is to conceptualize and implement accounting as a data base information system gathering all the quantitative and qualitative events of all the areas of a company. Oracle(11), PeopleSoft(12), and SAP(13) are world players in this re-conceptualization of accounting as a data base information system, and they provide services to large corporations There are also excellent accounting software packages which are available in the market place. Examples of these packages are Pacioli 2000 for Windows, Peachtree Complete Accounting(14), and Quickbooks Pro(15). The power of such software can be appreciated by making reference to the web site listing the features of Pacioli 2000 for Windows(16), and to my father's paper "Pacioli 2000 for Windows: An Accounting Software Solution to Address the problems of Accountability of Saskatchewan District Health Boards"(17), June 1996.
The knowledge economy along with the ongoing information technology changes are affecting the way we are doing business. We are becoming customers of each other, and the economic value chain is integrating our businesses with our suppliers, customers, and governments. As accounting is concerned, these peculiar changes are being reflected in the present trends of shifting our attention from an obsolete quantitative approach to a qualitative obsession where quality, customer satisfaction, and innovation become the most important components.
"...Adapting a phrase originally spoken by Supreme Court Justice Earl Warren in reference to the law 'In civilized life, [accounting] floats on a sea of ethics' It is your choice how to elect to navigate this sea..." Quotation from FINANCIAL ACCOUNTING PRINCIPLES, by Larson Miller Zin Nelson, 2nd Canadian Edition, IRWIN, 1993, page 7 2. Web site for Quicken, by Intuit Canada http://www.intuit.com/canada/quicken/ 3. Web site for M-USA, Publisher of Pacioli 2000 for Windows http://www.m-usa.com/html/p2kv45pf.htm 4. Web sites for Professor Linda Plunket: http://www.cofc.edu/~plunkett/ http://www.cofc.edu/~plunkett/316/History.html 5.
Web sites for Fra Luca Pacioli: http://www.suburbia.com.au/~pacioli/Pacioli_History.htm http://members.tripod.com/~FlynF/pacioli.htm 6.
PARTICULARIS DE COMPUTIS ET SCRIPTURIS1, (Details of Reckonings and Their Recordings) compiled by Kenneth W. Brown, Ph.D., CPA, CGFM http://www.smsu.edu/kwb237f/pacioli/pacioli.html 7. ACCOUNTING SYSTEMS ARE COMPLETELY WRONG By William Davidow, The Red Herring magazine, January 1995 http://www.herring.com/mag/issue17/wrong.html 8. INTELLECTUAL CAPITAL, by Thomas Stewart, Doubleday, 1997, page 58 9. INTELLECTUAL CAPITAL, by Thomas Stewart, Doubleday, 1997, page 59 10. Barbich Longcrier Hooper & King, New Accounting Systems for the 21st Century, by John Fowler, Management Consulting Services: http://www.blhk.com/articl26.html, 11. Web site of Oracle: http://www.oracle.com/index_4.html 12. Web site of PeopleSoft: http://www.peoplesoft.com/ 13. Web site for SAP: http://www.sap.com/ 14. Web site for PeachTree Complete Accounting: http://www.peachtree.com/ http://www.tarasoft.com/canpay/#Esoteric 15. Web site for Quickbooks Pro, published by Intuit Canada: http://www.intuit.com/canada/quickbooks/ 16. Web site listing the features of Pacioli 2000 for Windows http://www.2001software.com/accstore73/pacioli.htm 17. Web site for the paper: APacioli 2000 for Windows: An Accounting Software Solution to Address the problems of Accountability of Saskatchewan District Health Boards, by Mario deSantis, June 1996 http://www3.sk.sympatico.ca/desam/paper-pacioli.htm