History - 1

The History
of Accounting
 History - 2

Why study history of accounting?

 Understanding of the importance of

accounting to society throughout history

 Awareness of the essential functions (roles)

performed by accounting allows such
understanding

 Exploration of historical developments may

lead to better predictions of future
 History - 3

What is Accounting?

 Take a few minutes to write a

concise definition of accounting.

 Be prepared to read it to the

class.
 History - 4

NATURE OF ACCOUNTING
An information system designed to . . .

 Identify
 Collect
 Measure
 Process
 Communicate
economic data to interested parties to
assist decision-making.

“Accounting is the language of

business”
 History - 5

Accounting Environment

Accounting information helps decision

makers evaluate economic opportunities
for gain and the related inherent risks
of providing capital to a particular
venture.

“Resource Allocation”
 History - 6

“Economic activity is carried on by human beings

interacting with their environment. This type of
interaction of human effort (labor) and natural resources
takes place through the medium of entities which are used
as organizing units for the purpose of producing goods and
services. In this process the existing resources must be
allocated by some means among the available alternatives.
To make these allocations properly, predictions as to the
outcome of the available alternatives are essential.
Results of the past and estimates of the future are used to
form these predictions. These results, estimates and
predictions are couched in part in quantitative terms so
that comparisons and evaluations can be facilitated.
Accounting is one form of quantitative expression that is
widely used.”

Maurice Moonitz, The Basic Postulates of Accounting, Accounting

Research Study No. 1. AICPA, 1961.
 History - 7

Where do we begin?

 Where does the history of accounting

begin?

“Writing was not invented to write books

but to keep books” 1

1Hoffer, Eric, The Temper of Our Times, Harper & Row, 1966.
 History - 8

Kam’s History
 Ancient civilizations
 Accounting in Antiquity
– Egypt
– Babylonia
– Greece
– Rome
 Middle ages (Feudal System)
 Double-entry bookkeeping
– Luca Pacioli
 Accounting & Capitalism
 Managerial Cost Accounting
 Professional Accounting Societies
 History - 9

Functions of Accounting

 Recording & Wealth Measurement

 Managerial control & Income Measurement

 Protection of equities (stakeholders)

 Modern analysis & interpretation

 Achievement of broad social objectives

 History - 10

FUNCTIONS OF ACCOUNTING
Significant Events
 RECORDING & WEALTH MEASUREMENT
– Writing and numerical systems
– “Capturing” the information
– Feudal system
– “Traveling merchants”
• Relatively simple business structures
– Single entry accounting = “lists of things”
 History - 11

FUNCTIONS OF ACCOUNTING
Significant Events
 MANAGERIAL CONTROL & INCOME
MEASUREMENT
– Crusades open new commerce
– Greater complexity and continuity of business
• Information is necessary to operate the business
• Early cost accounting
– Town economies
– Magna Carta/Renaissance/Age of exploration
– Evolution of double-entry accounting
• Pacioli’s “Summa”
• Periodic income determination
 History - 12

DOUBLE-ENTRY ACCOUNTING
Implications
 Identification of the “economic entity”
 Explanation of changes in resources
 Representation of “capital flow”
– Capital to Profit to Capital
 Quantifies capital and wealth
 Restricts observations
– Monetary measurement
– Reliability
 Systemized organization of business activities
 Standardization of business terminology
 History - 13

FUNCTIONS OF ACCOUNTING
Significant Events
 PROTECTION OF EQUITIES
– Industry revolution/Factory system
– National economies
– Need for significant capital
– Rise of the corporation
• Separation of owners and managers
• Stock exchanges
• Taxing authorities
 Larger scale (often based on income)
• Anti-trust regulators
– Need for audited financial statements
 History - 14
FUNCTIONS OF ACCOUNTING
Significant Events

 MODERN ANALYSIS & INTERPRETATION

– World Wars I & II
– International economies
– Demand for greater economic analysis and
improved resource allocation
– “Scientific management”
– Sophisticated management accounting
• Standard costing & variance analysis
• Relevant analysis
• Capital budgeting
• Quantitative techniques (Least squares, regression,
ROI, Cash flow projections,etc.)
 History - 15

FUNCTIONS OF ACCOUNTING
Significant Events
 ACHIEVEMENT OF SOCIAL OBJECTIVES
– Social legislation
• New Deal, Civil Rights, Great Society, Welfare, etc.)
• Government involvement
• Not-for-Profit organizations
– Computer technology
– Space age
– Demands for corporate social responsibility
• Environmental
• Employee rights
• Health concerns
– Increasing regard for business ethics
– New regulations on business and financial
markets (SOX)
 History - 16

Is Accounting a “Social Force?”

Does it shape the world around it,

or is the reverse true?
 History - 17

“Accounting of itself cannot be the vehicle

of social and political change although
knowledge and understanding of the
financial data which accounting can
produce may well be vitally important both
to those who wish a change and those who
wish to resist it; but accounting as a
discipline cannot take sides although those
who use it may well do so.”
Flint, D., “Research on the Social and Political Aspects of Accounting, Unpublished note.
 History - 18

“The interdependency of accounting and its

environment results in change being brought
about by a process of mutual adaption.
Environmental demands lead to changes in
accounting practice and changes in accounting
practice lead to changes in environmental
demands and expectations.”

Gilling, D.M., “Accounting and Social Change,” International Journal of Accounting,

Spring 1976.
 History - 19

Evolution of the Knowledge Professional

Elliott & Jacobson

 Economic paradigms  Information professional

– Hunting and gathering – Shaman
– Agriculture – Scribe
– Industry – Accountant
– The Information – Information
economy professional
 History - 20

Power of Information

“In this society, knowledge is the primary

resource for individuals and for the economy
overall. Land, labor, and capital – the
economist’s traditional factors of production –
do not disappear, but they become
secondary.”

Drucker, Peter F., “The New Society of Organizations,”

Harvard Business Review, September-October 1992