Accounting has a history that is usually discussed in terms of one seminal event- the invention and dissemination of the double entry bookkeeping processes. Paul Garner and Atsuo Tsuji (1995) report that the first printed treatise of bookkeeping in the world is the Summa de Arithemetica, Geometria, Proportioni et Proportionalita written by Luca Pacioli. The treatise was published in Venice in 1494, and was reprinted at Toscolano in 1523. This work is one of the most important books on mathematics and has had an enormous impact on the field of accounting ever since. The Treatise 11 of Section 9 of this book – that is, “particulars de Coputis et Scripturis,” is a treatise about double entry bookkeeping.
The system of bookkeeping that Luca Pacioli described first introduced the practice and theory that had developed in commercial cities in Italy, particularly in Venice. Pacioli wrote in the first chapter of his treatise, “We will here adopt the method employed in Venice which among others is certainly to be recommended, for with it one can carry with any other method”. Pacioli was born in Borgo San Sepolcro, lived in Venice and became the tutor of the three sons of a rich merchant, Antonio de Rompiasi. It seems that he could have had the chance to see the account books of the Venetian merchants and to study the method of double entry bookkeeping in Venice.
The bookkeeping system that Luca Pacioli has several distinct characteristics:
1. Pacioli wrote that there are three things needed by one who wished to carry on business diligently. The most important of these is cash or any other substantial power. The second is a good accountant and a sharp bookkeeper. The third is good order in order to arrange all business to debit and credit. 2. Pacioli explained the opening inventory, but he did not describe the closing inventory. 3. Pacioli’s account book system is three account books- that is, a day book. The day book is the first book, the journal is the second book and the ledger is the third book. Pacioli thought of the day book as the formal account book, because he wrote that the day book must be presented to a certain mercantile office. 4. All things pertaining to a transaction must be written in the day book, without omission. Pacioli wrote that no point must be omitted in the day book. 5. Pacioli described debit and credit- that is, “per” and “A” in the journal, and “die havere” in the ledger.
However, any view of accounting history that begins with Luca Pacioli’s contributions will overlook a long evolution of accounting systems in ancient and medieval times. In attempting to explain why double entry bookkeeping developed in 15th century Italy instead of ancient Greece or Rome, accounting scholar A. C. Littleton describes seven “key ingredients” which led to its creation.
-Private Property: The power to change ownership, because bookkeeping is concerned with recording the facts about property rights. -Capital: Wealth productively employed, because otherwise commerce would be trivial and credit would not exist. -Commerce: The interchange of goods on a widespread level, because purely local trading in small volume would not create the sort of press of business needed to spur the creation of an organized system to replace the existing hodgepodge of record-keeping.
-Credit: The present use of future goods, because there would have been little impetus to record transactions completed on the spot. – Writing: A mechanism for making a permanent record in a common language, given the limits of human memory. – Money: The “common denominator” for exchange, since there is no need for bookkeeping except as it reduces transactions to a set of monetary values. – Arithmetic: A method of computing the monetary details of the deal.
Many of these factors did not exist in ancient times, but, until the Middle Ages, they were not found together in a form and strength necessary to push man to the innovation of double entry. Writing, for example, is as old as civilization itself, but arithmetic- the systematic manipulation of number symbols- was really not a tool possessed by the ancients. Rather, the persistent use of Roman numerals for financial transactions long after the introduction of Arabic numeration appears to have constrained the earlier creation of double-entry systems.
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