Business Accounting History

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Business Accounting is the method of storing, tracking and analyzing financial accounting and decision-making in an entity. The accounting profession has undergone a transformation since the 15th century, and the history of corporate accounting helps to explain how key events have contributed to current accounting practices. The most striking idea that is mostly featured in the tradition of business accounting is the dual entry as a balancing instrument. Before the distinction between the two, management accounting and financial accounting are both deemed to be part of company accounting. The current business accounting is considered to be financial accounting since the accountants realized much difference between the two accounting types. The research delves into the history of business accounting from the ancient accounting era to the present time.

Accounting Before Double Entry System

The concept of double entry in the book keeping developed in the 14th century. The concept was developed by an Italian scholar known as A.C Littleton. Littleton came up with seven ingredients which he said made up the concept of double entry (Alexander, John R 7).

One, Littleton suggested that the existence of private property brought about the idea of bookkeeping since people were concerned with making records about the property rights and locations. In the 14th century, the property types that were owned by people majorly included land and buildings. Littleton, therefore, suggested that one needed bookkeeping when he sold or purchased either land or building at the time.

Two, the existence of capital brought about the bookkeeping idea. Littleton defined capital as the wealth employed in business. Capital made t possible for the business people to extend or advance credit. The advancement of credit ignited the idea of bookkeeping as the creditors had to keep clean records of their debtors regarding the date of settlement, the amount of credit and the name of the debtors.

Three, the growth of commerce necessitated the creation of a more organized bookkeeping than it was during the local trading. In the 14th century, businesses had started trading in large areas, and the extension of trading boundaries made it necessary for the business people to employ accounting and come up with measures of carefully recording all the transactions. The double coincidence of wants- a type of trading was still in existence and the accountants of the 14th century were interested in valuing all the property taken for trade in such a manner that no one made abnormal losses from the trading market.

Four, money as a common denominator also contributed greatly to the ability of the accountants to develop bookkeeping techniques. Money made it possible for the valuation of all the goods and services being traded in the market. The accountants defined money as anything that could generally be accepted as a medium of exchange during the trade.

However, the accountants were clear on the characteristics of money that could be used to value goods and services for record keeping. For instance, money had to be a unit of exchange, be acceptable, be malleable, act like storage of wealth and be able to last for long. The other ingredients of recordkeeping include credit, the emergence of proper writing skills and arithmetic techniques (Alexander, John R 15-16).

Accounting in Mesopotamia, 3500 B.C

Sumeria was a theocracy in Mesopotamia who came up with many rules that made it punishable for the farmers to fail in recording their business transactions. In as much as the residents of Mesopotamia were majorly farmers, they used a scribe, the equivalent of the present day’s accountant (Johnson, H. Thomas 450). The scribe had many duties which included writing up transactions, following up on debts and ensuring the agreements signed between two trading parties were complied with. The scribes were employed to keep records in the temples, private firms and the few existing churches. At the time, the business parties could sign their agreement in a piece of clay at the gates of the temples after their agreement, and the scribe would be there to oversee the entire business transaction.

Medieval Accounting

According to Johnson, H. Thomas (445), the medieval accounting saw the distinction between the financial accounting and the management accounting. The financial accounting was described to have the following characteristics. The financial accountant reported to investors, employees, lenders, suppliers, creditors, the public and the government agencies. The financial accountant also put more emphasis on the past events for decision making, for instance, the financial accountants could rely on the activities of the past trading period to arrive at the business profit.

Three, the financial accountant was expected to verify data and act objectively in the recording of all the transactions to give a fair view of the company’s status. The accountant was therefore expected to have data precision and had to adhere to the existing international reporting standards. The financial accounting was also made mandatory for the financial reporting. Management accounting was classified as a branch of business accounting with different characteristic. A management accountant was expected to report to stakeholders with an objective to enhancing planning, controlling, motivating and directing, performance assessment and evaluation.

The accountant was also supposed to lay emphasis on the relevance of data and make decisions that are futuristic. However, the accountants did not have to make the company reports and adhere to the international reporting standards.

Accounting After The Double Entry System

The double entry system was invented by Luca Pacioli in the 14th century. Pacioli came up with the accounting approach which classified business transactions into assets, liabilities, revenues, expenses or capital. According to Pacioli, assets were the property owned b y an individual or a company and were to be debited when they increased. The record was to be a debit entry in the accounting terms.

The capital was defined as the amount of money invested in business, and an increase in capital received a credit entry. Liabilities were what other people owned in the business and therefore received a credit entry when increased. The expenses were defined as part of assets which were either used to meet a liability or to create other assets. They were debited when they increased.

Finally, the revenues were the receipts into the business and were credited when increased (Carmona, Salvador 23). The double entry rule states that, for every credit entry, there must be a corresponding debit entry.

Summary of Important Events During the Development of Business Accounting

Between 3500 to 2000 BC, there was the introduction of Code of Hammurabi and the Price quotes to merchants in Mesopotamia. Between 300 BC to 1100 AD, Kings Taxes in Ancient Egypt were paid and recorded using papyrus. China had an evaluation of government efficiency while Greece saw the introduction of coined money during that period. Rome also had the introduction of cash book for recording all the household expenses.

The period between 1130 AD to 1485 AD saw the development of accounting for real estate in the medieval England. The Exchequer and the Domesday books were introduced to tax real estate businesses. Between 1494 to 1700 AD, the renaissance of accounting was experienced with the introduction of Pacioli’s double entry system and the Littleton’s seven ingredients of accounting.

Between 1700 -1950 AD, there were no developments in the business accounting and the period is normally referred to as the ‘barren’ accounting period. Between 1950-1980 AD, the concept of direct costing using mathematical techniques was introduced in business accounting.


The business accounting history has two main approaches. Some historians feel that the growth of business necessitated the development of accounting while other has the view that the development of accounting techniques enhanced the growth of businesses. Either way, it is clear that business accounting had an immense impact on the =growth of the business world. At the heart of business, accounting history lays the double entry system which was proposed by Luca Pacioli. The business accounting of the present day has had many developments such as the introduction of the International Accounting and Standards Board (IASB) and other accounting bodies to streamline the accounting standards and ensure the certified accountants understand their roles in the growth of business.


Works Cited

Alexander, John R. “History of accounting.” Association of Chartered Accountants in the United States 341 (2002): 1-16

Carmona, Salvador. “Accounting history research and its diffusion in an international context.” Accounting History 9.3 (2004): 7-23.

Johnson, H. Thomas. “The role of accounting history in the study of modern business enterprise.” The Accounting Review 50.3 (1975): 444-450.

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