The history of accounting or accountancy can be traced to ancient civilizations.Keith, Robson. 1992. “Accounting Numbers as ‘inscription’: Action at a Distance and the Development of Accounting.” Accounting, Organizations and Society 17 (7): 685–708. The early development of accounting dates to ancient Mesopotamia, and is closely related to developments in writing, counting and money and early auditing systems by the ancient Egyptians and Babylonians. By the time of the Roman Empire, the government had access to detailed financial information.
Double-entry bookkeeping became widespread in Italy in the late 13th century. In 1494, Luca Pacioli, often recognized as the father of accounting and bookkeeping, published his work on double-entry bookkeeping, Summa de arithmetica, spreading the field throughout Italy.
The modern profession of the chartered accountant originated in Scotland in the nineteenth century. Accountants often belonged to the same associations as solicitors, who often offered accounting services to their clients. Early modern accounting had similarities to today's forensic accounting. Accounting began to transition into an organized profession in the nineteenth century, with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880.
Ancient history
Early development of accounting
Accounting records dating back more than 7,000 years have been found in Mesopotamia,Friedlob, G. Thomas & Plewa, Franklin James, Understanding balance sheets, John Wiley & Sons, NYC, 1996, , p.1 and documents from ancient Mesopotamia show lists of expenditures, and goods received and traded. The development of accounting, along with that of money and numbers, may be related to the taxation and trading activities of temples: "another part of the explanation as to why accounting employs the numerical metaphor is [...] that money, numbers and accounting are interrelated and, perhaps, inseparable in their origins: all emerged in the context of controlling goods, stocks and transactions in the temple economy of Mesopotamia."
The early development of accounting was closely related to developments in writing, counting, and money. In particular, there is evidence that a key step in the development of counting—the transition from concrete to abstract counting—was related to the early development of accounting and money and took place in Mesopotamia
Other early accounting records were also found in the ruins of ancient Babylon, Assyria and Sumer, which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Because there was a natural season to farming and herding, it was easy to count and determine if a surplus had been gained after the crops had been harvested or the young animals weaned.
Expansion of the role of the accountant
During the 4th and 3rd millennia BC, the ruling leaders and priests in ancient Iran had people oversee financial matters. In Godin Tepe () and Tepe Yahya (), cylindrical tokens that were used for bookkeeping on clay scripts were found in buildings that had large rooms for storage of crops. In Godin Tepe's findings, the scripts only contained tables with figures, while in Tepe Yahya's findings, the scripts also contained graphical representations. The invention of a form of bookkeeping using clay tokens represented a huge cognitive leap for mankind.Oldroyd, David & Dobie, Alisdair: Themes in the history of bookkeeping, The Routledge Companion to Accounting History, London, July 2008, , Chapter 5, p. 96
During the 2nd millennium BC, the expansion of commerce and business expanded the role of the accountant. The Phoenicians invented a phonetic alphabet "probably for bookkeeping purposes", based on the Egyptian hieratic script, and there is evidence that an individual in ancient Egypt held the title "comptroller of the scribes". There is also evidence for an early form of accounting in the Old Testament; for example the Book of Exodus describes Moses engaging Ithamar to account for the materials that had been contributed towards the building of the tabernacle.
By about the 4th century BC, the ancient Egyptians and Babylonians had auditing systems for checking movement in and out of storehouses, including oral "audit reports", resulting in the term "auditor" (from , to hear). The importance of taxation had created a need for the recording of payments, and the Rosetta Stone also includes a description of a tax revolt.
Roman Empire
By the reign of Emperor Augustus (27 BC - AD 14), the Roman government had access to detailed financial information, as evinced by the Res Gestae Divi Augusti (Latin: "The Deeds of the Divine Augustus"). The inscription was an account to the Roman people of Augustus's stewardship, and listed and quantified his public expenditure, including distributions to the people, grants of land or money to army veterans, subsidies to the aerarium (treasury), building of temples, religious offerings, and expenditures on theatrical shows and gladiatorial games, covering a period of about forty years. The scope of the accounting information at the emperor's disposal suggests that its purpose encompassed planning and decision-making.Oldroyd, David: The role of accounting in public expenditure and monetary policy in the first century AD Roman Empire, Accounting Historians Journal, Volume 22, Number 2, Birmingham, Alabama, December 1995, p.124,
The Roman historians Suetonius and Cassius Dio record that in 23 BC, Augustus prepared a rationarium (account) which listed public revenues, and the amounts of cash in the aerarium (treasury), in the provincial fisci (tax officials), and in the hands of the publicani (public contractors); and that it included the names of the freedmen and slaves from whom a detailed account could be obtained. The closeness of this information to the executive authority of the emperor is attested by Tacitus' statement that it was written out by Augustus himself.Oldroyd, David: The role of accounting in public expenditure and monetary policy in the first century AD Roman Empire, Accounting Historians Journal, Volume 22, Number 2, Birmingham, Alabama, December 1995, p.123,
Records of cash, commodities, and transactions were kept scrupulously by military personnel of the Roman army. An account of small cash sums received over a few days at the fort of Vindolanda circa AD 110 shows that the fort could compute revenues in cash on a daily basis, perhaps from sales of surplus supplies or goods manufactured in the camp, items dispensed to slaves such as cervesa (beer) and clavi caligares (nails for boots), as well as commodities bought by individual soldiers. The basic needs of the fort were met by a mixture of direct production, purchase and requisition; in one letter, a request for money to buy 5,000 modii (measures) of braces (a cereal used in brewing) shows that the fort bought provisions for a considerable number of people.Bowman, Alan K., Life and letters on the Roman frontier: Vindolanda and its people Routledge, London, January 1998, , p. 40-41,45
The Heroninos Archive is the name given to a huge collection of papyrus documents, mostly letters, but also including a fair number of accounts, which come from Roman Egypt in the 3rd century AD. The bulk of the documents relate to the running of a large, private estate.Farag, Shawki M., The accounting profession in Egypt: Its origin and development, University of Illinois, 2009, p.7 Aucegypt.edu It is named after Heroninos because he was phrontistes (Koine Greek: manager) of the estate, which had a complex and standardised system of accounting which was followed by all its local farm managers.Rathbone, Dominic: Economic Rationalism and Rural Society in Third-Century AD Egypt: The Heroninos Archive and the Appianus Estate, Cambridge University Press, , 1991, p.4 Each administrator on each sub-division of the estate drew up his own little accounts, for the day-to-day running of the estate, payment of the workforce, production of crops, the sale of produce, the use of animals, and general expenditure on the staff. This information was then summarized on pieces of papyrus scroll into one big yearly account for each particular sub-division of the estate. Entries were arranged by sector, with cash expenses and gains extrapolated from all the different sectors. Accounts of this kind gave the owner the opportunity to take better economic decisions because the information was purposefully selected and arranged.Cuomo, Serafina: Ancient mathematics, Routledge, London, , July 2001, p.231
Medieval and Renaissance periods
Double-entry bookkeeping
In eighth century Persia, scholars were confronted with the Qur’an's requirement that Muslims keep records of their indebtedness as a part of their obligation to account to God on all matters of their life. 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 that depended on the mathematics of Hindu-Arabic numerals.
The inheritance mathematics were solved by a system developed by the medieval Islamic mathematician Muhammad ibn Musa al-Khwarizmi (known in Europe as Algorithmi from which we derive "algorithm"). Al-Khwarizmi's opus “The Compendious Book on Calculation by Completion and Balancing” established the mathematics of algebra, with the last chapter devoted to the double-entry bookkeeping required for solution to the Islamic inheritance allocations. Al Khwarizmi's work was widely circulated, at a time that there was substantial active discourse and trade between Arabic, Jewish and European scholars. It was taught in the learning centers of Al-Andalus in Iberia, and from the tenth century forward, slowly found its way into European banking, which began slipping Hindo-Arabic numerals into accounting books, despite their prohibition as sinful by the medieval church. Bankers in Cairo, for example, used a double-entry bookkeeping system which predated the known usage of such a form in Italy, and whose records remain from the 11th century AD, found amongst the Cairo Geniza.MEDIEVAL TRADERS AS INTERNATIONAL CHANGE AGENTS: A COMMENT, Michael Scorgie, The Accounting Historians Journal, Vol. 21, No. 1 (June 1994), pp. 137-143 Fibonacci included double-entry and Hindo-Arabic numerals in his Liber Abaci which was widely read in Italy and Europe.
Al-Khwarizmı's book introduced al-jabr meaning "restoration” (which European translated as "algebra") to its inheritance accounting, leading to three fundamental accounting - algebraic concepts:
Debits = Credits: algebraic manipulations on the left-hand and right-hand sides of an equal sign had to "balance" or they were in error. This is the algebraic equivalent of double-entries "bookkeeping equation" for error control. Real accounts: These included assets for tracking wealth, weighed against liabilities from the claims of others against that wealth, and the difference which is the owner's net wealth, or owner's equity.This was al-Khwarizmi's "basic accounting equation". Nominal accounts: These tracked activity that affected wealth, and the "restoration" into the real accounts reflected accounting's closing process and the calculation of the owner's increment in wealth—net income.
Algebra balances and restores formulas on the left and right of an equal sign. Double-entry bookkeeping similarly balances and restores debit and credit totals around an equal sign. Accounting is the balancing and restoration of algebra applied to wealth accounting.