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Development of Accounting Discipline

by Mosaniy Editorial
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The accounting profession dates back to ancient times. According to some views, the genesis of the art of writing was to record financial information. Although this may appear to be an exaggeration, there is no denying the lengthy history of accounting. Ancient Chinese, Babylonian, Greek, and Egyptian civilizations left behind accounting records. Accounting was utilized to keep track of the labor and material costs associated with the construction of monumental monuments such as the Pyramids. During the 1400s, accounting expanded as merchants in Venice, Italy demanded more information. Instead of basing prices on estimates of costs, the advent of the industrial revolution prompted the establishment of a more complex accounting system. The growth of accounting as a formal field of study can be attributed to the rise of competitiveness and mass manufacturing of goods. The business world expanded as time passed. During the nineteenth century, businesses emerged in a variety of infrastructure sectors, including railroads, steel, and communications, among others. It led to accounting’s quick expansion. As business complexity increased, ownership and management were separated. As a result, managers had to devise well-defined, structured accounting systems to report the business’s success to its owners. Government has also had a substantial impact on accounting advancements. The Income Tax established the notion of ‘income’. The government makes numerous additional decisions pertaining to education, health, and economic planning for which it need precise and trustworthy information. As a result, the government requires strict responsibility from the business sector, which compels accountants to be as objective and formal as possible.

What Are Accounting’s Origins?

Accounting involves more than keeping a list of debits and credits. It is the language of business and, hence, of all financial matters. Our senses receive information from our environment, which is then interpreted by our brains; accountants transform the complexity of money into information that the general public can comprehend.

History of Accounting

Accounting is a language that has been used in various regions of the world for thousands of years. The earliest evidence of this language dates back more than 7,000 years to Mesopotamian civilizations. Mesopotamians kept the first records of items traded and received, and these operations were similar to those of the ancient Egyptians and Babylonians. The Mesopotamians utilized rudimentary accounting techniques to record transactions involving animals, livestock, and crops. During the Mauryan Empire, approximately 200 B.C., the Indian philosopher and economist Chanakya composed “Arthashastra.” The book provided guidance and specifics on how to preserve accounting record books.

The Bookkeepers

Before 2000 B.C., when barter was the predominant form of exchange, bookkeepers most likely first appeared. Dates and descriptions of transactions or terms for services given are included in the ledgers of this era.

Below are two examples of how these journal entries might have appeared:

Monday, May 12: In exchange for three cows that I delivered today, Jake Salina (dairy farmer) offered to provide a sack of seed after the fall harvest.

Wednesday, May 14th, Finn Julian (carpenter) promised to create a chest of drawers for a year’s supply of rabbit meat. Once the chest is complete, the rabbit meat must be delivered every day.

These transactions were recorded in separate ledgers. In the event of a dispute, they would present evidence to the magistrates. This system of documenting every agreement was perfect, although being tedious, because it could take a long time for transactions to be finalized.

Fresh and Enhanced Ledgers

As money became available and merchants began to amass wealth, bookkeeping emerged. Then, as now, business acumen and mathematical aptitude were not always found in the same individual, so math-averse merchants hired bookkeepers to keep track of what they owed and who owed them money.

Prior to the late 1400s, this information was presented in a narrative format with all numbers in a single column, regardless of whether a sum was paid, owed, or otherwise. This is known as “single-entry” accounting.

A sample of a bookkeeper’s single-entry system is provided below. As indicated by the symbols in the amount column, each entry includes a date, a description, and an indication of whether it was owed or received.

DateItem DetailsAmount
Monday, May 12Bought one sack of seeds-$98.00
Monday, May 12Sold three rabbits+$148.00
Wednesday, May 14Bought a chest of drawers-$1900.00
Wednesday, May 14Sold one year’s worth of rabbits+$1776.00

Even when calculating something as straightforward as monthly profit or loss, the bookkeeper had to read the description of each entry to determine whether to subtract or add the amount. This method of tallying was cumbersome and ineffective.

The Mathematical Monk

As part of the 15th-century monastic tradition of pursuing advanced scientific and philosophical inquiry, the Italian monk Luca Pacioli redesigned the traditional bookkeeping system and created the foundation for contemporary accounting. Pacioli, who is sometimes referred to as the “father of accounting,” produced a book in 1494 titled “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” that demonstrated the advantages of a double-entry system for bookkeeping.

The intention was to list an entity’s resources separately from other entities’ claims on those resources. This involved producing a balance sheet with discrete debits and credits in its simplest form. This innovation made accounting more efficient and provided a more accurate depiction of a company’s overall strength. However, this document was just for the proprietor who employed the bookkeeper. Such records were not accessible to the general public, at least not yet.

Here is how the double-entry system could have appeared. You can see two distinct columns for debits and credits, as well as a description of each transaction and whether it was paid for with cash or goods. It was hens, seeds, eggs, and furniture in this instance.

Sold RabbitsDebit Cash$148.00
Sold RabbitsCredit Rabbits$148.00
Bought SeedsDebit Seeds$98.00
Bought SeedsCredit Cash$98.00
Sold CowsDebit Cash$2900.00
Sold CowsCredit Cows$2900.00
Bought Chest of Drawers Debit Furniture $1900.00
Bought Chest of DrawersCredit Cash$1900.00

Coming to America

As a result of European colonization, bookkeeping arrived in America. The essential data input and computations for business owners were still done by bookkeepers, despite the term “accounting” being used occasionally. But because the questioned enterprises were so little, their proprietors were directly involved and knowledgeable about their financial standing. Business owners didn’t require certified public accountants to prepare intricate financial statements or cost-benefit evaluations.

America’s Railroad

The emergence of American enterprises and the development of the railroad served as the impetus for the transition of bookkeeping into the discipline of accounting. Railroad was by far the more significant of the two variables. You need distribution networks, shipping schedules, fare collection, competitive rates, and a mechanism to assess whether everything is being done as efficiently as possible for products and people to reach their destinations. To provide businesses with the information they required to make wise decisions, accounting was introduced, along with its cost estimates, financial statements, operational ratios, production reports, and a variety of other indicators.

Information could also be transmitted quickly between cities thanks to the railroads. Rather than taking months, business transactions might be completed in a matter of days. Before the railroad, the flow of even time was unequal across the nation. It used to be that each township would agree on the start and finish of the day. Due to the requirement for items to be delivered and unloaded at certain stations at regular intervals, this system was converted to a uniform one in 1883.

The country shrank as a result of the railroads, and uniformity was established, which prompted investment and increased attention to accounting. Investing has been a knowledge-based or luck-based game until the 1800s. By having knowledge of the industry or knowing the proprietors, people were able to purchase shares of stock in companies they were familiar with. Some people made blind investments after receiving advice from friends and family. The risks associated in investing assured that it was only for the wealthy—a rich man’s hobby, equivalent to gambling—because there were no financials to verify before investing in a firm or business. Even today, this impression endures.

Financial Reports In the Modern Way

Companies started publishing balance sheets, income statements, and cash flow statements as financial statements to draw in investors. The ability of a corporation to turn a profit was demonstrated by these documents. Investing money boosted operations and profits for the majority of firms, but it also put more pressure on management to appease their new employers: the shareholders. Shareholders’ lack of complete confidence in management, on the other hand, exposed the necessity of impartial financial reviews of a company’s activities.

An occupation is born

Accountants were already crucial for luring in investors, and they swiftly developed into crucial for preserving investor confidence. After the American Association of Public Accountants (AAPA) was founded in 1887 and the certified public accountant designation was created in 1896, the accounting profession was publicly acknowledged (CPA).

After passing the required state exams and gaining three years of professional experience, the title is granted. A good period was chosen for the development of professional accountants. The necessity for CPAs increased dramatically less than 20 years later, in 1913, when the United States government started collecting income taxes in order to raise money for a war.

What Recent developments have occurred in modern accounting?

Today’s accounting is different because to technology. It is now automated to do bookkeeping. Bookkeepers have employed a variety of tools ever since the country’s initial records were kept. Early accountants could calculate receipts and swiftly reconcile their books thanks to William Seward Burroughs’ adding machine, which was developed in 1887 and made commercially available in the 1890s.

Based on the vacuum tube, which was affordable enough for corporations to purchase, IBM produced its first large computer in 1952. As a result, accountants were among the first professionals to use it. The tubes had been replaced by transistors by 1959, increasing the accessibility of computers.

Microchips began to replace transistors in 1961, eventually leading to the development of computers for all users. Software for accounting, like QuickBooks, is now available thanks to technology. Accounting professionals may now complete their work more quickly, accurately, and comfortably thanks to these new developments’ higher intuitiveness.

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