Accounting is the language of business and, by extension, the language of all things financial.

In the same way that our

senses are needed to translate information about our surroundings into something understood by our
brains, accountants are needed to translate the complexities of finance into summary numbers that the public can
understand. In this article, we will follow accounting from its roots in ancient times to the modern profession that we
now depend on.

The Bookkeepers
Bookkeepers most likely emerged while society was still in the barter and trade system (pre-2000 B.C.) rather than a
cash and commerce economy. Ledgers from these times read like narratives with dates and descriptions of trades made
or terms for services rendered.

Example - Barter and Trade Bookkeeping

Monday, May 12 - In exchange for three chickens which I provided today, William Smallwood (laborer) promised a
satchel of seed when the harvest is completed in the fall.

Wednesday, May 14 - Samuel Thomson (craftsman) agreed to make one chest of drawers in exchange for a year\'s
worth of eggs. The eggs are to be delivered daily once the chest is finished.

All of these transactions were kept in individual ledgers, and if a dispute arose, they provided proof when matters were
brought before magistrates. Although tiresome, this system of detailing every agreement was ideal because long periods
of time could pass before transactions were completed.

The New and Improved Ledger - Now With Numbers!

As currencies became available and tradesmen and merchants began to build material wealth, bookkeeping also
evolved. Then, as now, business sense and ability with numbers were not always found in one person, so math-phobic
merchants would employ bookkeepers to keep a record of what they owed and who owed them. Up until the late
1400s, this information was still arranged in a narrative style with all the numbers in a single column whether an amount
paid, owed or otherwise. This is called single-entry bookkeeping and is similar to what many of us do to keep track of
our checkbooks. It was necessary for the bookkeeper to read the description of each entry to decide whether to deduct
or add it when calculating something as simple as monthly profit or loss. This was a very time consuming and inefficient
way to go about tallying things. (To learn all about the history of money through the ages, see From Barter To Bank
Notes.)

The Mathematical Monk

Continuing in the tradition of monks doing high-level scientific and philosophical research, in the 15th century, Italian
monk Luca Pacioli revamped the common bookkeeping structure and laid the groundwork for modern accounting.
Pacioli published a textbook in 1494 that showed the benefits of a double-entry system for bookkeeping. The idea was
to list an entity's resources separately from any claims upon those resources by other entities. In the simplest form, this
meant creating a balance sheet with debits and credits separated. This innovation made bookkeeping more efficient and
provided a clearer picture of a company's overall strength. This picture, however, was for the owner who hired the
bookkeeper only. The general public didn't get to see these records, at least not yet. Coming to America
Bookkeeping migrated to America with the European colonization. Although it was sometimes referred to as accounting,
bookkeepers were still doing basic data entry and calculations for business owners. The businesses in question were
small enough that the owners were personally involved and aware of the health of their companies. They didn't need
accountants to create complex financial statements or cost-benefit analysis. (For more on the history of American
finance, check out Financial Capitalism Opens Doors To Personal Fortune.)

The American Railroad

The appearance of corporations in the U.S. and the creation of the railroad were the catalysts that transformed
bookkeeping into the practice of accounting. Of the two factors, the railroad was by far the most powerful. To get goods
and people to their destinations, you need distribution networks, shipping schedules, fare collection, competitive rates
and some way to evaluate whether all this is being done in the most efficient way possible. Enter accounting with its
cost estimates, financial statements, operating ratios, production reports and a multitude of other metrics to give
businesses the data they needed to make informed decisions.

The railroad also shrank the country. Business transactions could be settled in a matter of days rather than months, and
information could be passed from city to city at a much greater speed. Even time did not run evenly across the country
before the railroad. Previously, each township decided when the day began and ended by a general consensus. This was
changed to a uniform system because it was necessary to have goods delivered and unloaded at certain stations at
predictable times.

This shrinking of the country and introduction of uniformity encouraged investment, which, in turn, put more focus on
accounting. Up to the 1800s, investing had been either a game of knowledge or one of luck. People acquired issues of
stock in companies with which they were familiar, either by knowing the industry or knowing the owners, or they blindly
invested where their relatives and friends encouraged them to. There were no financials to check if you wanted to invest
in a corporation or business that you knew nothing about. The risk of this type of investing made it an activity for the
wealthy - a rich man's sport with the taint of gambling. This image has never completely faded. (To learn about the early
days of investing, see How The Wild West Markets Were Tamed and The Birth Of Stock Exchanges.)

The First Financials

Corporations, eager to attract more capital to expand their operations, began to publish their financials in the form of a
balance sheet, income statement and cash flow statement. (To learn how to analyze each of these, see Reading The
Balance Sheet, Understanding The Income Statement and Analyze Cash Flow The Easy Way.)

Investment capital from sources outside the company became more important than that provided by the individual
owners who had pioneered business. Although bringing in this investment capital increased the range of operations and
profits for most corporations, it also increased the pressure on the management to please their new bosses -
the shareholders. For their part, the shareholders were unable to completely trust the management, so the need for
independent financial review of a company's operations became apparent. (For reading on the flow of corporate
information, see Show And Tell: The Importance Of Transparency.)

The Birth of a Profession

Accountants were already essential for attracting investors, and they quickly became essential for maintaining investor
confidence. The profession of accounting was recognized in 1896 with a law stating that the title of certified public
accountant (CPA) would only be given to people who had passed state examinations and had three years of experience
in the field. The creation of professional accountants came at an opportune time. Less than 20 years later, the demand
for CPAs would skyrocket as the U.S. government, in need of money to fight a war, started charging income tax.

Read more: Financial History: The Evolution Of Accounting http://www.investopedia.com/articles/08/accounting-

history.asp#ixzz4qRhO9tl5

Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were
found among the ruins of Ancient Mesopotamia. At the time, people used accounting techniques still used today in
determining crop surplus or shortage.

During the Middle Ages, bartering was the primary form of money-change, but when Europe changed to a monetary
economy in the 13th Century, merchants began relying on bookkeeping to keep record of multiple transactions.

Double-entry bookkeeping first emerged in Italy in the 14th century, where trading ventures began to require more
capital than a single individual was able to invest. Luca Pacioli wrote his Summa dealing with record keeping and
double-entry accounting, one of the very first published books that became the accounting textbook for the next 500
years.
Why is the history of accounting important to us?
Accountancy, as old as civilization, is one of the most trusted professions around the globe. Accountants participated in
the development of cities, trade, and the concepts of wealth and numbers. Accountants invented writing, participated in
the development of money and banking, invented double entry bookkeeping that fueled the Italian Renaissance, saved
many Industrial Revolution inventors and entrepreneurs from bankruptcy, helped develop the confidence in capital
markets necessary for western capitalism and created the NY stock exchange. Accountants are central to the
information revolution that is currently transforming the global economy.

In 1904, 50 years after the emergence of the formal profession, about 6,000 practitioners carried the title of chartered
accountant. In 2008, there were 1,762,000 accountants and auditors in the United States alone.

Accounting and technology

Every accountant knows that accounting is the language of business seroquel 100mg. That language has gone through
many changes throughout the ages. But through all the changes, technology has always played a part in making the
accountants job just a little easier from the abacus, to the first adding machines, calculators and then computers and
software. As our knowledge of technology increased so has the accountants ability to analyze statistical values.
Technology has enhanced the ability to interpret data efficiently and effectively. Accountants now can interpret the
language of business with the right financial solutions with such ease that they have become a corporations most
trusted business advisor.

While the principles remain the same, the tools have drastically changed. The need to efficiently manage massive
amounts of complex financial data necessitated the development of Enterprise Resource Planning (ERP) solutions.
Through ERP solutions, accountants armed themselves with management information that spanned an entire
organization, embracing finance, accounting, manufacturing, sales, service and customer relationship management, and
made themselves even more integral to the success of their organizations.

Accounting today
Today, accountants can run Dynamics GP on premise or the cloud, and run reports on tablets and smart phones.
Information can come from several different systems using a Web interface.

As we continually improve systems, Accountants are free to leverage the knowledge and advantages offered by
technology. With increasing prevalence of mobile technology and faster networks, people expect to have up-to-date
information available wherever and whenever.

Businesses today, require information not two weeks after month-end but immediately; performance must be available
at the push of a button.

Accountants have to stay in touch with changing trends in business, technology, rules and governance, said Dave
Brougham, CMA. With the world getting smaller, economies growing and technology providing instant access to
information, the accounting profession has had to evolve.

Accounting technology has eliminated the number cruncher sitting behind a desk and has allowed the accountant to find
new challenges with much more to offer then decades ago when they relied on an abacus for a calculating tool.

Since the Dawn of Man, the accounting profession has been our trusted advisor and has provided immeasurable value;
the high standards the profession has set, and the immeasurable value accountants bring to organizations. In our
changing and complex world, accountants are needed to translate the complexities of finance into summary numbers
that the public can understand.

No one can see into the future. However, it doesnt take a crystal ball to know that tomorrows accountant will strive for
the same goals as today: deliver the highest quality of service to their organizations while minimizing work and
maximizing profitability. Technology will continue to be the key enabler, and we will continue to lead in providing the
best tools to enhance their ability to do what they do best, and not waste time and effort on inadequate technologies.
Through historical process the primitive inconsistent and confusing system of keeping accounts has reached a disciplined
system of accounting.

Accounting is going forward keeping pace with the technological advancement of dynamic social system.

Modem accounting is not an overnight result of sudden change of any event. It has reached the present stage through
an evolutionary process of thousands of years.

Since the beginning of human civilization accounting practice had been going on and its forward march will continue.

For the necessity of its application Accounting has gradually been modified and further developed.

On the basis of the data received from the history of evolution and -the features of gradual development, history of
Accounting can chronologically be classified into four stages, e.g.

Emergent stage (from primitive age to 1494 AD),

Preanalytic stage (1495 1799),

Development i.e. analytic stage (1800-1950),

Modem age (From 1951- onward).

The history of gradual development of Accounting through these four stages is discussed below:

THE EMERGENT STAGE (FROM PRIMITIVE TO 1494)

This stage covers the period from the beginning of human civilization to 1494. Any reliable source regarding the exact
starting of accounting practice is yet to be ascertained.

But it can roughly be said that Accounting practice started when exchange of goods or services, was felt necessary.

But the Accounting system of that time was not at all developed and disciplined as of today. The emergent stage of
Accounting emerged keeping pace with the following chronological stages of the history of human civilization.

(a) Stone stage,

(b) Primitive stage,
(c) Barter stage, and
(d) Currency stage.

The gradual evolution of accounting through these four stages is discussed below in brief;

Stone Age

When people did not know how to build house, they used to live in caves, mountains and jungles and earned their
livelihood by collecting fruits and hunting animals.

They kept accounts of their collected fruits, hunted animals and lent goods to others by marking ticks on the trees, on
the walls of the caves of mountains and on stones, or making holes or symbols as per their need. In this way accounting
concept emerged.

Primitive stage

This stage started just with the beginning of social life of human beings. People of this stage, kept their accounting
marking ticks on the walls and making rope-knots.

Barter stage

With the introduction of barter system to meet the necessity of human beings the system of accounting also developed.
According to Prof. Littleton, from the feeling of necessity of keeping systematic records in terms of money of personal
increased properties arising out of agriculture the accounting system emerged.

Currency stage

Through the evolutionary process at one stage the use of money started. At this stage agriculture, industry and trade
and commerce flourished.

According to Glautior and under down, in the age of feudalism supervisory accounting system was in practice.

The feudal lords assigned the responsibilities of supervision of their entire properties to a group of salaried employees.

These employees were relieved of their assigned responsibilities after they would submit the statement of income and
expenditure and of properties.

Possibly the concept of debit and credit came into being from that time.

With the passage of time the volume of business and quantity of transactions increased and the system of keeping
accounts of every transaction under separate classified heads was introduced.

In fact, when and where the double entry system was introduced is yet to be ascertained.

But most of the people feel that, the double entry system was introduced centering Rome once the center of
civilization and trade and commerce, which was situated as a link between Asia and Europe in consideration of
geographical advantages.

In the middle age economic development helped the development of Accounting to a great extent.

According to Kenneth Most, Luca Pacioli is considered father of Accounting because his famous book Method of Venice
had been a model of text book for long two hundred years.

He also explained the main principles and methods of double entry system in detail in his first book Summa de
Arithmetica Geometria, Proportioniet Proportionlita.

This book is divided into five chapters.

(1) Arithmetic and Algebra,

(2) The application of Arithmetic and Algebra in trade and commerce,

(3) Accounting,

(4) Money and Barter System, and

(5) Theoretical and Applied Geometry.

It is true that he was the first man who explained double entry system in detail in written form but he cannot claim to be
the innovator of this system because available evidences prove that this system was in a practice in a haphazard way in
the beginning of the fourteenth century.

Yet, Pacioli is regarded as the father of Accounting as he had explained this system lucidly and systematically in his book
which was the first printed book on Accounting.

PRE-ANALYTIC STAGE (FROM 1495-1799)

The 3rd chapter of the famous book of Loca Pacioli i.e. accounting was reprinted in 1504 where in he clearly discussed
and explained the rules of determining debit and credit and preparation of journal, ledger and trial balance.

Subsequently this book was translated and published in Scottish, German, French, Russian and English.
The Accounting chapter is termed as Particulars de Computes at Scriphris i.e. a comprehensive description regarding
accounts recording. This chapter is mainly divided into two parts; 1st part regarding inventory and the 2nd one regarding
disposition.

This book contains detailed discussion regarding rules for journalizing the business transactions with complete narration,
transferring nominal accounts to profit and loss account giving effect of them to capital account.

Accounting mainly depends on economic and social development. In fact, during this period very little change took place
in this world and the same is true in case of economic development.

Naturally no remarkable progress was marked in the concept and application of Accounting.

The changes and development that took place in accounting method and thought during the three hundred years period
is discussed below in brief:

Enrichment of dual aspect concept or double entry system

During this period all heads of accounts irrespective of person, institution and materials have been considered as
personal account and the concept that the receiver of benefits is debtor and the giver of benefit is creditor, was
established.

Introduction of going concern concept

With the expansion of trade and commerce the going concern concept in place of short term concept was introduced in
many countries of the world and in the light of this concept revenue and capital nature of accounts was identified.

Introduction of periodic concept

Due to introduction of going concern concept it is presumed that business concern will continue for an indefinite period.
But the investor cannot wait for an indefinite period.

So the necessity of preparing periodic statements of accounts was felt. As a result the concept of periodic accounting
was introduced.

Introduction of money measurement concept

Accounting becomes very much logical if money is considered media of measurement.

The names of assets and liabilities are not at all enough to express the financial position of a concern until and unless
these are expressed in terms of money. That is why the money measurement concept was introduced.

Publication of explanatory books on accounting method

Some distinguished professors of European countries enriched accounting concept to a great extent by writing books
after Luca Pacioli.

Among them Simon Stevin and Arthury Cayley-professors of Mathematics of Cambridge University are famous for their
book The Principles of Double Entry Book Keeping.

Publication of Critical Articles

During this period some mentionable critical articles strengthened the base of Accounting.

It is known from Edward Peargallos writings that many thinkers of that time were interested in writing about accounting
system that was used by business concerns.

The scope of Accounting expanded to* a great extent with the publication of critical articles and the research work on it.
This research work was considered the birthplace of accounting development.
DEVELOPMENT OR EXPLANATORY PERIOD (1800 1950)

About one hundred and fifty years ranging from 1800 to 1950 is regarded as Development or Explanatory Period. As a
result of industrial revolution and appearance of joint Stock company, large scale production, multi-scale production,
and wider competition, desire to earn maximum profit and government control created new problems and various
complexities in the field of accounting system.

he necessity of accounting analysis process was felt to find out the solutions to these problems and complexities. These
research and analysis processes have played a vital role to help Accounting to a further step of advancement.

During this period many writers of different European countries formulated basic theories which made accounting
system of the then period very much logical. F. S. Hendriksen classified the events- of the period from 1800-1930 into
seven categories which influenced the establishment and development of accounting system-e.g.

Textbook publication on Accounting and development of newer methods of teaching accounting,

Impact of industrial revolution,

Influence of railroad invention and growth,

Government regulation of business,

Taxation on business,

Formation of joint stock company and large corporation, and

Influence of economic theory.

The above events are discussed below in brief;

Text book publication on Accounting and development of newer methods of teaching accounting

Though some textbooks on Accounting were published before nineteenth century, those were incomplete and imperfect
to a great extent.

To meet the needs of the day those limitations and imperfections were removed and at the same time the teaching
methods of accounting were improved.

The impact of Industrial revolution

Industrial revolution brought a farsighted change in the economic structure of the European countries.

As a result of industrial revolution factory production started in place of cottage industry. For this purpose big amount of
capital was needed to set up factories and carry out production process.

The emergence of joint stock companies and creation of large corporations through merger and amalgamation of many
business concerns were important events.

The concept of depreciation and cost-accounting came into force as because the business concerns became long term.
Before the industrial revolution depreciation and costing concepts were not considered very much important.

Father of Scientific Management F. W. Taylor laid emphasis on efficiency increase in the field of production. For
increasing production efficiency the management and engineers laid emphasis of the appointment of cost accountants.

For this reason standard costing-system was introduced as an effective means of cost control rather than cost
determination. This was considered to be a further step towards the development of accounting process.

Influence of railway invention and growth

Huge amount of capital was needed for permanent investment in the railway sector as a result of its rapid growth and
development in Europe and America in the nineteenth century.

Most of the capital was collected from general people and it became necessary to inform the people of the investment
of this capital in fixed and current assets.

For this reason balance sheet was presented in two parts;

(a) Capital Account, and

(b) General Balance Sheet.

This new system of Accounting is called double accounts system. This system is used in large type of social welfare
organizations like Electricity, Gas, WASA, Railway etc.

Government regulations of business

Due to promulgation of government regulations regarding business concerns the necessity of keeping uniformity in
accounting thoughts for facilitating comparison of total position of business to business was felt as a result of which
sound accounting system was introduced.

Taxation on business

Tax imposition system started right after the imposition of government control system over business concerns.
Accounting system was improved to a great extent with the application of income tax rules and regulations.

Tax assessment system influenced keeping accounts, charging depreciation on fixed assets and inventory valuation.

Formation of joint stock companies and large corporations

After promulgation of British Company Act 1844, the joint stock companies and large corporations through merger and
amalgamation of business concerns came into being.

These business concerns were compelled to prepare annual statements to exhibit true and fair financial position to the
public owners who invested the huge amount of capital. Thereby the system of paying dividends was introduced.

Influence of economic theories

In nineteenth century the influence of various economic theories reflected in Accounting. Economists were interested in
cost determination and allocation problems.

Economic theories and writings of economists helped in forming a specific opinion regarding cost-determination, assets
valuation and income determination etc.

Besides Hendricksens above mentioned seven elements the following influencing events also played some important
role in the development of accounting process;

Environmental factors: In the first half of twentieth century socio-economic conditions and legal aspects of various
countries influenced greatly the structure, nature of business concerns and development of accounting methods.The
concepts and principles of accounting were influenced to a great extent by these conditions.

Formation of different professional institutes: Uniformity in accounting principles and public audit of accounts were felt
necessary in order to verify financial information of a company as the management and owners tense got separate
entity in the limited company.As a result the accountants of different countries formed associations among themselves
in order to maintain uniformity and relevance in keeping accounts so that various reliable information could be provided
to directors, shareholders, loan givers, investors and so on and these associations were recognized by the countries
concerned as per law of the land.In 1854 the Accountants Association of Edinburgh and Glasgow were recognized as
Royal Charter.
In 1867 Accountants Association of Eberdin attained Royal charter. In 1880 registered associations of Leverpool, London
and Manchester formed together a registered association-The Institute of Charter Accountants of England and Wales.

In 1877 the American Association of Public Accountants was formed. Through gradual changes the American Institute of
Certified Public Accountants (AICPA) was formed in 1957. In 1919 the Institute of Cost and Works Accountants of
England and Wales was formed.

This institute played a vital role in writing and teaching cost accounting methods and making relations between financial
accounting and cost accounting. Within a few decades many other accounting institutes emerged.

Mainly remarkable progress in accounting principles was marked after 1930. The American Institute of Certified Public
Accountants published an accounting principle in 1936 and the American Accounting Association (AAA) published a
statement of another accounting principle of same nature in 1940.

A committee on accounting procedure being approved by AICPA was going on publishing research-books for the
development of accounting principles.

Though some types of keeping accounts and audit of accounts were found from early ancient stage, before
promulgation of Companies Act 1913 no professional associations were in view.

These-professional institutes helped in the development of accounting thoughts and practices, e.g. to examine, and to
verify following accounting concepts and principles and to carryout research application methods and inform member
countries of the world of this association the results of these research works.

Modern period

The period of gradual development of accounting system after 1950 till date has been termed as modem period.

After the 2nd world war production system changed to a great extent due to remarkable advancement of science and
technology.

Immense advancement was made in industry and commerce and these influenced the economic and social life
tremendously.

Traditional accounting system could only supply information to the owners and directors for taking decisions of day-to-
day activities. Under the changed circumstances this traditional system of accounting failed to meet the demands of
various interested parties of the society.

Various classes of people of the society became interested parties of business organizations directly or indirectly with
the change of nature, size and number of business concerns.

For this reason attempts were made to update the accounting system criticizing the existing traditional system of
accounting.

Attempt in bringing uniformity in the meaning of accounts

National and international professional organizations together introduced some accounting principles which are known
as Generally Accepted Accounting Principles (GAAP) in order to make the accounting principles equally meaningful to
processors and users of accounting information.

The financial statements of an organization are to be prepared in accordance with the accounting principles, so that
these exhibit true and fair picture of the organization.

In this regard cost concept, money measurement concept, going concern concept and periodic concept etc. are to be
followed obviously as accounting principles.

Accounting Standards
Accounting Standards are formulated on national and international level. The Financial Accounting Standard Board of
U.S.A. and Accounting Standard Committee of the U.K. are the authorities in formulating accounting standards of the
respective countries.

These types of accounting standard committee or organizations are also functioning in other countries of the world.

The International Accounting Standard Committee has been formed with the purpose of coordinating activities between
different accounting standard organizations of different countries of the world.

This committee has formulated forty one accounting standards so far and its efforts are in progress.

For example, IAS I is related to the disclosure of accounting policies and ISA-II regarding valuation and presentation of
inventories in the context of historical cost system etc.

The evolution of various branches of accounting

Because of economic, social and technological changes different branches of Accounting have emerged.

Mechanized Accounting and Auditing

Mechanized Accounting system has been introduced as a result of technological advancement.

Computer has made it possible and easier in keeping and processing huge number of accounting data in a small CPU.

It has reduced to a great extent the complexities and labor in keeping accounts. Mechanized auditing is used following
the nature of accounts as it is used in accounting.

Tax Accounting

The lion share of the money spent for the welfare of the people of the country by the government comes through tax
imposition.

There are accounting systems for income tax, sales ta, VAT, property tax etc. These systems of accounting are
important for both tax payers and receivers.

Inflation Accounting

The inflation that started after the 2nd World War has now a days become intense.

Statements of accounts prepared on the basis of historical cost do not exhibit the true and fair results and financial
position of a concern in the pretext of money inflation.

The inflation accounting has been evolved to remove this problem. Various accounting systems have been introduced in
many countries across the globe through research to face the situation caused by money inflation.

Of them the following are notable;

a) Current Cost Accounting

b) Current Purchasing Power Accounting.
c) Real Replacement Cost Accounting.
d) Current Perpetual Accounting.

Human resources accounting

Human resources is an important component like other components of production.

Since it cannot be measured in terms of money the true picture of an organization is not reflected in the statements of
accounts.
In the present social context considering the importance of human resource the accountants have taken initiatives for
maintaining accounts of human resource.

The American Accounting Association has formed a human resources accounting committee to find out devices for
application in order to make statements of accounts more reliable, acceptable and informative.

This committee has defined human resources accounting as Human Resources Accounting is the process of
identifying and measuring data about human resources and communicating, this information to interested parties.

Government Accounting

Collecting, measuring the information regarding activities concerned, revenue and expenditure of government sectors
and sending them to users making them usable are known as government accounting.

Government, government employees and general mass are benefited by government accounting.

Social or National accounting

National accounting is as useful as government accounting. National accounting verifies economic structure and
financial activities collectively.

In the present day world national accounting plays an important role in the field of economic development of the
country as a whole.

Responsibility Accounting

Budgetary control and standard accounting can measure whether the employees of an organization are discharging their
responsibility properly or not; Responsibility accounting has emerged with a view to determining the responsibilities of
responsible persons.

In fine it is marked that tendencies have been developed among the professional accountants to form well thought and
planned accounting organizations.

It is natural that the accountants will be enthusiastic to develop new ideas and concepts and will keep pace with new
economic, scientific and social situations as accounting is nothing but a dynamic applied subject.