Origin Of Accounting
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Accounting historians have attempted to relate their knowledge of the variety of accounting practices at various points of time, and in various places. It is to wider questions of the role of accounting in reflecting and shaping not only business and management practice, but also economic and social organization more generally. Finleys classic ÐŽ§The Ancient EconomyÐŽÐ , which analyzed the embedded-ness of ancient economic activity in the social structure, and in the status concerns of the free citizens, as constituting a brake on the development of profit-focused markets and correspondingly on technology and trade. It saw the state of ancient accounting as itself making impossible sophisticated profit-oriented calculation and rational decision-making. In his monumental ÐŽ§The Class StruggleÐŽÐ in the Ancient Greek World, Croix rejected Finleys analysis in terms of Weberian status in favor of an explicitly Marxist analysis based on class. But he took up essentially the same argument about the economic impact of ancient accounting technique. Their argument in turn raises further questions about the general relationship between accounting practice and economic and social organization in the ancient world.
Why the need of Double Entry Book keeping arises before Luca Pacioli period as explained by A. C. Littleton?
Attempting to explain why double entry bookkeeping developed in 14th 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 and 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 exchanges, since there is no need for bookkeeping except as it reduces transactions to a set of monetary values.
Arithmetic: A means of computing the monetary
Many of these factors did 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 ÐŽV the systematic manipulation of number symbols ÐŽV 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 hindered the earlier creation of double-entry systems.
Nevertheless, the problems encountered by the ancients with record keeping, control and verification of financial transactions were not entirely different from our current ones. Governments, in particular, had strong incentives to keep careful records of receipts and disbursements ÐŽV particularly concerning taxes. And in any society where individuals accumulated wealth, there was a desire by the rich to perform audits on the honesty and skill of slaves and employees entrusted with asset management.
But the lack of the above-listed antecedents to double entry bookkeeping made the job of an ancient accountant extraordinarily difficult. In societies where nearly all were illiterate, writing materials costly, numeration difficult and money systems inconsistent, a transaction had to be extremely important to justify keeping an accounting record.
Accounting in Ancient Egypt, China, Greece and Rome
Many of the factors did 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 ÐŽV the systematic manipulation of number symbols ÐŽV 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 hindered the earlier creation of double-entry systems.
Nevertheless, the problems encountered by the ancients with record keeping, control and verification of financial transactions were not entirely different from our current ones. Governments, in particular, had strong incentives to keep careful records of receipts and disbursements ÐŽV particularly concerning taxes. And in any society where individuals accumulated wealth, there was a desire by the rich to perform audits on the honesty and skill of slaves and employees entrusted with asset management.
But the lack of the above-listed antecedents to double entry bookkeeping made the job of an ancient accountant extraordinarily difficult. In societies where nearly all were illiterate, writing materials costly, numeration difficult and money systems inconsistent, a transaction had to be extremely important to justify keeping an accounting record.
Five thousand years before the appearance of double entry, the Assyrian, Chaldaean-Babylonian and Sumerian civilizations were flourishing in the Mesopotamian Valley, producing some of the oldest known records of commerce. In this area between the Tigris and Euphrates Rivers, now mostly within the borders of Iraq, periodic flooding made the valley an especially rich area for agriculture.
As farmers prospered, service businesses and small industries developed in the communities in and around the Mesopotamian Valley. The cities of Babylon and Ninevah became the centers for regional commerce, and Babylonian became the language of business and politics throughout the Near East. There was more than one banking firm in Mesopotamia, employing standard measures of gold and silver, and extending credit in some transactions.
During this era (which lasted until 500 B.C.), Sumeria was a theocracy whose rulers held most land and animals in trust for their gods, giving impetus to their record-keeping efforts. Moreover, the legal codes that evolved penalized the failure to memorialize transactions. The renowned Code of Hammurabi,