How did Accounting Evolve?

No field of study has ever been static; they always evolve with time. The present shape and content of accounting academia are products of history. The origin of accounting as a social study can be traced back to ancient days. Indeed, it is as old as the use of money itself. Even under the barter system, a primitive form of accounting has always existed. Otherwise, how could losses and gains have been calculated? The objective of financial gains has always been the driving force of any exchange and this gave birth to the need for accounting.

Until the 13th century, the mode of keeping accounts was extremely primitive. Books of business were no more than mere note book transactions. A French merchant wrote in his book: ‘Lent 10 gold coins to a man last year, I forgot his name’. In Europe, calculations were done with Roman numerals, and the balances were often wrong. Long division was regarded as something of a mystery and the use of zero was clearly not understood well.

Is it surprising that a system of accounting could not have been developed? However, it did develop in the fifteenth century and its genesis can be traced to Double Entry Bookkeeping. It was said to have been fashioned by Fra Luca Pacioli (about 1445-1520), the multi-talented mathematician and philosopher of Venice. His treatise Summa De Arithmatica, Geometrica, preportioni at Preportionalita was published in 1494. However, Pacioli is not regarded as the inventor of the system. Supposedly, he consolidated the different aspects of it into a comprehensive and usable tract.

Of course, for a considerable time, the Double Entry System remained ignored in Europe; people continued following Stewardship Accounting, the method of keeping accounts of household expenses followed by stewards. (In our country, it may be called the munim system of accounting. For it was the munims who kept accounts of big households).

With the advent of joint stock companies, ownership was separated from the management. The idea of financial accounting based on the Double Entry Principle came to be recognised and valued as a principle of action. The interests of shareholders’ and others invested into the company were to be safeguarded; they were to be acquainted with the performance of the companies. The need was statutorily recognised, and from there emerged an information system for the investors and others such statements as Balance Sheet, Profit and Loss Account, etc. Concurrently, the dimension of this financial information system expanded, and it came to be all-pervasive.

Since business and other concerns operate in the social setting, evolution of accounting could not come to a halt at only providing information to the investors and mangers alone. Social cost as well as social benefit had to be assessed. This brought into being social accounting, an important adjunct to the system of measuring and assessing. Economic activities, in economic parlance, are described as ‘activities performed for making a living’. These activities, in a money driven economy, were limited to nothing other than money earning and money spending activities.

This accounting system has lasted through the ages and is still utilised by accounting firms offering the best accounting services in Singapore. While calculating the balances are currently done through complex software, the principles of Double Book accounting are still adhered to in the 21st century.