Accounting is often referred to as the language of finance. After all, its main purpose is to communicate a business’ financial situation to clients in a way that the wider public can easily understand and digest.
The Origins
Accounting makes use of numbers, counting and writing. Therefore, it is of no surprise that accounting developed alongside these three processes right when the first complex human societies started to form.
The first physical evidence of accounting as a practice can be seen in the first ever civilised peoples, the Mesopotamians. That is at least 7,000 years ago and up to more than 10,000 years back from the present day! They are said to have recorded the names and comparative values of goods sold and received. Farming was by far the most common form of business back then, so crops, animals and livestock were traded between farmers.
Until around 2,000 BC, money did not exist. Instead, a barter system was commonplace whereby there was a direct exchange of goods and/or services for another person’s goods and/or services. Bookkeepers were employed to record the date of each exchange and what goods were bartered.
Diversification of Duties
Coming up to the turn of the millennium, the first accountants are believed to have appeared around 300 BC in ancient Iran. Evidence of bookkeeping notes were found underground in former Persian territory.
The Egyptians and Babylonians may have carried out the first audits on businesses. A comptroller was assigned by the royal households to supervise the accounting and financial stability of various companies in the state.
By the time the Romans were at the peak of their powers (1st century AD), they had developed a detailed and comprehensive financial account of every citizen in their Empire. This allowed the likes of Emperor Augustus to work out which monetary policies would benefit the Roman government while having a minimal effect on the populace.
Single-Entry Bookkeeping
The single-entry bookkeeping system was used up until the late 1400s by merchants. By keeping their books up to date, they could know exactly how much they owed to others and how much they were owed themselves.
“Single-entry” refers to the fact that all the numbers were recorded in one column, with a plus or minus symbol determining whether it was money coming in or going out respectively.
However, it was difficult to immediately recognise whether a transaction was an income or expenditure simply based on the descriptions given to the bookkeeper. Something needed to change.
Double-Entry Bookkeeping
This is where modern double-entry bookkeeping came in. The system was developed by an Italian monk named Luca Pacioli.
It separated debit from credit, making it much easier to detect errors, prevent fraud and estimate a company’s financial strength with a mere glance at the values.
Accountancy Becomes a Profession
Accountancy was just an additional service provided by solicitors for a long time, but this changed in Scotland in the 19th century.
In 1854, Queen Victoria issued a Royal Charter which separated accountants from legal advisers, in effect making accountancy its own profession. This is where the word “Chartered Accountants” comes from. This was all thanks to the petitioning of accountants in the Scottish city of Glasgow.
In 1880, various independent accounting bodies across the UK merged together to form the Institute of Chartered Accountants in England and Wales (ICAEW). It continues to thrive to this day, with over 189,000 members and students in 147 different countries.
Technology in Accounting
Historically, accounting has been one of the first professions to make use of advancements in technology. This is because the bookkeeping process has traditionally taken many hours of an accountants’ day; any machine which could speed up the recording of data was welcomed.
In the 1890s, the adding machine enabled accountants to calculate totals a lot quicker than when they were simply relying on mental arithmetic.
In the 1950s and 60s, computers were adopted by accountancy firms as they were able to perform calculations a lot faster than the latest adding machines.
Nowadays, the use of accounting software packages has allowed accountants to carry out bookkeeping tasks more efficiently. Their ease of use has also meant that the general public will find it easier to fill out their own books with much less hassle.