How Accounting Came to Be
Business Dictionary defines accounting as "a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm's assets, liabilities and owners' equity." In other words, it sets up businesses for financial success. And it's been around for a long time! But when and how did it start? Check out these fun facts about how accounting, as we know it, came to be.
- It is believed that the origins of writing may have developed out of early marks used to keep account of goods 12,000 years ago. Sites such as Wyzant and The Strategic CFO, report that merchants of 8500 B.C. used a system that saw clay tokens pressed into a clay ball and then sealed in the sunlight to ensure their customers received everything they shipped. Evidence of accounting records can be found in the Babylonian Empire (4500 B.C.), in pharaohs' Egypt and in the Code of Hammurabi (2250 B.C.).
- In today's accounting world, "auditing" is a well-known procedure, but the concept was born back in 423 B.C. to double check what came in and went out the door. The reports that were taken by these accountants were given orally, hence the name "auditor." The Egyptian bookkeepers of 500 B.C. were known to keep inventory of goods from royal storehouses. They had plenty of incentive to do so as accuracy prevented harsh penalties.
- In ancient Greece, account books of bankers show they changed and loaned money, and helped people make cash transfers through banks in other cities. Ancient Romans, meanwhile, saw government and banking accounts grow out of records kept by the heads of families.
- 1494 is credited as the year that birthed "modern accounting" thanks to a man named Luca Pacioli, reports Investopida.com. A mathematician and friend of Leonardo da Vinci, Pacioli described the system of double-entry bookkeeping used by Venetian merchants in his book "Summa de Arithmetica, Geometria, Proportioni et Proportionalita" (The Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality). Double-entry bookkeeping is the system of debits and credits in journals and ledgers. Pacioli's ledger had accounts for assets, liabilities, capital, income, and expenses. He also demonstrated year-end closing entries and proposed a trial balance be used to prove a balanced ledger.
- The formal accounting profession was created in Scotland in 1854 when Queen Victoria granted a royal charter to the Institute of Accountants in Glasgow, creating the profession of chartered accountant (CA). In 1896, a U.S. law passed 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. In Canada, meanwhile, the Canadian Institute of Chartered Accountants was incorporated by an Act of the Parliament of Canada in 1902, the Toronto Public Library notes.
- During the 1930s and 1940s, according to Business Accounting Basics, having no standard framework for financial accounting was perceived to be a bigger problem in the United States than creative accounting (AKA making a company look more successful than it actually was). The American Institute of Accountants set up the Committee on Accounting Procedures (CAP) in the late 1930s as a self-regulatory body. It produced a number of Accounting Research Bulletins, which were actually statements on accounting principles and processes.
- The first computerized accounting system was implemented in 1953, when Arthur Anderson Consultancy (known today as Accenture) was asked by General Electric to implement an automated payroll processing system at its site in Louisville, Kentucky, Business Accounting Basics also reports. The first computerized spreadsheet, which is now an accounting staple, appeared in 1961.
- Wikipedia documents that in Canada, as of 2015, Chartered Professional Accountant (CPA) is a professional designation that is replacing those granted by three former accounting bodies in the country: Canadian Institute of Chartered Accountants (CA), Certified General Accountants Association of Canada (CGA) and Certified Management Accountants of Canada (CMA).
It's hard to believe that despite all of the advancement since Pacioli's time more than 500 years ago, accounting still essentially uses the system he described. Today's profession, however, relies on the use of suite software and advanced accounting software and systems design. And it includes areas such as taxes, auditing, and corporate finance. Students at Centennial College who enroll in the Business Administration – Accounting program learn all of this information in three years.
By Izabela Szydlo