Accounting has been practiced in many businesses for thousand years earlier and we can view long history gleaned from their accounting records. Most of the ideas and principles for modern accounting systems were developed long time ago and here we briefly review the history of accounting from the earliest known times.
Emergence of Accounting in Mesopotamia in 3500 B.C.
Double entry system began in accounting in Sumerian, Chaldaean and Assyrian civilizations in Mesopotamian valley which produced oldest records of commerce five thousand years ago. When the farmers became financially strong then the industrial and services businesses grown in communities which were living in and around the Mesopotamian valley. At that time, Babylonian got huge fame in introducing the language of business and politics throughout the areas of Near East. Rulers held most land areas and animals for showing their trust on their gods in Sumeria and given considerable importance to record-keeping efforts. Most accounting transactions were recorded when the sellers of goods given price quotations under seal or face validation of a questioned agreement. The exercise of accounting in Mesopotamian valley was even similar or more extensive than today’s accounting. In addition of writing up transactions, the system of accounting was much focused on the agreements compiled with detailed code of requirements for making the commercial transactions. Scribe was the title given to the accountant and they were employed by Palaces, Temples and private firms and it was most prestigious profession of that time. The scribes were available at the gates of the city when the typical transactions were needed. Agreements were shown to the scribe and he was responsible to prepare the record of financial transactions with a small quantity of specially prepared clay. In this area clay was plentiful but the papyrus was more expensive and scarce. The terms of the agreements were recorded into the moist clay after molding it into size and shape. A scribe was used in recording the names of contracting parties with goods and money exchanged and any types of other promises made. The parties were required to sign their names to their tablet with their respective seals. These seals were developed with names of their owners, religious symbols with the pictures and name of the gods worshiped by the owner of that time.
Growing Trends in Accounting in Ancient Egypt, Greece, Rome and China
In ancient Egypt, accounting practices at government level were developed in the same way as they began in Mesopotamian valley. More detailed recorded were made by using papyrus instead of clay tablets. Extensive records were made according to the accounting needs of the royal store-holders network within which the tax payments were also kept. Egyptian bookkeepers were responsible to make the extensive records of each store checking it by an elaborated internal verification system. These accounts were very accurate and honest in their record keeping because they were much aware about the punishment fines imposed on irregularities in record keeping. But ancient Egyptian accounting never progressed beyond list making which was in practice in thousands of years of its existence. Accounting in China was mainly focused in evaluating the efficiency of government programs and the civil servants who were charged in administering them. During the period of Chao Dynasty, double entry processes were introduced in China in the 19th century. Greece used public accountants in 5th century B.C. to maintain the real authority and control over the financial matters of the central government. In Athens, assembly legislated on the financial matters in controlling the expenditures and receipts of public monies by using the services of 10 state accountants. Greeks contributed a lot in the form of introducing coined money in 600 B.C. and it contributed greatly in the evolution of accounting systems. Then the banking system developed in ancient Greeks which was lacking in the prior societies. Bankers used accounting books by changing the loaned money and they arranged the cash transfers to their citizens which were affiliated to banks in distant cities. In ancient Rome, government and banking accounts were recorded by keeping the heads of families where daily household payments and receipts were kept in daybook and cashbook was used for the monthly postings which were known as codex accepti et expensi in Italian language. Citizens were asked to submit their regular statements bounded by Rome government in the form of their assets and liabilities by using the basis for taxation and determination of civil rights. System of checks and balances was introduced in maintaining government receipts and disbursements in Rome by managing the treasury. Audit staff regularly examined the public accounts and quaestors were liable to submit their accounts to successors and to the Roman senate before they leave their offices.
In the 14th century, double entry bookkeeping system was developed in Italy, in the ancient Greece or Rome as mentioned by A.C. Littleton. Seven main points were introduced in accounting at that time which led to the creation of this type of accounting system. First point was private property which is associated with explaining the power to change ownership as bookkeeping is associated with facts recording about property and property rights. Secondly, capital entry was introduced through Luca Pacioli associated with wealth productivity employed. Commerce is the third point in the ancient accounting system. In commerce, interchange of goods is done at the wider level because local trading is done at smaller level which will not press for the creation of organized system to replace the existing recordkeeping. Fourthly, credit is presented in the use of future goods as there will be little record of transactions which can be done on the spot. Writing, money and arithmetic were the next three points started in the seven points mentioned by Littleton. Some of these points are not found in the ancient times and until middle Ages, these points were not observed in the combined form and then it pushed people of finance to innovate double entry system in accounting. Writing was old as the civilization was but the arithmetic was not as older and the consistent use of Roman numerals for doing their financial transactions at that time led them for the creation of double entry system in accounting. Problems which were faced by ancients in record keeping, controlling and verifying financial transactions were the same as faced in the modern accounting. Governments at that time enjoyed more incentives in keeping careful record taking of receipts and disbursements especially concerned to taxation system.
Industrial Revolution and Accounting Systems
When the industrial revolution spread across Europe, need for more advanced cost accounting systems enhanced. Accounting became a very noble profession in UK and United States in the 19th century. Association of public accountants was formed by thirty one accountants in 1887 and then the role of accountants and accounting firms was recognized and established in world’s largest industrial and financial organizations. It shows the history of accounting which started thousands of years ago and then become a very noble and essential professional for every successful organization. Without having a team of experienced and qualified accounts, no organization can grow in the world these days.