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Evolution & History of Accounting

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Accounting is a way to record and communicate financial information for businesses and other organizations. Trade records have been found dating back to ancient Mesopotamia. The history, origin and development of accounting has laid the foundations for 21st-century practice.

Earliest Accounting Records

The earliest accounting records date back more than 7,000 years. The people of Mesopotamia created a simple system to record crop and herd growth, and some of their basic ideas provided the fundamentals of accounting as we know it today.

The evolution of accounting continued during the period of the Roman Empire. The "Deeds of the Divine Augustus" is a record of the Roman emperor's financial dealings. Details were provided on such transactions as distributions to the people, land grants, building projects, money to veterans, religious offerings and even expenditures for gladiator events and theatrical productions. These records demonstrate the scope of financial information that was made available to the emperor – information that could be used for planning and decision-making.

During the early Middle Ages, bartering was the primary means of commercial exchange. Europe changed to a monetary economy in the 13th century, creating the need for a bookkeeping system. This era saw the first use of double-entry bookkeeping, where debit and credit values were entered for each transaction. With this system merchants had ready access to their financial information, helping them make plans to grow their businesses as they saw fit.

Lucio Pacioli – the Father of Accounting

Lucio Pacioli, a Franciscan friar, is known as the father of accounting. He lived from approximately 1445 to 1517 and was a mathematician and humanist. Pacioli is credited with recovering early mathematical texts. He also had passionate interests in art, architecture, business and astronomy. For a time, he lived and worked with Leonardo da Vinci, who painted "The Last Supper" during the height of his friendship and collaboration with Pacioli.

In 1494, Pacioli published "Summa de Arithmetica," which contains the first printed description of double-entry bookkeeping. Scholars say the book marks the birth of modern business. Although Pacioli was himself a scholar, he felt it was important to get out into the world and learn from tradesmen hailing from Europe, the Middle East and Africa.

Pacioli wrote his book in the language of businessmen, not in scholarly Latin, because he truly wanted to help improve people's lives. The genius of Pacioli, historians and mathematicians agree, is that he was able to combine the theoretical and the practical in an understandable way.

Four Major Events in the History of Accounting

Pacioli's work can be considered the first of four major events in the history of accounting that shaped the profession into the one we know today.

The Industrial Revolution saw major growth in the development and use of accounting practices. Businesses used accounting documents to help secure financing necessary to grow and maintain the efficiency of their operations. Manufacturing exploded, putting the focus on business as never before. In 1887, the first professional organization for accountants was established. Professional licensing for certified public accountants was established in 1897, and the American Institute of Certified Public Accountants was created.

From 1920 to 1940, accounting became increasingly important because of the considerable degree of fraud and financial scandal occurring in businesses across the country. Generally accepted accounting principles were established to create consistency in accounting practices. GAAP rules continually evolve to reflect the latest and best practices. Organizations that influence GAAP rules include the American Institute of Certified Public Accountants, the Internal Revenue Service, the Securities and Exchange Commission and the Financial Accounting Standards Board.

Since the 1940s, the American Institute of Certified Public Accountants and the Financial Accounting Standards Board have continued to work with the SEC on a process of codification, meaning that all rules, standards and practices are put together in one place. Automated accounting systems, such as Peachtree and Quickbooks, continue to evolve. For current and aspiring accountants, understanding and using technology is crucial.

Types of Accounting Methods

Throughout the evolution and history of accounting, specializations have developed in response to business needs. In a small business, one accountant may handle all aspects of accounting. In larger organizations, one accountant or even a team of accountants, take responsibility for one part of the entire accounting operation. Specializations include:

  • Accounting information technology.
  • Accounts payable and accounts receivable.
  • Auditing.
  • Bookkeeping.
  • Forensic accounting.
  • Payroll.
  • Taxes.

Accounting Education and Advocacy

In 1945, the National Society of Public Accountants was incorporated to work for the welfare of public accountants, promote professionalism and secure the right for its members to represent clients before the U.S. Treasury Department. The NSPA's first major initiative, in 1951, achieved a change to Treasury Department rules that allows qualified individuals, other than attorneys or certified public accountants, to serve as Enrolled Agents. Enrolled Agents are federally licensed tax preparers who can represent clients before the IRS.

The NSPA focused on regulatory issues during the 1960s and early 1970s. It also advocated for professional education and credentialing. Since 1995, the organization has been known as the National Society of Accountants. Headquartered in Washington, D.C., the NSA continues to advocate for the rights of individual practitioners. It sponsors numerous continuing education events, as well as a preparatory course for the Enrolled Agent exam.

Accounting and Technology

The history of accounting technology is brief compared to the history and evolution of accounting as a whole. The advent of technology has not lessened the complexity of accounting, but it has changed the way accountants do their work. If anything, accounting is more complex than ever because of the capabilities that computers offer. Computers can perform analyses in seconds, whereas the same analyses may once have taken accountants weeks of research and calculations to achieve.

The quality of computer-generated reports can only be as good as the data put into the computer. Accountants are essential for gathering the right information and interpreting results. Based on their determinations, accountants advise businesses and organizations about their financial health.

Many kinds of accounting reports are necessary to gauge a company's success and help business leaders plan for the future. These reports include:

  • Assets and liabilities reports.
  • Balance sheets.
  • Retained equity statements.
  • Profit and loss statements.

The Future of Accounting

Modern accounting systems and technology provide companies with the capability of gathering real-time data for quantitative and qualitative analyses. A modern accounting system needs to include these essential components:

  • Automated, flexible processes for the analysis, management and presentation of financial information according to instruction standards. Processes must also be customized to the needs of the organization, with flexibility to accommodate future needs.
  • Business insights that offer in-depth, real-time looks at activities, costs and profitability, enabling decision-makers to change direction, if necessary, and to capitalize on new opportunities.
  • Cloud-based systems typically integrate well with other software systems and provide the advantage of being able to be accessed from anywhere.

As business technology advances, there undoubtedly will be improved systems for essential accounting functions, such as accounts receivable and payable, financial close, project accounting and revenue recognition and management. Ideally, a company's accounting system will integrate seamlessly with major suppliers, streamlining processes such as purchasing, inventory control and just-in-time manufacturing. A facility with technology will enable future accountants to help businesses and organizations make the best use of resources and to plan efficiently for the future.


Denise Dayton is a a freelance writer who specializes in business, education and technology. She has written for, Library Journal, The Searcher, Bureau of Education and Research, and corporate clients.

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