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Conceptual Development of Accounting: A Historical Perspective

November 2015

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Patrick Omagbon

University of Benin

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Abstract

This paper attempts to analyze the conceptual development of accounting vis-à-vis the evolution of cost
accounting and management accounting from the general accounting system. It also looked into the
evolution and promotion of international accounting bodies. The investigation so far revealed that the
historical evolution of modern day accounting, from all evidence date to 1211 A.D. when Italian bank
was said to have kept a complete double-entry books of accounts. In the light of this therefore, we
concluded that the invention of double-entry bookkeeping cannot be ascribed to any individual.

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International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1393 Conceptual Development of Accounting: A Historical Perspective Patrick
Omagbon1 Department of Accounting, Faculty of Management Sciences, University of Benin P.M.B.
1154, Benin City, Edo State, Nigeria Abstract This paper attempts to analyze the conceptual
development of accounting vis-à-vis the evolution of cost accounting and management accounting from
the general accounting system. It also looked into the evolution and promotion of international
accounting bodies. The investigation so far revealed that the historical evolution of modern day
accounting, from all evidence date to 1211 A.D. when Italian bank was said to have kept a complete
double-entry books of accounts. In the light of this therefore, we concluded that the invention of
double-entry bookkeeping cannot be ascribed to any individual. Keywords: Accounting, Account,
Accounting profession, Development, History. Cite this article: Omagbon, P. (2015). Conceptual
Development of Accounting: A Historical Perspective. International Journal of Management,
Accounting and Economics, 2(11), 1393-1402. Introduction Various authors have at different times in
their writing credited the beginning of the development of modern day accounting to Luca Pacioli’s
15th century work Summa de Arithmetica, Geometrica, Proportioni et Proportionalita (Everything About
Arithmetic, Geometry, and Proportion) published in Venice, Italy in the year 1494 A.D. overlooking the
long evolution of accounting systems in the primordial and medieval eras. Contrary to the believe in
some quarters that Pacioli’s work was the first work on double-entry bookkeeping, Beneditto Cotrugli
had written thirty-six years earlier in his work “Delia Mercatura et del Mercante Perfetto (of Trading
and The Perfect Trader) describing many 1 Corresponding author’s
email: paomagbon81@yahoo.com

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1394 features of double entry for which he was credited in Pacioli’s work (Alexander,
2002). This assertion was validated when Ambashe and Alrawi, (Mar.-April, 2013, p.4) wrote: Although
Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise on bookkeeping contained
the first known published work on that topic, and is said to have laid the foundation for double-entry
bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no originality … Also
Walker, (nd, p.1) in her Article Is Zero the best? has this to say about the invention “In the 15th
century, Benedetto Cotrugli invented double-entry accounting and Luca Pacioli introduced journals and
ledgers”. It was also shown in 1211 record of a Florentine Banking Organization Ledger that principle of
double-entry has been in use over three centuries earlier (Liu and Yuan, 2011; Edwards, 1960). The
development of accounting may be looked into from three different dimensions, though one cannot
categorically limit any of the dimensions to a particular point in time. The dimensions under which this
paper is to consider the historical development of accounting vis-à-vis promotion of international
accounting bodies are the Primeval era which dwells on record keeping in form of inscription on tablets
of stones, clay and wood, and preserving such inscription as evidence that a transaction has indeed
taken place; the Medieval era which saw the development of bookkeeping for the purpose of analyzing,
classifying, and recording transactions as the means of reporting the financial position and other
transactions carried out by an enterprise; and lastly, the Modern era which witness advancement in the
development of bookkeeping with a lot of refinement into accounting. Edwards, (p.447) in his work
asserted that “Record keeping had its origins in the institution of private property and owed its
subsequent development both to the growing number and complexity of property transactions and to
the creation of monetary systems.” Ownership of private property date back to the primordial era,
and introduction of monetary unit as a legal means of measurement of value of goods and services
created the need for specialization in the art of record keeping which later evolved into
bookkeeping. Hence the vocation of bookkeeping was established. As trade and commerce
continued to thrive and expand in terms of volume among nations the need to develop a more robust
bookkeeping system and also the need for expert bookkeepers in increasing numbers became
indispensable. This growing trend necessitated the transition into accounting which also has witnessed
more development and separation into different branches – Financial Accounting, Cost Accounting,
Management Accounting, and more recently International Accounting. The purpose of this paper
therefore is to examine the actual era in time from which modern day accounting started and also the
promotion of international accounting bodies. Most author have argued that Pacioli’s work marked
the genesis of modern day accounting, some say it was Cotrugli’s unpublished manuscript. While
others said it started around 12th Century A.D. with some amount of evidence to show.

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1395 Primeval era Little can be said about the origin of record keeping as different
nations had their unique way of keeping record. “The Chaldean-Babylonian Empire is considered to be
the foremost regularly organized government in the world” (Edwards, 1960). This era which lasted until
500 BC saw Nineveh and Babylon referred to as Centre of Trade and Commerce. During this era –
from Mesopotamia to ancient Egypt, to ancient Greece, to ancient Roman – government businesses
were conducted by Scribes who are known to be the earliest record keepers and as such perform
the duties of lawyer, Attorney, and Accountant. They were also responsible for the collection of
taxes and payment of expenses. According to Edwards, the Scribes maintained inventory records and
prepared accounts similar to a charge-and-discharge statement showing amount received and paid out.
In some instances the record tablets show the reason for the transactions. Mesopotamia accounting
system This system date back to as far as 3500 B.C., five thousand years before the
popularization of bookkeeping system. The book of record were kept by the scribe whose present day
equivalent is the accountant. The Scribe’s duties were more extensive in that he ensures all
transactions’ agreement comply with the code of commercial transaction as evident in Hammurabi Code
and record such transactions on clay tablet since clay was in large quantity in the area. Although
papyrus – a tall plant that is like grass and that grows in marshes especially in Egypt: Paper made from it
were used for writing – were also used when available. In the place of feather quill, papyrus itself was
also used in applying writing ink. Ancient Egypt's accounting system The ancient Egyptian system was
developed in a fashion that is likened to that of the Mesopotamia. The use of papyrus paper allow for
detailed recording to be kept for Royal Storehouses. With a well-established internal control system
couple with Royal audit in place, the bookkeepers kept detailed record. However, their inability to
establish a single unit of measurement for valuation of goods and services impinged on the progress of
the development of their accounting system. It can thus be said that both the internal control system
and external audit system established during the Egyptian development is closely similar to the one
obtainable in today’s world of business (Edwards, 1960; Alexander, 2002). Ancient Greek accounting
system The most important contribution of the Greek was its introduction of coined money around 600
B.C., widespread use of coinage took time, as did its impact on the evolution of accounting. The Greek
banking system seems to be more developed than those of prior societies. Members of the Athenian
Popular Assembly (the Senate) legislated on financial matters and controlled receipts and payments of
public monies through the oversight of

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1396 ten selected state accountants. The use of state accountant was to allow the
people maintain real control over public finances (Edwards, 1960; Alexander, 2002). Ancient Roman
accounting system Roman government requires its citizens to submit regular statement of assets and
liabilities for the purpose of tax determination and citizen’s civil rights. And as such Head of
families kept traditional records called adversaria (daybook) wherein daily entries of receipt and
payment are recorded and summary posted to another called codex accepti et expensi (cashbook) at
the end of each month (Edwards, 1960; Alexander, 2002). Beside those records kept by the Head of
Roman families, Roman bankers kept a third kind of record book called liber rationum (book of
accounts). The banker was duty bound to render account and, if asked, to produce an extract of the
account before the praetor – a Roman Magistrate ranking below a Consul and having judicial functions –
who was a government official (Wooff, as cited in Edwards, 1960). This can be said to be the beginning
of modern day system of reporting to a third party. The banker which is referred to as quaestor
(Alexander, 2002) can be seen as the equivalent of the modern day Accountant-General. Medieval
era The fall of Roman Empire interrupted the development of accounting system for over a thousand
years. However, the Romans through the effort of the Church continued to preserve and improve on
the existing techniques of receipt and payment bookkeeping. By 812 A.D., an ordinance known as
capitulore de villis containing instructions for the administration of Imperial estates was issued by
Charlemagne – also known as Charles the Great or Charles I, who was the King of the Franks from 768,
the King of Italy from 774, and from 800 the first emperor in western Europe since the collapse of the
Western Roman Empire. The ordinance prescribed that accounts of income and expenditure be kept
and rendered. As a result of this development, numerous authorities were delegated by
property/estate owners to actual possessors and users who are expected to give accounts of
stewardship annually or as may be determined by the property/estate owner. This ordinance is a
pointer to accounting regulation across international boundaries. According to Edwards, Every judex,
or steward, on the Emperor's estates was required to report, giving an annual survey of the royal
property, including inventory of lands and tabulations of rents, fines, farm produce, and so forth. Estate
income and disbursements were recorded in separate books, but not in anything like an account form as
the term is used today. The transactions were recorded in a journal, more or less in essay form. Evidence
of a more advance characteristics of double-entry was found in Florentine Bank Ledger of 1211 A.D. It
shows that the depositor’s account was debited on one page and credited on another (Liu & Yuan, 2011;
Edwards, 1960), and “In Italy, the journal of a banker was generally considered a public record, which
could not be contested in court.” Staley, (1906, p.178-179) (as cited in Sangster, p.4) in his own opinion
stressed that:

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1397 the genesis of double entry bookkeeping as defined here must be upon the
bankers rather than the merchants, is to be found in the terminology of accounting which
originated at that time in the banker’s guild of Florence, including: cassa (cash), banco (bank),
bancarotta (bankruptcy), giornale (journal), debito (debt), debitore (debtor), credito (credit), and
creditore (creditor). This opinion also invalidated claims that Pacioli and/or Cotrugli is/are the father(s)
of modern accounting. Even though some authors have in their work credited the wide spread use of
double-entry bookkeeping across borders to the publication of Summa. The claims by authors that are
of the thought that Pacioli and Cotrugli are fathers of accounting is a fallacy owing to the enormous
evidence that abound as to the invention of journal, ledger, and indeed double-entry bookkeeping been
traceable to Florentine bank ledger and other account book kept by Florentine merchants in the early
13th century. Modern era The later end of 15th and the start of 16th century saw the complete
transition of record keeping into bookkeeping of today. Businesses now require the services of a
bookkeeper who is to maintain permanent financial record and statement of assets and liabilities and
that of income. The growth of partnerships and joint stock companies developed accounting
reporting from that which is intended for two parties to that of multi-party. This in turn had a direct
proportional increase on the number of bookkeepers in employment. The increasing number of
bookkeeping practicer gave credence to the importance of accountants in municipal life of the people
and indeed business survival. The importance of the accountant in Italy in the latter part of the fifteenth
century is further suggested by the fact that in 1484 Duke Gradaliazzo Maria Visconti, of Milan, granted
to Giocanni Longone, his accountant the legal right to confer upon his descendents the office of
accountant of Milan. This act is also a pointer to the establishment of the Office of the modern day
Accountant-General. Even though the oldest and well preserved accounting record written in
English language is in the Pipe Roll or Great Roll of the year 1130-1131 A.D. which can be found in the
Exchequers of England and Scotland, the first record of a complete double-entry system of bookkeeping
is found in books of accounts of stewards at Genoa in 1340. In 1406, a firm of traders known as Soranzo
and Brothers not only kept ledgers but also income statement and that of Capital, and by 1482, the
ledgers were being closed and profits calculated on an annual basis (Edwards, 1960). We can posit here
that complete financial statements were prepared at different interval and that a fully developed
double-entry bookkeeping system had emerged at the end of 15th century. The British Lords of the
14th, 15th and 16th centuries due to the fact that their estate were yielding large return needed to
employ the services of experts such as the steward who is to oversee the entire estate, the surveyor for
the purpose of valuation, the receiver who is to receive cash and make payment, and the auditor who at
irregular interval is to carry out audit. It is however not clear as the particular point in time whereby
accounting evolved out of bookkeeping. The features of limited liability present in the joint-stock

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1398 ventures of the late 16th and early 17th centuries is one landmark in the
developmental history of accounting. Although, a detailed investigation have revealed that around 1250
A.D. in Toulouse, France, 96 shares of the Société des Moulins du Bazacle (Bazacle Milling Company)
were traded at a value that depended on the profitability of the mills the society owned, making it
probably the first company of its kind in history to have shown such features. The earliest joint-stock
company recognized in England was the Company of Merchant Adventurers to New Lands, chartered in
1553 A.D. with 250 shareholders. Russia's Muscovy Company, which had a monopoly on trade
between Moscow and London, was chartered in 1555. The much more famous, wealthy and
powerful English (later British) East India Company was granted an English Royal Charter by
Elizabeth I on December 31, 1600 A.D. Soon afterwards, in 1602, the Dutch East India Company issued
shares that were made tradable on the Amsterdam Stock Exchange. This invention enhanced the ability
of joint-stock companies to attract capital from investors as they could now easily dispose their shares.
With joint-stock companies, the need to conserve investments became a monumental issue, as
evidenced in the statement of the governors of the British East India Company that future distributions
would consist of profits earned as against return of investment. These were the forerunners of
the modern day corporation and by implication, had helped in the development and
popularization of double-entry bookkeeping as well as modern day accounting system. This policy
introduced the problem of determining the difference between income and capital invested and thus
increase the responsibility of the accountant (Edwards, 1960). The transition point The next century
after Pacioli’s publication of the Summa saw his followers attempting to advance on his work with some
publication on bookkeeping appearing. Notable among such publication was a 1525 A.D. 24-page
pamphlet on bookkeeping that was much better adapted than that of Pacioli for use in class room.
Thereafter a sharp declining of importance was been recorded for Italian authors as a reflection of the
decline of their country’s commercial progress. While Italian authors were busy with advancing
on Pacioli’s work, the Dutch authors were beginning to take center stage. Holland was the training
school of the British merchants and at the time had become the leader of Atlantic trade. The Dutch
authors at different time in the 16th century published various work on the modern day accounting.
Edwards had written that: The first native Dutch writer to deal with the subject of bookkeeping was Jan
Ympyn Christoffels, whose treatise was published in French in 1543 and in English in 1547. He
introduced the trial balance, as such, for the first time. Then, in 1588, Nicholaus Petrie, also of Holland,
published the bookkeeping treatise in which the compound entry was first introduced. Simon Stevin of
Holland published his Hypomnemata Mathematica in 1605. Stevin separated the ledger and
inaugurated the practice of keeping the cash account, expense account, and so forth, in subsidiary
ledgers. He also introduced the practice of balancing the profit and loss account at the end of each year,
using the account itself, rather than a formal statement, to reflect the profit.

International Journal of Management, Accounting and Economics Vol. 2, No. 11, November, 2015 ISSN
2383-2126 (Online) © Authors, All Rights Reserved
www.ijmae.com 1399 The translation of some of these works written in both Latin and French into
English and the ones originally written in English couple with the establishment of colleges of accounting
across Europe notably Italy and Holland helped in popularizing newly developed modern way of
keeping account. The origin of cost accounting In view of its long and interesting evolution, cost
accounting is probably one of the oldest managerial tools used in the determination of taxes and also
prices of products such as antiquity. The ancient Egyptian, Chinese, and Arabian antiquity
merchants had employed the services of expert for the purpose of price determining costs. According
to Perren (1944) (as cited in Tanis, nd) In Egypt, 3,000 years before Christ, accountants had to present
to the Pharaohs each year a detailed report on the net cost of harvest, so that just taxes on wheat could
be levied. The ancient Code of Manu made obligatory the periodical auditing of trading profits by court
auditors. ...... In Books VII and VIII of these sacred Laws we find the following two passages:
`Merchandising experts will establish the sales price of goods, so that the king may levy 1/20 of the
profit thereon' ...`the sales price of merchandise shall be evaluated according to the distance it has
travelled, the time it is kept in storage, the expenses connected with it, the time it has to travel to reach
its final destination, and the profit that can be anticipated'. The 1100 B.C. China had adopted the use
of similar costing techniques for governmental budgeting and expenditure control. It has generally
been believed that modern day cost accounting had its origin in the rise of the factory system in the
Industrial Revolution of the 18th century (Tanis, nd). Other evidence suggested that Cost accounting
which have to do with the recording and analysis of factory expenditures, had its developmental
modern day origin from the time of Henry VII of England (1485-1509), when a large number of small
woolen manufacturers, being resentful of the many guild restrictions, moved to the country villages
from the cities, and established industrial communities, hoping to be able to sell their finished products
through other channels than the organized guilds. At that time, the smaller factory owners found
themselves competing not only against the guilds, but also among themselves, giving importance to
keeping of more accurate records of costs as a prerequisite for success. By the end of 17th century, cost
accounting seems to have reached its laudable height. Origin of management accounting As large
business enterprises such as textile mills, iron and still works etc., appeared with an extensive use of
machinery in industrial production, modern day management accounting began to evolve out of cost
accounting. Stone, (as cited in Tanis, nd) had described Charlton Mills of Manchester as having a
complete cost accounting system that was first used as early as 1810. Prime costs for labour and
materials were collected and, by using predetermined rates, general expenses were allocated to them.

Citations (1)
References (9)

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