a world without numbers and double-ledger accounting. Accurate
financial reporting, profits, losses, even taxes would be impossible.
Trade and commerce would decline. Corporations would be unable to
seek capital from public or private markets. The ideas of wealth,
equity, the burden of debt, current assets and receivables outpacing
those of current liabilities, would be known, but hard to measure and
was invented, premised on new mathematical ideas, in the 15th
century – the supposed 'dark ages' which never existed. Italy was
rife with commerce, long-distance trade, banks, ledgers and higher
math and science from 900-1400. A system which could record all
aspects of business, and monitor the health of commerce and
industrial affairs was long overdue by the late 15th
century. It is unsurprising that a workable, elegant and direct
system was authored in Italy.
accounting is premised on the innovations and genius of Luca Pacioli
who in 1494 [summary of his life here],
in Venice, published the opus, “Summa de Arithmetica, Geometria,
Proportioni et Proportionalita” [google book link here].
It is not an exaggeration to state that Pacioli's book is one of the
most important documents on mathematics in history. Its impact has
been monumental. For instance we find in Section 9 of this book or
the chapter, "particularis de Coputis et Scripturis," a
treatise about double entry bookkeeping. [source]
demands of modern capitalism and commerce, first developed in
Catholic Europe starting circa 900 AD, birthed accounting. Pacioli
states in the first chapter of his book: "We will here adopt the
method employed in Venice which among others is certainly to be
recommended, for with it one can carry with any other method."
In other words, Venetian 'counting houses' were employing
double-entry methods to manage their finances.
this regard Pacioli’s monumental contribution is part of a creative
process which endured over many centuries. You cannot go from Roman
numerals to balance sheet accounting over the long-weekend. But, as
with so many other inventions, only in Medieval Europe do we see
accounting developed and used. Why ? The historian of accounting A.
C. Littleton describes seven "key ingredients" which led to
its creation [see here
his history of accounting]
1000 AD Europe was the richest area on the globe, and this 'excess'
wealth was being deployed into a variety of industries and
trade patterns were long, complex and high in volume. Commerce
demands an ability to keep proper accounts, records and
property rights and contractual law, capitalism cannot arise.
current credit against future cash flows, or as a lien against a
current asset such as property, is a necessity for longer-term
planning, investment and business cycles.
more accurately a common language. Vernacular language expresses
contracts, obligations and laws, all of which you need to develop
"common denominator" for exchanges, since there is no need
for bookkeeping except as it reduces transactions to a set of
method of computing is necessary, as is a general literacy about
math, money and commerce.
did accounting develop in the Medieval period ? In one word –
Capitalism. The framework of trade and commerce, which includes
legal, moral, and cultural factors did not arise in Protestant
Holland, or a functionary's office in Venice. It was a complex
development starting before 900 AD which occurred throughout much of
Medieval Europe. Italy, a major intersection of north-south; and
east-west commercial activity, ran riot with commerce throughout the
Medieval period. Venice, as seat of a commercial empire, is a
logical place one would expect to locate the invention
of accounting. But the antecedents to this seminal creation were
long in the making.