History of Accounting: How It’s Evolved Over Time
History of Accounting
Four Stages of Accounting History
- Stone age — Marking ticks on cave walls and mountains, and in the jungle to record goods collected and loaned
- Primitive — Noting symbols on walls and making rope knots to designate transactions
- Barter — Recording deals made through barter for agricultural or other property
- Currency — Tracking monetary transactions, originally in Europe, related to transactions that bank loans financed
- Industrial revolution — Required tracking the large amounts of capital involved in establishing new corporations and railroads
- Joint-stock companies — Added complexity to doing business, with the financial concerns of shareholders and other business partners becoming factors
- Government regulation — Led to the development of uniform accounting practices to accommodate tax laws
- Stock market crash of 1929 — Led to the enforcement of accounting standards and the establishment of the U.S. Securities and Exchange Commission (SEC)
- Ethics investigations — Helped to shape the profession’s standards and oversight, following high-profile instances of illegal accounting practices ranging from gangster Al Capone to energy company Enron
Recognition of Accounting as a Profession
History of Financial Accounting
History of Financial Accounting Practices
Evolution of Financial Accounting Technology
History of Forensic Accounting
- Criminal investigations — Determining whether a crime occurred and identifying intent in cases such as employee theft or securities fraud
- Litigation support — Providing insight into the amount of damages to award in legal disputes
- Insurance claims — Using historical data to calculate economic damages from claims such as those for accidents or medical malpractice
Origins of Forensic Accounting
Today’s Financial Accounting
Lehman Brothers Bankruptcy
Bernie Madoff Ponzi Scheme
Modern Accounting Methods
- Access data
- Analyze trends
- Develop forecasts
- Strategize to gain an advantage over competitors
Traditional Accounting vs. Modern Accounting
- Personal — Transactions related to a person, firm, company, or other organization
- Real — Accounts whose balances carry from one accounting period to the next
- Nominal — Accounts whose balances close at the end of each accounting period, starting the next period with a zero balance
- Assets — Items of value that a company owns
- Liabilities — Debts payable to outside entities
- Capital — The value of assets minus liabilities
- Revenue — Cash coming into the company because of its primary business activities
- Expenses — Amount spent on items or activities to generate revenue
- Withdrawals — Funds withdrawn by the business owner for personal use
Technology and Modern Accounting
- Digital payments and systems — Electronically calculating and sharing financial information and analysis
- Cloud storage — Maintaining accounting data off-site for access by multiple individuals in an organization
- Artificial intelligence and machine learning — Quickly and accurately analyzing large volumes of data
- Blockchain — Assists in maintaining a ledger and safely transferring asset ownership
History of Accounting Timeline
- Circa 3300 B.C.: Earliest documented use of accounting. Artifacts show tax records on clay tablets.
- 1458: Invention of double-entry accounting method. Benedetto Cotrugli invented the double-entry accounting system, establishing the foundation for modern accounting.
- 1494: Publication of the first book describing the double-entry accounting method. Luca Bartolomeo de Pacioli, known as the father of accounting, published Summa de Arithmetica, Geometria, Proportioni et Proportionalita.
- 1854: Establishment of the first accounting professional organizations. The members of the Institute of Accountants and Actuaries in Glasgow and the Edinburgh Society of Accountants called themselves chartered accountants.
- 1880s: Invention of the adding machine. William Burroughs invented the adding machine, improving accounting’s speed and accuracy.
- 1930s: First high-profile use of forensic accounting. IRS accountant Frank Wilson uncovered financial irregularities that led to the arrest of Al Capone.
- 1955: First purchase of a computer for accounting use. General Electric made the first purchase of a computer to perform accounting functions such as payroll processing.
- 1978: Introduction of spreadsheet software. VisiCalc was the first spreadsheet software to allow financial modeling on the computer.
Links to Learn More About Accounting
- Association of Chartered Certified Accountants — ACCA offers insights about the history and future of accounting for students, educators, and accountants.
- Association of Certified Fraud Examiners — The ACFE provides training, career resources, and the opportunity to pursue the Certified Fraud Examiner (CFE) designation.
- Association of International Certified Professional Accountants — AICPA offers exams for CPA and Chartered Global Management Accountant (CGMA) designations as well as resources on topics such as ethics, forensic services, and technology.
- American Accounting Association — The AAA caters to accounting professionals in the academic community by providing research, a newsletter, and a career center.
- Association of Nonprofit Accountants & Finance Professionals — ANAFP provides resources for accounting and finance professionals in the nonprofit sector, with materials about topics such as accounting and bookkeeping and tax returns.
- National Society of Accountants — NSA assists tax and accounting professionals with training, webinars, discount programs, and advocacy efforts.