History of Accounting - The second oldest profession

Oh accounting, where to begin? It is funny to think about but every living creature practices, in some form, accounting. Humans of course keep track of debits and credits. Animals do accounting differently albeit for the same purpose. The Bird of Paradise uses accounting to choose mates and has a corresponding elaborate set of performance criteria before a transaction can be realized.

Ok, thats a little stupid. It's a fun picture though right? (thank you National Geographic) There is definite evidence that very early in human history people had started keeping track of who owed what to whom. Some evidence suggests that this behavior may have started as far back as 76,000 years ago. There is also evidence that people had employment in accounting and bookkeeping in Roman times.


The current system of double entry accounting is widely attributed to Luca Pacioli, although there is evidence that the system was in use prior to his written description of the system.

Boring.

Double entry accounting works like this- some accounts have a balance that is normally recorded in the debit or left column while others are recorded in the credit or right column. If a value is entered into an account as a debit there has to be a corresponding credit. Entries with equal debits and credits are said to "balance", that is that credits equal debits. This system is supported by a guiding equation of Assets equal Liabilities + Owners Equity or A=L+OE. Simple right? It was.

What does the long history of accounting mean for all of us? Simply put, we have had plenty of time to screw it up. Humans have had more than enough time to go through everything that Luca did in less than 30 pages and turn it into something that doesn't even make sense to quantify in terms of pages it is so vast.

The point is to see that accounting can be broken down to the most simple and basic and then built up from there. If we understand that what we own as a company equals the amount of equity our owners have in the company plus liabilities owed by the company it is easier to see how and why we debit and credit. We don't have to memorize every single account and if an increase should be a credit or a debit if we understand what is happening.

For example when recording revenue we don't need to remember the revenue receives a credit to increase if we understand that if revenue goes up either cash or accounts receivable also increases. Cash and A/R are both assets and assets are increased with a debit. A corresponding credit entry is then needed for revenue.

What most teachers do here is blow your mind with 30-40 concepts outside the scope of the subject of which 29-39 are out of the scope of the entire course. I am leaving it at this. Just know that this is the foundation and like all foundations something is built on top, but that is another time, another day.