Over the years, accounting has been widely appreciated in the business and financial world. Imagine having an economy without accounting; there could be a lot of bias cases and illegal practices full of chaotic businesspeople. Well, its origin takes us back to the early 15th century. In this article, you will get a glimpse on the protagonist that invented accounting. Feel free to contact us for any accounting help for students in both high school and college levels.
Who invented accounting? In 1494, Luca Pacioli , an Italian friar, made an enormous impact on history. He remarkably discovered and developed the accounting system of keeping records and financial reports.
Luca Pacioli described the concept of accounting in his book titled, everything about arithmetic, geometry, and proportions. He talked about the double-entry accounting which is vastly used in the modern-day.
Due to this discovery, he earned the title of, 'The father of accounting.' In his book, he alluded that there are a debit and credit account that contains the financial information of an organization. However, he further explained with caution on the significance of the double-entry accounting system.
According to Friar Luca, the credit and debit side must balance or rather be equal. The father of accounting, surprisingly did not 'invent' accounting as it is well known. Instead, he pioneered and developed the already existing system and the spread of the double-entry accounting to the world. During the Renaissance period, the Venice merchants were conversant with the system and applied it in their business transactions.
Looking at Luca Pacioli's work, he included the accounting cycle, which is also beneficial today in preparation of financial statements. He explained how the journal and ledger work stressing out that nobody was allowed to go to sleep if the accounts were unbalanced, that is the debit and credit accounts.
Some of the significant components in his ledger account include the liabilities, the assets, capital, expenses and income accounts respectively. He also described the different types of financial instruments demonstrating the closure of entries based on the periods, like the income statement is closed on an annual basis.
Friar Luca also proposed on the preparation of the trial balance, explaining its significance in determining whether the ledger accounts are balancing. Aside from that, he discussed the broad range of subtopics in the subject. This ranged from accounting ethics, such as business law, tax law to mention a few, to the various branches of accounting such as cost accounting.
In his book, it also explained the difference in accounts terming them as, 'both likes and opposite' features which means that the business managers and the accountants need to be keen on the 'dual-aspect' of transactions. In this day and age, it is known as the payables and receivables accounts. At that time, the Venice merchants used two essential ledger books, the Libro reale Vecchio and the Libro reale Nuovo.
The two types of ledger books highlighted the same concepts; however, the difference was the formatting. The Vecchio recorded all the opposing pairs in the right page noted as credit side whereas the designative pairs were recorded on the left page, which was the debit side, with each page assigned a similar page number.
Later on, the Nuovo took charge and replaced the Vecchio. It made use of a single page but split vertically having the debit and credit side as well.