Accounting and Bookkeeping

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ACCOUNTING AND BOOKKEEPING. Early modern Europe witnessed a gradual diffusion of sophisticated techniques of accounting. The breeding ground for innovation was Italy, where commercially sophisticated states had been involved for centuries in business and long-distance trade. Evidence already exists in the twelfth and thirteenth centuries of systematic calculation of profits, distinct from the primitive forms of tabulation used in medieval manorial accounts.

The most important Italian innovation was double entry bookkeeping. Scholars disagree about when and where it began. The first undisputed example is in the accounts of treasury officials of the city of Genoa in 1340. By the late fourteenth and fifteenth centuries double entry had been widely adopted in Italy. The great Florentine international merchant banking house of Francesco Datini (13351410) and the Medici bankers of Florence used it, as did their counterparts in Milan, Genoa, Pisa, and Venice.

The great German writer Johann Wolfgang von Goethe (17491832) has one of his characters in Wilhelm Meisters Lehrjahre (1796) call double entry "among the finest inventions of the human mind." The technique provided a rational way of figuring accounts through careful calculation of assets and liabilities and determination of profits and losses. Each transaction was recorded twice, as both a debit and a credit. The debits and credits were then cross-indexed to corresponding accounts in a ledger and then balanced. The method was well suited to partnerships and permanent commercial associations, which dealt in credit and had numerous customers in foreign markets. Double entry differed markedly from single entry "charge and discharge" techniques, which recorded the flow of goods but did not measure profit and loss. It made cheating more difficult and facilitated efficient management.

The Venetian form of double entry is perhaps the most famous. Merchants kept their accounts in "bilateral" form (alla veneziana), with debits recorded on the left side of the page across from credits. The extant books of the merchant Andrea Barbarigo (14181449) are typical of the style. They point to a highly evolved system, using several books, carefully cross-indexed and coordinated to form a coherent whole. Practices differed, however, from one region to another. Tuscan bankers, for example, drew up regular (often yearly) balance sheets, which gave a snapshot of assets, liabilities, and profits.

It was primarily the Venetian method that was disseminated to the rest of Europe. It radiated out from the city via foreign merchants and through the work of Luca Pacioli (c. 14451517), a Franciscan monk, mathematician, and university teacher, who served as tutor to the sons of a rich Venetian merchant. In 1494, Pacioli published Summa de Arithmetica, a discursive treatise that contained a short section on Venetian-style double entry. Pacioli described the use of three books: a memoriale, a ledger, and a journal. Each transaction was first noted in the memoriale, then listed in debit and credit form in the journal, and then posted in the ledger. Pacioli is revered today as "the father of modern accounting." In 1994, the five-hundredth anniversary of the publication of his book, accountants from all over the world gathered at Pacioli's birthplace in the town of San Sepulcro to honor him.

Pacioli's work inspired others. Domenico Manzoni published Quaderno Doppio in 1540. It was essentially a restatement of Pacioli, though it clarified some of the earlier writer's points. Dutch merchant Jan Christoffels Ympyn wrote a treatise on double entry, which appeared simultaneously in Flemish and in French in 1543 and four years later in English. A German treatise, fashioned after both Pacioli and Manzoni, was published by the merchant Wolfgang Schweicker in 1549.

Double entry made especially notable headway in southern Germany. It was probably introduced there in the early fifteenth century by merchants from Nuremberg who traded in Venice. Johann Gottlieb's two treatises, Ein Teutsch Verstendig, published in 1531, and Buchhalten Zwey Kunstliche, published in 1546, helped popularize the method. Matthaus Schwarz, a bookkeeper for the great Fugger bank of Augsburg, introduced the technique to that company after learning it as an apprentice in Italy. The Fugger bank added safeguards and even sent auditors to bank branches to examine accounts and check inventories.

The use of double entry spread elsewhere in the sixteenth and seventeenth centuries. The Spanish banking houses of Ruiz, Miguel, and Garcia of Salamanca kept their accounts in double entry, as did the English draper Thomas Howell. Sebastian Gammersfelder, a schoolmaster in Danzig, helped introduce the method to northern Germany with the publication of a book on the subject in 1570.

But the adoption of the method was generally slow in northern Europe and did not keep pace with the growing complexity and volume of business there. Merchants were just as likely to continue using older, simplistic but more familiar methods. Despite the high volume of their trade, Hanseatic merchants preferred rudimentary tabular accounts. In northern Holland, the records of an anonymous trader show claims and debts recorded in random order. In England, double entry was restricted to a handful of merchants. Government offices used a system of single entry until the nineteenth century. There is no evidence of double entry in Scotland before the seventeenth century. Even in Italy the technique was not universally adopted. The Milanese bankers the del Maino did not use double entry. It was, indeed, possible to keep orderly accounts and undertake rational planning without recourse to double entry. The northern German merchant Johann Pisz eschewed the method but arranged his books using a sophisticated and effective single entry alternative.

Scholars have debated the significance of double entry. To some it constitutes a driving force in the transformation of Europe from a feudal to a capitalistic society. To others, it is merely a business method that helped manage accounts and minimize fraud, with no broader significance. An intriguing recent interpretation has it that double entry reflected not a secular capitalistic ethic, but a Christian one that emphasized a measured approach to the accumulation of wealth.

See also Banking and Credit ; Capitalism ; Commerce and Markets ; Money and Coinage ; Venice .


De Roover, Raymond. "The Development of Accounting Prior to Luca Pacioli According to Account Books of Medieval Merchants." In Business, Banking, and Economic Thought in Late Medieval and Early Modern Europe: Selected Studies of Raymond de Roover, edited by Julius Kirshner, pp. 119180. Chicago, 1974.

Edwards, J. R. A History of Financial Accounting. London, 1989.

Lee, T. A., Ashton C. Bishop, and R. H. Parker, eds. Accounting History from the Renaissance to the Present: A Remembrance of Luca Pacioli. New York and London, 1996.

Nobes, Christopher, ed. The Development of Double Entry: Selected Essays. New York and London, 1984.

Parker, R. H., and B. S. Yamey. Accounting History: Some British Contributions. Oxford, 1994.

Yamey, B. S. "Scientific Bookkeeping and the Rise of Capitalism." Economic History Review 2 (194849): 99113.

William Caferro