PAGE 27

PROFESSIONAL ACCOUNTING SOCIETIES

In Great Britain, the first professional body of accountants was formed in Scotland in 1853, the
Society of Accountants in Edinburgh. This was fol lowed by other groups in Glasgow in 1855,
and in Aberdeen in 1867. Soon after the latter group was established, the three Scottish societies
decided to constitute a General Examining Board and to adopt the designation of "chartered
accountant." In 1870, the first English societies were formed in Liverpool and London. Three
similar groups were later established. In the face of an increasing number of unqualified people
doing accounting auditing work, the professional accountants decided to seek a way to ex clude
them. T he result was the incorporation in 1880 of the existing five organizations as the Institute
of Chartered Accountanus in England and Wales. Another group, the Society of Incorporated
Accountants was formed in 1885.

To be a member of the Institute, except for the initial members, one had sa series of
examinations and serve five years as an apprentice in the office of a chartered accountant.
Apprentices received no pay. In fact, they paid for the privilege of serving their apprenticeship.
Similar requirements to pas existed for the other organizations.

British accountants were frequent visitors in the 19th century to the USA to examine the books
of companies in which their clients had in vested. The first national public accounting firm,
Barrows, Wade, Guthrie & Company, established in 1883 in New York City, was started by
Edwin Guthrie who was a chartered accountant from England. The English firm Price
Waterhouse & Company, began work in America in 1873 and is opened its first American
office in New York City in 1890.

The first professional accounting organization in the USA, the Institute of Accountants and
Bookkeepers, was founded in 1882. In 1886, the American Association of Public Accountants
was established, which became the American Institute of Accountanus in 1917, and is today
called the American Institute of Certified Public Accountants. At the prodding of the American
Association, in 1886, New York became the first state to enact legislation providing for the
issuance of the CPA certificate. In the next twenty-five years, the other states followed suit.

PAGE 28
CONCLUSIONS

common thread throughout the history of accounting is that account The ing se Double entry
emerged in response to the needs of businessmen in Italy rves the needs of users, especially
those related to the business entity the 13th century. Once formulated, the double-entry system
was found to eficial to governmental and non-profit organizations, but its greatest be ben user
continues to be the private business enterprise.

The evolvement of accounting is related to the expansion of private enterprise. Since people
are the movers of history, we find that the motivat ing force in the development of business
entities is the "capitalistic spirit. ggard In the early civilizations, the extant economic-political
factors and la technology created an environment in which the capitalistic spirit was slow to
bloom. It was not until the 13th century that the capitalistic spirit made a distinct impression,
as evidenced by the growth of business entities, and not social force. until the 18th century that
it was unmistakably evident as a Sombart and others have recognized that accounting was an
important instrument in the construction of the capitalistic economy because of its
indispensability to the development of business firms. Historically, double entry accounting
was in use during the period of capitalistic economic expansion; therefore, it receives the credit.

As we review the economic-political conditions in the period that double-entry emerged, we

find that the market system where exchange s take place was more complex than in ancient
times. In the Italian city-states commerce was flourishing. Demand for goods. labor and capital
was greater. Dependence on slaves or serfs for employment gave way to a labor market where
services were purchased and sold for a price. For the first time in history, the source of capital
was sizable and businessmen took advantage of it. A complex market creates complicated
transactions for firms, which call for a more efficient accounting system, and double-entry was
the outcome.

Very few business records in the Italian period have survived for us to examine. Most
businesses were partnerships, and they were shortlived. Lee points out that partnerships were
usually re-formed every four or five years. Once the old firm was dissolved and the partners'
clai there was little incentive to preserve the records of the firm. Because parch ment was
expensive, Lee explains that the pages were often washed or scraped and reused. Due to the
paucity of historical evidence, it is not only difficult to pinpoint the time double-entry appeared,
but also to determine whether businessmen used their accounting records to make certain types
of managerial decisions.
PAGE 29

QUESTIONS

In sudying the surviving records, some accountants maintain that double can be considered to
exist only if: (1) the books arę kept in equilibrium; (2) an " integrated " system of real and
nominal accounts are present; and (3) the books are balanced and closed regularly. This is a
ringent set of requirements. If the books are kept according to the equation, AL+ OE (or AE),
the criterion of double-entry should be satisfied. Nominal accounts are a convenience but not
a necessity; they are simply temporary capital accounts for the purpose of determining profit
or with more detail. Closing the books formally is a good idea, but not neccessary for double-
entry to exist or even for the determination of profit or loss. One could prepare an income
statement by simply picking up the relevant balances in the ledger. The form of double-entry
has to do with the duality of accounts and classifications (assets to equities) and to their
equilibrium. The essence of double-entry, according to ljiri, is that every increment is causally
related to a decrement If these features are present, then we have a double-entry system.

QUESTIONS

1. How important is "credie as an antecedent of double-entry bookkeep- ing? Explain.

2. What did the ancients use bookkeeping for?

3. Why didn't double-entry bookkeeping emerge in the ancient civ- ilizations?

4. Specify the conditions which brought about double-entry bookkeeping in Italy in the 13th
century

5. What is the possibility of double-entry bookkeeping emerging in a communist environment?

Explain.

6. What are some similarities and dissimilarities between Pacioli's double- entry system and
the modern double entry system?

7. What is capitalism? What is economic rationality?

8. Why did capitalism emerge in Europe rather than, say, China?

9. Consider the following statement made by De Roover, and explain why you agree or
disagree. "Yuji ljiri, The Foundations of Accounting Measuremeut (Prentice-iHall, 1967),
Chapier One ought not to forget that there is no double-entry without the observanoe of certain
strict rules. A necessary prerequisite is that all ransactions he re corded twice, once on the debit
side and once on the credit side. principle also involves the existence of an integrated system
of accounts, both real and nominal, so that the books will balance in the end, record changes i
the owners' equity and permit the determination of profit or loss. (In Littleton and Yamey (eds.).
Studies in the History of Accounting, p. 114.)

PAGE 30

10. What are some of the advantages of double-entry bookkeeping?

11. Present the pros and cons of the argument concerning the significant role played by double-
entry accounting in the development of capi- talism.

12. BS Yamey hypothesized the following three situations concerning the use of accounting
data for decision-making. Explain how account- ing data from the existing books can or cannot
help an entrepreneur make the decisions called for in each of the three cases. In each case the
entrepreneur is already in business. Journal of Accounting Research, Autumn. 1964) a. The
entrepreneur is considering investing in an untried line of activity (eg, a completely new
product)

b. The entrepreneur is faced with an alternative which he is familiar with from past experience,
except that costs and retail prices are expected to change.

c. The entrepreneur is faced with an alternative familiar to him and cost and retail prices are
expected to be unchanged

PAGE 31

Additional Readings

Chatfield, Michael. A History of Accounting Thought. Robert Krieger Publishing Co.. 1977
De Roover, Raymond. "The Development of Accounting Prior to Luca Pacioli According to
the Account-books of Medieval Merchants," in AC Littleton and BS Yamey (eds.). Studirs in
the History of Accounting. Richard Irwin. 1956. De Ste. Croix. G. E, M. "Greek and Roman
Accounting,"in AC Littleton and BS Green, Wilmer. Histary and Survey of Accountanry.
Standard Text Press. 1930. Hain, HP "Accounting Contral in the Zenon Papyri."Accounting
Review, October ljiri, Yuri. The Fonndations of Accounting Measurement. Prentice-Hall,
1967. Chapter Yamey (eds.). Studies in the History of Accounting Richard Irwin, 1956. 1966
5 on double-entry er. Orville "Commercial Record-Keeping in Ancient Mesopotamia."
Account- ing Review, April, 1963 Keist

Keister, Orville. "The Influence of Mesopotamian Record-Keeping." Abucus, De- Lituleton,

AC Accouning Evolution to 1900. American Institute Publishing Co Peragallo, Edward. Origin
and Evolution of Double-Entry Bookkeeping. Ruintord Press, Sombart, Werner. The
Quintessence of Capilalism. Dutton & Co., 1915. cember, 1970. 1933. 1938. Winjum, James.
"Accounting and the Rise of Capitalism: An Accountant's Vievw Journal of Accounling
Research, Autumn, 1971 Yamey, Basil. "Accounting and the Rise of Capitalism: Further Notes
on a Theme by Sombart." Journal of Accounling Research, Autumn, 1964.

aggre Casson hristian 40 Ibid who L White, "Cultural Climates and Technological Advance.
Viator, 1971. P 172 ne "Peragallo, P. 54

20 Chapter 1/EARLY HISTORY OF ACCOUNTING

pompen Molmen nti, Venice: Its Indindual Grouth from the Earliet Beginnings to the
Fall of the Rrpublic (trauslated by H. Brown, 1906), vl., p. 124 sOliver Cx. The Foundation of
Capitalisn, 1959, p. 76 bid.. p. 16.

17 EMERGENCE OF DOUBLE-ENTRY BOOKKEEPING

AC Lileton, Accounting Evolution to 1900 (American Institute Publishing Cu., 1933)

Carl Gustavson, A Preface to History (McGraw-Hill, 1955). p. 28

Ibid.. p. 15

WF Leemans, The Old Babylunian Merchant (EJ Brill, 1950), pp. 23-24 Jean-Philippe Levy.
The Economic Life of che Ancient World (University of Chicago, 1964), p, 9 ), p.59 Lionel
Casson, Ancient Trade and Saciey (Wayne State University, 1984). p. 30. Richard Duncan-
Jones, The Economy of the Roman Empire (Camibridge University, 1974 Liuleton, p. 15 Max
Weber, General Economic History (Greenberg Publications, 1927). p. 355

t° Littleton. p. 15 'See Karl Polanyi, et al, Trade and Market in the Early E mpires
(Free Press, 1957), Ch. . Levy. pp. 22-23 15H. Bolkstcin. Economic Life in Grrrce's Galden
Age (Leiden, Netherlands: EJ Brill, 1958, first published in 1923), p. 152 CE. Polanyi, tal.:
also Cyril Belshaw, Traditional Exdhange and Moden Markets (Prentice-Hall. 1965)
Tbid.. p. 135 d Clough. The Rise and Fall of Civdlizatian (Columbia University, 1957), p.
145 Casson. pp. 141-143

Leemans, Ch. 2 TY The Economics of Antiquity (Coronado Press, 1973), pp. 26, 27 F. Carne
Lituleton, p 12

7Orville K April, 1963 nor cister. "Commercial Record Keeping in Ancient Mesopotamia,"
Arcounting Reiew

- Wiler Green, History and Survey of Accountancy, 1930, p. 38 "HP Hain, "Accounting
Conmrol in the Zenon Papyri," Accounting Revicu, Octuber. 1966, p 700.

Ibid., p. 701 GEM de Ste. Croix, "Greek and Roman Accounting," in AC Littleton
and nS Yamey (eds.), Studirs in the fistory of Accounting, 1956. pp. 35-36 27 Kenn
Accounting Historians Working 'apers. 1979 eth Most. "The Accounts of Ancient Rome," in
E. Coffman (ed.). The Arademy of

19 Raymond de Roover, "Characteristics of Bookkeeping Before Paciolo." A 1938, p. 146

50St. Thomas Aquinas, Summa Thenlogiea. Part I1, Question 77. Article (See also translation
by AE Monroe. Early Economic Thought (Cambridge, Mas. 1927) ccounting Review S.
Baldwin, Busines s in the Middle Ages. 1968, p. 4

Edward Peragallo, Orgin and Evolution of Double Entry Boukkeeping, 1938, p. 18. s
Ibid.

15 EMERGENCE OF DOUBLE-ENTRY BOOKKEEPING

13 EMERGENCE OF DOUBLE-ENTRY BOOKKEEPING

Chapter 1/EARLY HISTORY OF ACCOUNTING

ACCOUNTING IN ANTIQUITY

10 Chapter 1/EARLY HISTORY OF ACCOUNTING