The Father of Accounting

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Luca Pacioli
The Father of Accounting
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The discipline and science of accounting is essential for the world economy to function well.
Without an accurate way to keep track of investments, expenditures, depreciation, unearned
revenue, and the thousand moving parts of a business, there would be no way to understand
the true financial picture of a company and no way to be confident in its prospects. This
would ground commerce and trade, capital investment, and other transactions that keep the
economy running. After all, would you want to do business with someone that might be lying
to you?

The history of accounting is the background of industry that has driven global progress for
centuries, but it’s not just a number churning machine. Several figures have made key
contributions to the science. Yet, one of the most important people in the history of
accounting is Luca Pacioli, a Franciscan friar who lived during the fifteenth and sixteenth
centuries. Pacioli is today known as the “Father of Accounting.”

In the Beginning…
Most people are not likely to think of accounting when the topic of the “world’s oldest
profession” is raised, but many experts believe that accounting fits that description to a tee.
From the beginning of trade, people needed a way to keep track of their business dealings
even if those dealings were largely self-sufficient subsistence farming for their own needs.
As civilization progressed, ancient bookkeeping methods were developed. In the so-called
“Fertile Crescent,”of the ancient Middle East, bookkeepers would use clay tokens of different
shapes and sizes to keep track of wealth. Each token could represent a different commodity
— sheep, cattle, grain, and so forth. New technologies and recording methods developed
over time, and as money was introduced to facilitate economic exchange, the token system
was abandoned in the favor of written accounts. Bookkeepers literally became book keepers
—they kept the written accounts.

During the Italian Renaissance, Italian merchants began to involve themselves in trade with
other cities, first trading across the Mediterranean Sea and then in other parts of the world.
The increasing complexity of these trade relationships required better record keeping, and
the system of double-entry bookkeeping emerged. Luca Pacioli, an Italian Franciscan monk
wrote Summa de Arithmetica, Geometrica, Proportioni et Proportionalita in 1494–the first full
description of this method of accounting, detailing the Italian merchant’s use of balance
sheets, income statements, trial balances, and of course debits and credits.

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During the Enlightenment and Industrial Revolution, Britain’s rise as the world’s chief
economic power meant that accounting methods would have to advance as well. Men such
as Josiah Wedgwood began implementing systems of cost accounting in their companies,
and professional accountants began offering their services in London. Such methods were
carried over to the United States, and large firms such as General Motors adopted these
accounting methods as well. Today, standardized accounting practices are in use across the
globe, helping companies around the world to stay afloat, attract investment, and keep the
engine of the world economy running.

The Life of Luca Pacioli

Luca Pacioli was born between 1446 and 1448 in Tuscany, Italy, where he received an
education in the ways of medieval merchants and commerce. Over time, his interest in
mathematics led him to become an expert tutor in the subject, and he wrote a textbook on
mathematics to help instruct his students. During the years 1472–1475, Pacioli became a
Franciscan friar, but he did not end his tutoring career.

In fact, one of the people Pacioli later taught mathematics to was none other than the
Renaissance Man himself: Leonardo da Vinci. Da Vinci and Pacioli later collaborated to write
De Divina Proportione, a treatise on the mathematical and artistic concept of the golden
ratio. While these two lived together in Milan, Da Vinci learned a lot about mathematics from
Pacioli. The knowledge he gained would help Da Vinci create some of the excellent
anatomical drawings for which he is known today.

Much of Pacioli’s work in mathematics was not original or unique, but his writings had a large
influence in Italy, allowing for information that was formerly the possession merely of the elite
to be disseminated among the general populace. Pacioli died in 1517, the same year that
Martin Luther’s 95 Theses in Germany would help spark the Protestant Reformation.

In 1494, Pacioli published his most famous work —Summa de Arithmetica, Geometria,
Proportioni et Proportionalita. In addition to providing instruction in standard mathematics,
this work would also describe double-entry bookkeeping completely for the very first time. It
was also the first textbook on algebra that was written in the vernacular language of northern
Italy. As the popularity of this book increased, the concepts of double-entry bookkeeping
spread throughout Italy and eventually the rest of the European continent.

The book further describes some of the more popular accounting methods and tools in use
among the northern-Italian merchants of his time. While it’s common now, the use of journals
and ledgers were a relatively new and revolutionary creation in Pacioli’s time. He described
the use of the ledger to account for assets like inventories and receivables, liabilities like
notes payable, capital, income, and expenses. These accounts are the foundations of the
balance sheet and income statements (as you accounting students should know!). The book
further documents the use of a trial balance that can be used to prove a balanced ledger that
is still open, and how to make year-end closing entries.

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What is startling is how many of these concepts are still in play today. Almost every
accountant that does the numbers for a client company makes journal entries to the general
ledger, draws on the trial balance, or ties out numbers between the balance sheet and
income statement. It’s because these ideas have become so widespread today (literally
worldwide) that Pacioli is known as the “father of accounting.”

Debits and Credits

Pacioli did not actually invent double-entry bookkeeping, nor did ever claim to have done so.
He gave credit to one Bendetto Cotrugli for coming up with the system, as he relied on an
unpublished by Cotrugli for the portion of his work on accounting in his own Summa (Though
in reality, the earliest accounts of double-entry bookkeeping may have emerged from Muslim
traders in the 7th century) . Nevertheless, Pacioli’s summation of the method was incredibly
important for the history of accounting, as it was one of the first descriptions of double-entry
bookkeeping to be distributed on a large-scale.

Double-entry bookkeeping allows for a company or individual to keep track of credits and
debits and thereby keep accounts in balance. Every financial transaction is recorded in two
columns, debits in the left and credits in the right, ensuring that the ways in which each
transaction affects every aspect of the company’s finances is properly recorded. For
example, a company that takes payment for a specific service will record a debit in the cash
account and a credit in the revenue account, allowing them to keep track of the real impact of
the payment on the company’s bottom line. Because two entries are made here, the
accounts are said to be “balanced.”

Double-entry bookkeeping itself may not sound all that exciting, but without it, most experts
would confess that the industrial revolution and growth of free-market capitalism could never
have happened. Luca’s description of double-entry bookkeeping ensured that the process
would become widely adopted across the Western world and would encourage the rise of
Europe and the United States as eventual global powers.

Without the work of an otherwise obscure Franciscan friar in the fifteenth and sixteenth
centuries, the economy as we know it today could not exist. Pacioli’s description of double-
entry bookkeeping led to the rise of modern accounting, accurate record keeping, and the
overall growth of industry and trade. Understanding his role in accounting history is important
for understanding Western history and the way in which the economy functions today.

Additional Resources
Beginner Bookkeeping — Knowing the accounting terms in this dictionary is helpful to
understanding the history of accounting.

Engines of Ingenuity — The importance of double-entry bookkeeping in the history of

civilization is explained on this page.

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 Cliffs Notes: Double Entry Bookkeeping — A simple explanation of double-entry
bookkeeping, the accounting method that Luca Pacioli pioneered, is found here.
Dictionary of Scientific Biography — The Dictionary of Scientific Biography has this
entry on the life and influence of Luca Pacioli.
History of Double Entry Bookkeeping — A history of double entry bookkeeping and
Luca Pacioli’s contributions to it can be found here.
Luca Pacioli (1445–1517) — A fuller biography of Luca Pacioli is found on this UK-
based webpage.
Luca Pacioli: The Father of Accounting — Texas A&M University makes this short
biography of Luca Pacioli available to web surfers.

Source:AccountingDegreeOnline.net

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