The history of accounting

The history of accounting is as old as civilisation. 

The seeds of accounting were most likely first sown in Babylonia and Egypt around 4000 B.C. 

In Greece, accounting was used for apportioning the revenues received among treasuries, maintaining total receipts, total payments and balance of government financial transactions. 

Romans used memorandum or daybook where in receipts and payments were recorded and wherefrom they were posted to ledgers on monthly basis. (700 B.C to 400 A.D). 

China used sophisticated form of government accounting as early as 2000 B.C. 

Accounting practices in India could be traced back to a period when twenty three centuries ago, Kautilya, a minister in Chandragupta’s kingdom wrote a book named Arthashasthra, which also described how accounting records had to be maintained. 

Who is the father of Accounting ?

Luke Pascioli

Luca Pascioli was a Franciscan monk born in 1446 or 1447 in what is now Borgo San Cepolcro, in northern Italy. He is believed to have died on 19 June 1517 in the same town.

KS Aiyar - Father of Accountancy in India. KS Sri Kalyan Subramanya Aiyar (1859-1940), popularly known as Aiyar, was the pioneer of commercial and accounting education in India.

Luca Pacioli’s, a Franciscan friar (merchant class), book Summa de Arithmetica, Geometria, Proportion at Proportionality (Review of Arithmetic and Geometric proportions) in Venice (1494) is considered as the first book on double entry bookkeeping. 

 In his book, he used the present day popular terms of accounting Debit (Dr.) and Credit (Cr.). 

These were the concepts used in Italian terminology. 

Debit comes from the Italian debito which comes from the Latin debita and debeo which means owed to the proprietor. 

Credit comes from the Italian credito which comes from the Latin ‘credo’ which means trust or belief

Luca Pacioli wrote that ‘All entries… have to be double entries, that is if you make one creditor, you must make some debtor’. 

Luca Pacioli stated that a merchants responsibility include to give glory to God in their enterprises, to be ethical in all business activities and to earn a profit. 

Luca Pacioli discussed the details of memorandum, journal, ledger and specialised accounting procedures

 Meaning of Accounting 

In 1941, The American Institute of Certified Public Accountants (AICPA) had defined accounting as the art of recording, classifying, and summarising in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof’

. In 1966, the American Accounting Association (AAA) defined accounting as ‘the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information

In 1970, the Accounting Principles Board of AICPA also emphasised that the function of accounting is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions

Accounting can therefore be defined as the process of identifying, measuring, recording and communicating the required information relating to the economic events of an organisation to the interested users of such

information. In order to appreciate the exact nature of accounting, we must understand the following relevant aspects of the definition: 

• Economic Events 

• Identification, Measurement, Recording and Communication 

• Organisation 

• Interested Users of Information

Economic Events 

Business organisations involves economic events. An economic event is known as a happening of consequence to a business organisation which consists of transactions and which are measurable in monetary terms.

Identification, Measurement, Recording and Communication

Identification : It means determining what transactions to record, i.e., to identity events which are to be recorded. It involves observing activities and selecting those events that are of considered financial character and relate to the organisation. The business transactions and other economic events therefore are evaluated for deciding whether it has to be recorded in books of account.

Measurement : It means quantification (including estimates) of business transactions into financial terms by using monetary unit, viz. rupees and paise as a measuring unit. If an event cannot be quantified in monetary terms, it is not considered for recording in financial accounts.

Recording : Once the economic events are identified and measured in financial terms, these are recorded in books of account in monetary terms and in a chronological order. 

Communication : The economic events are identified, measured and recorded in order that the pertinent information is generated and communicated in a certain form to management and other internal and external users. The information is regularly communicated through accounting reports. These reports provide information that are useful to a variety of users who have an interest in assessing the financial performance and the position of an enterprise, planning and controlling business activities and making necessary decisions from time to time


Organisation refers to a business enterprise, whether for profit or not-forprofit motive. Depending upon the size of activities and level of business operation, it can be a sole-proprietory concern, partnership firm, cooperative society, company, local authority, municipal corporation or any other association of persons. 

Interested Users of Information 

Accounting is a means by which necessary financial information about business enterprise is communicated and is also called the language of business. Many users need financial information in order to make important decisions. 

These users can be divided into two broad categories: internal users and external users

 Users Want Accounting Information

  1.  The owners/shareholders
  2.  The directors/managers
  3.  The creditors (lenders)
  4.  The prospective investors
  5.  The government and regulatory agencies 

Accounting as a Source of Information

• provide information for making economic decisions; 

• serve the users who rely on financial statements as their principal source of information; 

• provide information useful for predicting and evaluating the amount, timing and uncertainty of potential cash-flows; 

• provide information for judging management’s ability to utilise resources effectively in meeting goals

• provide factual and interpretative information by disclosing underlying assumptions on matters subject to interpretation, evaluation, prediction, or estimation; and 

• provide information on activities affecting the society.

The apparently divergent needs of internal and external users of accounting information have resulted in the development of sub-disciplines within the accounting discipline namely, 

  1. Financial accounting, 
  2. Cost accounting 
  3. Management accounting 

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