Envelope and tokens used in the Fertile Cresent
inventory--before writing, money, or the abstract concept of numbers. As civilization became more complicated, the token system expanded to allow more detailed and more abstract accounting. Tokens seem to have been used as evidence of transactions. Simple tokens could be found in clay "envelopes" from about 4000 BC in Sumeria. The tokens were hidden from view, but scribes impressed each token on the outside of the envelope (the first seal impressions). The envelope may have been a summary document, with the tokens inside representing an inventory--possibly a "balance sheet" with a complete listing and equivalent tribute or debt payment associated with a personal account or a specific trade or tax transaction.
From the simple tokens, complex tokens evolved in Sumeria about 3700 BC. Comples tokens were covered with lines, notches, and other markings and represented a more sophisticated accounting system. These markings can be explained as abstract representations of both objects of wealth (possibly finished goods such as processed foods, textiles, or luxury goods such as perfume) and the development of numbers. Tokens could be impressed on clay tablets and a single tablet could
Account tablet with pre-cuneiform script
marking of several tablets. Tablets could represent summary document of inventories or transactions and contain additional explanatory markings. With stylized signs all information could be recorded directly on the tablets, elimating the need for tokens. From this beginning writing developed--invented by scribes serving as accountants. The earliest texts were pictographs on tablets written with a stylus. The standardized script was called Cuneiform (Lation for wedge) because of its shape, invented between 3500-3100 BC, perhaps at Uruk. Soon, historical events were recorded and a written literature born.
Silver coin featuring a head of barley
money changing, accepted deposits, and lending money at a possibly standardized interest rate. Rome started minting coins only about 300 BC. Rome became the most powerful empire of the ancient world and developed an advanced civilization under a large professional army. Rome is noted for engineering feats, including roads, acquiducts, and marble building (using considerable amounts of cement). But Rome also had a sophisticated finance and legal system that included trade arrangements across the known world, complex tax collections, contracts, corporations, and a vast bureaucratic network.
Evidence suggests that double entry bookkeeping developed in the Genoa-Venice-Florence area in the 1200-1350 period, part of a vast commercial revolution. Accounting records of Rinierie Fini and Brothers (from 1296-1305) and Farolfi and Company (1299-1300) indicate complete double entry accounting. Each accounting entry had a separate debit and credit, with the equivalent of journals and ledgers.
Luca Pacioli (1447-1517), Franciscan monk and mathematician, published Summa de Arithmetica, Geometrica, Proportioni et Proportionalite in 1494. It was a summary of existing mathematical knowledge of the time and contained a section on "Details of Accounting and Recording" that described bookkeeping as used in Venice.
Pacioli's Summa was the first complete description of double entry bookkeeping. A memorandum book, journal, and ledger was required, with the journal and ledger similar to modern equivalents. A trial balance was used when the books were closed. The profit or loss was entered into the capital account to balance the balance sheet. Thanks to Gutenberg's printing press, Summa was published throughout Europe.
Wealth was equated with money and the ability to exchange goods. Precious metals and various trade goods became the equivalent of money, but the coinage of silver and gold standardized the concept of money and enhanced trade. Money changers developed into bankers, accepting deposits and lending money.
Italian merchants became successful and powerful partly became of their enhanced financial knowledge by inventing and then usingdouble entry accounting. By understanding cost and revenue structures they were in a position to make better decisions than competitors without this knowledge base. From the prosperity of the Italian merchant states came the Renaissance and the foundations of the modern world.
In summary, accounting and business has been central to the development of
civilization and the beginnings of the modern world.