Go to the Accounting History Page

From the Ancient World to the Enlightenment

by Gary Giroux

    Within the last 10,000 years civilization began with the development of cities and agriculture. Jericho, the oldest city yet discovered, started as a trade center for salt, Catal Huyuk (in Turkey) a trade center for obsidian. The citizens used available materials plus limited trade goods to make a variety of products--which increased and improved over time. With pottery, textiles, and agricultural surpluses, humans discovered wealth.


    Ancient bookkeepers used small clay balls called tokens to count and keep track of existing wealth. Different shapes represented diffeent items: circles and spheres could represent sheep and grain. An important landowner had a complete

   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, grain, and other items of value were used for exchange, based on standardized weighs. Archaeologists found silver and gold ingots, seemingly used for wealth accumulation, trade and other transactions. The kingsom of Lydia in Asia Minor was a major source of electrum, a gold and silver alloy. According to Herodotus, the Lydians invented coinage in the 7th century BC. The earliest coins seem to be blank oval of electrum of standard weight. Later coins were stamped with punches. The Golden Age of Athens (5th century BC) saw the legal standards of coinage, using the silver drachmas. The most important reason for coins was trade and the state provided some assurance of quality and value of its coins. Greek banking included

   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.

The Dark Ages and the Rise of Italian Merchants

    Rome fell in the west in the 5th century AD and Europe experienced the Dark Ages for a thousand years. During the time the feudal system and the dominance of the Catholic Church developed. Powerful lords formed the basis of the European kingdoms. Medieval economies were largely self-sufficient, but cities developed about developing crafts and trade. Trade was simple and there was little need for detailed financial records. Italian merchants developed commercial ties throughout the Mediterranean. With the Crusades, beginning about 1000 AD, demand for exotic Eastern goods developed and Italian merchants expanded trading ties throughout Europe. The most successful merchants developed complex trading relationships across Europe and into Asia, which required money and credit and improved accounting methods. The ability to earn a profit depended on a thorough knowledge of costs and potential revenue opportunities.

    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.

  Luca Pacioli

    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.

Why is this Important?

Accounting is as old as civilization. With the development of technology, wealth, and trade came the need to adequately account for the complexity involved. Scribes became accountants and in the process invented the abstract of numbers and writing.

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.

Back to Accounting History Page