It’s considered the biggest mystery in the history of accounting – just what was it that led a bunch of Italian merchants to create double-entry accounting.
The practice emerged during the Renaissance — and to German sociologist Max Weber – it marked the entry point for capitalism.
While it may be tempting to think that wine-pedalling monks played a pivotal role, historians seem to scoff at the idea.
Was It The Merchants or the Monks
“I don’t think you can blame it on the monks,” laughs Gary Previts, department chair of accountancy at Weatherhead School of Management at Case Western. “I think it was more about the merchants in those days than they monks. They had to keep track of where their goods were going.”
Evidence points to fast and furious activity between Mediterranean and Moslem merchants, with neutral Jewish traders working in between. But there’s also a much more human story.
The Dawn of Documentation
In his 1949 essay Scientific Bookkeeping and the Rise of Capitalism, London School of Economics professor Basil S. Yamey wrote that Italians weren’t so keen on negative numbers, and merchants were realizing memory was a poor substitute for documentation.
With all that in mind, here’s whirlwind tour of the early days of accounting that built the framework of what large corporations work with today.
Italian merchants already have more than a century of experience with double-entry when Benedetto Cotrugli includes an index in his 1475 book Libro de l’Arte de la Mercatura (Book on the Art of Trade) with many journal entries.
In 1494, Franciscan friar and mathematician Luca Bartolomeo de Pacioli, along with his buddy Leonardo da Vinci (he drew the pictures), lands double-entry into the history books, thanks in part to the invention of the Guttenberg Press. His book, known today simply as Summa, grants him Father of Accounting status.
International trade continues. Factories and stock exchanges emerge.
General Motors adopts what is known today as “modern cost accounting”.
The University of Pennsylvania heralds the next big accounting Renaissance with invention of the computer.
Arthur Andersen computerizes the payroll of a General Electric plant.
Founder of JD Edwards and Father of ERP (Enterprise Resource Planning) Ed McVaney is studying engineering when he “freaks out” on computers after taking two courses in computer science.
A group of engineers – all former IBM employees – form SAP (Systemanalyse und Programmentwicklung) to create their own financial accounting system. This liberates accounting managers from expensive investment into massive mainframe hardware.
JD Edwards starts work on accounting software for wholesale distribution and cost accounting systems. Meanwhile Joseph Orlicky studies the Toyota factory in Japan, and creates Material Requirements Planning (MRP), outlines in his1975 book The New Way of Life in Production and Inventory Management.
Canadians Norm Francis and Ted Comfoltey (accountants) get together with Don Thomson and Keith Whales (programmers) to create ACCPAC – the first low cost accounting application for small business.
“The impact was immediate with accounting firms across the US and Canada adopting it to manage accounting for their clients,” says John Schoutsen, vice-president of corporate communications for Sage North America.
The research and analysis firm Gartner Group gets credit for coining the term ERP as an extension of both MRP and CIM (Computer Integrated Manufacturing. The aim now is for software to cover all key aspects of an enterprise – from accounting to human resource management.
The latest generation – ERP II – is now web-based and allows both customers and supplies to access data in real-time. The aim is to improve communication between departments and ultimately increase productivity.
From paper ledgers and closed communication to web-based and open thinking – the possibilities for trade continue to be endless.