Pacioli
Luca Pacioli published the first book on accounting, Summa de arithmetica, geometria, proportioni et proportionalita, in 1494. I used to think that it mattered that the first book was written by a Ragusian merchant Benedetto Contrugli.
However i think he wrote clearly and formalised the practice that had been developed in renaisance Italy. It is more of a textbook than an invention. The history of how the Ventians arrived a this point is complex coming from Indian and Arabic sources.
The ICAEW has a nice digitised copy of Pacioli’s book.. Geisjeeck has a good english translation of Pacioli’s book which i available at the Internet Archive.
There is a lot in this short book which is a handbook for Renaissance traders and the foundation of curret accounting practice but I want to focus on two areas:
- the 4 books of record
- recording of journal entries
The 4 books of record
The four books are the :
- Inventory
- Memorandum
- Journal
- Ledger
They are described in Geisjeeck translation as :
First, we shall speak of commerce in general and its requirements. Immediately
after the Inventory, you need three books to make the work proper and easy. One
is called Memorandum (Memoriale) , the second Journal (Giornale) , and the third
Ledger (Quaderno). Many, on account of their small business, use only the last
two, that is, the journal and the ledger.
Although Pacioli counts three books, the inventory is an important part of the process and the simplest to undersstand. In a stock take at the end of a year it is rare that there is an exact match and some adjustments will be needed. Constructing the inventory is also the starting point of accounting records. It will be a much smaller document than th others.
There is duplication between the books. The inventory is a point of time record like a balance sheet. The memoronadum, journal and ledger all cover a period of time. From any one of the other three books it is possible to reconstruct with a signifcant amount of work a ledger and journal to at least the level of the numerical entries. So this provides a level of redundancy. The double entry of items provides for error checking.
Recording of accounting journals
The journal entries record the movement of money from one account to another. This is covered in more detail in the section on why Pacioloi was wrong.