In this video I explain four key ideas you need to know about the history of accounting!!
VIDEO SUMMARY
The SHOCKING history of accounting
In this video, I am going to talk about the SHOCKING history of accounting.
I am always surprised at how many accountants do not know anything about the history of accounting. Actually a lot of people are shocked when they learn about it. Because when you understand what I am about to share with you, it will change your perspective on your job. So what I want to do is go through four main ideas that you need to know about accounting history.
The first idea I want to talk about is that Accounting is REALLY old. We can find examples of accounting in ancient Egypt and Mesopotamia. Think about how cool this is. In early civilizations, there were hunters, farmers, and accountants. And we have many examples of this. One example is taxes. Since the first governments were created, there have been taxes, and they needed accountants to keep track of everything. Also, there are examples of auditing. A lot of people think of auditors as a recent development, but it is not. There are records of auditors in both ancient Egypt and Babylon who were checking the movement in and out of storehouses. One of the most shocking examples of accounting history, is that some historians believe that accountants are the reason for the invention of writing. Imagine you have a bunch of accountants sitting in a room in ancient Egypt. And they are saying to themselves, “Wouldn’t it be great if we had some way to write out our financial statements. Let us invent writing!” When you go and look at writing on stone tablets from those early time periods, what you see is that many of them are receipts and financial records. So not only is accounting one of the oldest careers there is. Accounting has been a force behind technological innovation.
The second idea is that Accounting was practiced before the invention of money. This is a really foreign idea for many people. A lot of people think of accountants just counting money, because the way we experience money today is through a very standardized system of bills and coins. But money was not always like that. Before money, when barter was much more common, you still needed accountants. Society still requires things like receipts and financial statements. Let me give you an example of this. Imagine you are a wealthy land owner in early civilization. You own a field of wheat. And your friend is interested in buying this field of wheat from you in exchange for some of his cows. This is a very difficult transaction for a number of reasons.
- How do you tell how much wheat is in the field?
- How do you value the wheat?
- How do you figure a fair value in cows?
- How do you create some documentation for this major financial transaction?
So I will give you the simple answer to all these questions. You need to hire an accountant. And it has nothing to do with counting dollar bills and coins. It is much bigger than that. It is a role in the community that enables economic transactions.
The third idea is that Modern accounting started in the Renaissance. Most people think of the Renaissance for great artwork and scientific innovations. But they should also credit the Renaissance for innovations in accounting. Because it was these innovations that changed the course of human history. There were two major inventions: 1) Arabic numbers 2) double entry bookkeeping. Now these ideas had actually been around for hundreds of years before the Renaissance. But what happened in the Renaissance was that these ideas became standardized and used throughout the economy. Imagine the impact of this. Before Arabic numbers, people wrote financial records using Roman Numerals. So a number like XXXVIII became 38. You can easily see the transformation this technology creates. That is the reason why an abacus was used. Because it is so difficult to add using Roman Numerals, accountants would use an abacus, and then write down the new Roman Numeral. But with Arabic numbers, you can just calculate using the numbers. And then we can look at double entry bookkeeping. Double entry bookkeeping is a method where every transaction is recorded with a debit and a credit. This method creates a very robust way of tracking finances. This is such an effective method of accounting that we still do accounting this way today. Let me repeat that. We have done accounting the same way since the Renaissance. Looking at the Renaissance, you can see how accounting innovations fueled an incredible increase in the effectiveness of business transactions.
The fourth idea is that since the Renaissance, we have seen incredible progress fueled by capital markets. One example of these innovations is the “joint-stock company.” This is the idea that a company can issue shares to investors. Accounting innovations like this enables the growth of capital markets. There are investors out there with money, and they are able to put their money to work in corporations to make even more money, and fuel progress for society. Capital markets enable the growth during the industrial revolution, technological innovations of the 20th century, and the more recent growth in emerging markets. All this was built on a foundation of good accounting. Accounting makes capital markets possible which has driven incredible growth from the Renaissance to today.
Those are my four main ideas about accounting history.
- Accounting is REALLY old
- Accounting was practiced before the invention of money
- Modern accounting started in the Renaissance
- Since the Renaissance, we have seen incredible progress fueled by capital markets
My main point is this: when you look back over human history, what you realize is that accounting is an important function in society. So if you are an accountant and you are going into work, you need to realize the role that you are playing. When you write down a financial entry, you are enabling your organization to communicate with its shareholders. There has always been a need for accountants. Someone who is ethical and who can stand up for good business decisions.
If this video gave you a new insight about accounting, leave a comment down below. Let me know what you think.
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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.