Adolf J.H. Enthoven
SOME RECORDING of economic transactions—the basis of accounting—was undertaken in ancient Babylonia and Egypt. In Greece and even more in Rome the keeping of accounts for private and public purposes was well developed, although neither Greeks nor Romans discovered the principles of double entry bookkeeping, which did not come into being until it was called for by wider commercial and governmental activities. In Italy the principle of double entry can be traced back to the fourteenth century, but it was not until 1494 that Paciolo actually set forth this method in the form of a system. Double entry bookkeeping may accordingly be considered as the form of accounting brought into being by the commerce that developed in the later Middle Ages and which reached its full fruition in the Renaissance.
The idea of productive capital—the idea that commerce must be profitable in order to create additional capital for further re-employment—forms the basis of a bookkeeping system. Until the end of the Middle Ages, the idea of productive capital did not exist; it developed only with the emergence of extensive commerce, and later, of large-scale industry. Trade creates capital, and capital seeks employment, thus expanding again the productive cycle of trade. The city states of Italy in the period after 1200 gave a spurt to the effective use of capital.
There was of course capital in the sense of wealth in the traditional world, but to serve as an effective feeder of production, wealth has to be productive. The wealth of older civilizations, instead of being active in the form of ships or equipment, was stagnant in the form of palaces, pyramids, and so on. Money also became more and more a medium of exchange, and bookkeeping is of course based on a money economy; barter trade does not call for an extensive bookkeeping system.
The words accountancy and accounting are being used synonymously in this article, although the author prefers the term accountancy, which refers to the field of knowledge and its methodology. Accounting applies to the practice.