The blog author contends that the greatest discovery outside the hard sciences in recorded history, other than due process and a free press, was the mathematical concept of double-entry bookkeeping. Double-entry bookkeeping is simple: when an economic transaction takes place, at least two entries are made – one to a book (or account) as a left-side entry and another to another book (or account) as a right-side entry. There are at least two different kinds of accounts – “real” accounts that always stay open (assets, liabilities and equity) as well as “nominal” accounts that are closed out periodically (such as sales and expenses, closed out annually to an annual profit which itself is closed out to the “real” equity accounts).
The previous paragraph represents an accomplishment of such profound genius that it dwarfs everything all the various social sciences, combined, have ever achieved.
Double entry bookkeeping allows the “knack” for making money to expand from those with an intuitive understanding of the capital process to all adults with a marketable, competent skill
Double entry bookkeeping makes the process of loaning to an enterprise an unbiased, fair-minded mathematical analysis instead of a transaction soaked in favoritism and nepotism
Double entry bookkeeping is a key element in the remote ownership of capital – stock holders can never have a comparable degree of confidence in any entity lacking the regular financial statements associated with double entry bookkeeping [the other key element in remote stock ownership being a free press able to criticize any entity so long as the statements that are published as factual]
Double entry bookkeeping revolutionizes and dramatically improves the tools and information available to management for making decisions
The “Renaissance” was essentially created by the distilling of due process into Magna Carta and English law, the discoveries and explorations of Portuguese and Spanish adventurers in the 15th century, and the written description of double-entry bookkeeping. These advances were revolutionary, though for biased philosophical reasons, the key contributions of Magna Carta and double entry bookkeeping have been falsely minimized.
-- the blog author (himself a retired certified public accountant)
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Double-entry bookkeeping has been considered a fundamental innovation and a cornerstone of Capitalism by such thinkers as Werner Sombart and Max Weber, Sombart writing in "Medieval and Modern Commercial Enterprise" that:
Pacioli portrait by Jacopo de' Barbari, 1495
Bartering was the dominant practice for traveling merchants during the Middle Ages. When medieval Europe moved to a monetary economy in the 13th century, sedentary merchants depended on bookkeeping to oversee multiple simultaneous transactions financed by bank loans. One important breakthrough took place around that time: the introduction of double-entry bookkeeping, which is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form. The historical origin of the use of the words ‘debit’ and ‘credit’ in accounting goes back to the days of single-entry bookkeeping in which the chief objective was to keep track of amounts owed by customers (debtors) and amounts owed to creditors. ‘Debit,’ is Latin for ‘he owes’ and ‘credit’ Latin for ‘he trusts’.
The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300. Giovanno Farolfi & Company were a firm of Florentine merchants whose head office was in Nimes who also acted as moneylenders to Archbishop of Arles, their most important customer. The oldest discovered record of a complete double-entry system is the Messari (Italian: Treasurer's) accounts of the city of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form, and contains balances carried forward from the preceding year, and therefore enjoy general recognition as a double-entry system.
Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" (Italian: "Review of Arithmetic, Geometry, Ratio and Proportion") was first printed and published in Venice in 1494 [disputed – some say 1492]. It included a 27-page treatise on bookkeeping, "Particularis de Computis et Scripturis" (Italian: "Details of Calculation and Recording"). It was written primarily for, and sold mainly to, merchants who used the book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid the education of their sons. It represents the first known printed treatise on bookkeeping; and it is widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known book printed in Italy to contain algebra.
Although Luca Pacioli did not invent double-entry bookkeeping,his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no originality, it is generally considered as an important work, mainly because of its wide circulation, it was written in vernacular Italian language, and it was a printed book.
According to Pacioli, accounting is an ad hoc ordering system devised by the merchant. Its regular use provides the merchant with continued information about his business, and allows him to evaluate how things are going and to act accordingly. Pacioli recommends the Venetian method of double-entry bookkeeping above all others. Three major books of account are at the direct basis of this system: the memoriale (Italian: memorandum), the giornale (journal), and the quaderno (ledger). The ledger is considered as the central one and is accompanied by an alphabetical index.
Pacioli's treatise gave instructions in how to record barter transactions and transactions in a variety of currencies – both being far more commonplace than they are today. It also enabled merchants to audit their own books and to ensure that the entries in the accounting records made by their bookkeepers complied with the method he described. Without such a system, all merchants who did not maintain their own records were at greater risk of theft by their employees and agents: it is not by accident that the first and last items described in his treatise concern maintenance of an accurate inventory.
The nature of double-entry can be grasped by recognizing that this system of bookkeeping did not simply record the things merchants traded so that they could keep track of assets or calculate profits and losses; instead as a system of writing, double-entry produced effects that exceeded transcription and calculation. One of its social effects was to proclaim the honesty of merchants as a group; one of its epistemological effects was to make its formal precision based on a rue bound system of arithmetic seem to guarantee the accuracy of the details it recorded. Even though the information recorded in the books of account was not necessarily accurate, the combination of the double entry system's precision and the normalizing effect that precision tended to create the impression that books of account were not only precise, but accurate as well. Instead of gaining prestige from numbers, double entry bookkeeping helped confer cultural authority on numbers.
Double entry accounting means that money is never lost or gained. It is always transferred from one place to another. This is done by recording transactions. Each transaction requires the use of at least two accounts.
http://en.wikipedia.org/wiki/Accountancy
The previous paragraph represents an accomplishment of such profound genius that it dwarfs everything all the various social sciences, combined, have ever achieved.
Double entry bookkeeping allows the “knack” for making money to expand from those with an intuitive understanding of the capital process to all adults with a marketable, competent skill
Double entry bookkeeping makes the process of loaning to an enterprise an unbiased, fair-minded mathematical analysis instead of a transaction soaked in favoritism and nepotism
Double entry bookkeeping is a key element in the remote ownership of capital – stock holders can never have a comparable degree of confidence in any entity lacking the regular financial statements associated with double entry bookkeeping [the other key element in remote stock ownership being a free press able to criticize any entity so long as the statements that are published as factual]
Double entry bookkeeping revolutionizes and dramatically improves the tools and information available to management for making decisions
The “Renaissance” was essentially created by the distilling of due process into Magna Carta and English law, the discoveries and explorations of Portuguese and Spanish adventurers in the 15th century, and the written description of double-entry bookkeeping. These advances were revolutionary, though for biased philosophical reasons, the key contributions of Magna Carta and double entry bookkeeping have been falsely minimized.
-- the blog author (himself a retired certified public accountant)
= = = = = = = = = = = = = = = = = = = = = = = = =
Double-entry bookkeeping has been considered a fundamental innovation and a cornerstone of Capitalism by such thinkers as Werner Sombart and Max Weber, Sombart writing in "Medieval and Modern Commercial Enterprise" that:
- "The very concept of capital is derived from this way of looking at things; one can say that capital, as a category, did not exist before double-entry bookkeeping. Capital can be defined as that amount of wealth which is used in making profits and which enters into the accounts."
- http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system
Luca Pacioli and double-entry bookkeeping
Bartering was the dominant practice for traveling merchants during the Middle Ages. When medieval Europe moved to a monetary economy in the 13th century, sedentary merchants depended on bookkeeping to oversee multiple simultaneous transactions financed by bank loans. One important breakthrough took place around that time: the introduction of double-entry bookkeeping, which is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form. The historical origin of the use of the words ‘debit’ and ‘credit’ in accounting goes back to the days of single-entry bookkeeping in which the chief objective was to keep track of amounts owed by customers (debtors) and amounts owed to creditors. ‘Debit,’ is Latin for ‘he owes’ and ‘credit’ Latin for ‘he trusts’.
The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300. Giovanno Farolfi & Company were a firm of Florentine merchants whose head office was in Nimes who also acted as moneylenders to Archbishop of Arles, their most important customer. The oldest discovered record of a complete double-entry system is the Messari (Italian: Treasurer's) accounts of the city of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form, and contains balances carried forward from the preceding year, and therefore enjoy general recognition as a double-entry system.
Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" (Italian: "Review of Arithmetic, Geometry, Ratio and Proportion") was first printed and published in Venice in 1494 [disputed – some say 1492]. It included a 27-page treatise on bookkeeping, "Particularis de Computis et Scripturis" (Italian: "Details of Calculation and Recording"). It was written primarily for, and sold mainly to, merchants who used the book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid the education of their sons. It represents the first known printed treatise on bookkeeping; and it is widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known book printed in Italy to contain algebra.
Although Luca Pacioli did not invent double-entry bookkeeping,his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no originality, it is generally considered as an important work, mainly because of its wide circulation, it was written in vernacular Italian language, and it was a printed book.
According to Pacioli, accounting is an ad hoc ordering system devised by the merchant. Its regular use provides the merchant with continued information about his business, and allows him to evaluate how things are going and to act accordingly. Pacioli recommends the Venetian method of double-entry bookkeeping above all others. Three major books of account are at the direct basis of this system: the memoriale (Italian: memorandum), the giornale (journal), and the quaderno (ledger). The ledger is considered as the central one and is accompanied by an alphabetical index.
Pacioli's treatise gave instructions in how to record barter transactions and transactions in a variety of currencies – both being far more commonplace than they are today. It also enabled merchants to audit their own books and to ensure that the entries in the accounting records made by their bookkeepers complied with the method he described. Without such a system, all merchants who did not maintain their own records were at greater risk of theft by their employees and agents: it is not by accident that the first and last items described in his treatise concern maintenance of an accurate inventory.
The nature of double-entry can be grasped by recognizing that this system of bookkeeping did not simply record the things merchants traded so that they could keep track of assets or calculate profits and losses; instead as a system of writing, double-entry produced effects that exceeded transcription and calculation. One of its social effects was to proclaim the honesty of merchants as a group; one of its epistemological effects was to make its formal precision based on a rue bound system of arithmetic seem to guarantee the accuracy of the details it recorded. Even though the information recorded in the books of account was not necessarily accurate, the combination of the double entry system's precision and the normalizing effect that precision tended to create the impression that books of account were not only precise, but accurate as well. Instead of gaining prestige from numbers, double entry bookkeeping helped confer cultural authority on numbers.
Double entry accounting means that money is never lost or gained. It is always transferred from one place to another. This is done by recording transactions. Each transaction requires the use of at least two accounts.
http://en.wikipedia.org/wiki/Accountancy
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