History of Accounting and its Principles

History of Accounting






History of Accounting

Ancient Accounting

Accounting dates as back as 7000 years ago. Although it is more complex today than it was in those ancient times, it still incorporates the same foundations and motives that were used then. The first evidence of accounting records was seen in the ruins of Sumeria and Assyria in Babylon (Brown, 2006). This people used the primitive accounting techniques in order to record the herds and crops’ growth. Since the season for herding and farming comes naturally, it was easy to determine whether there was a surplus after the harvesting of the crops or the weaning of the animals. The form of bookkeeping took place through the use of clay tokens. This was a significant cognitive leap for the human race.

The Vedas and Rig veda of India records Nikruta, which “denotes” sale and Sulka which denotes “price” in their ancient records (Brown, 2006). The Deeds of the Divine Augustus (Res Gestae Divi Augusti) gave a record of Augusts’ expenditure on public. They have records of grants of money or land, subsidies, temple building, contributions and religious offering among other expenditures. In these Roman times, the transactions, commodities and cash records were in the custody of the Roman Army. In Pharaoh’s Egypt, accounting records were evident also in the code of Hammurabi.

In the religious book, the Bible, in the book of Mathew, the parable of Talent is a good illustration concerning accounting. In the Islam religion, the Quran, their religious book, talks of accounting for once indebtedness by keeping records. This gives the basic guidelines aligning the recording and reporting of transactions. The introduction for taxes also brought more significance to accounting.

Double Entry Bookkeeping

With the introduction of double entry bookkeeping by Luca Pacioli in his Summa of 1494, accounting was taken to another level. Pacioli described a method that was in use during the Renaissance period (King, 2006). This method was mostly used by the merchants of Venice. Most accounting routines in use today were included in his book. These include the use of journals, memorandums and ledgers when accounting. In his ledger, there were inventories and receivables (assets), liabilities, income, capital and expense accounts.

In addition, he advocated and described the entries made at the end of the year. He also encouraged people to use a trial balance to prove that the ledger has balanced. Other references made to the Summa were cost accounting and accounting ethics (King, 2006). Just like the double entry method relies on historical information today, it still relied on historical information during Pacioli’s time.

As the evolution continued and the economic situation continued to face diverse challenges, other principles had to be developed in order to make the accounting system stronger. This mostly took place in 1939 after the Great Depression when the Generally Accepted Accounting Standards were formed. These principles have continued to govern the diverse areas in the accounting field. These include the auditing and cost accounting areas just to mention but a few.


Regularity is one principle of accounting. In accounting, regularity is the conformity to both laws and rules set. Great repercussions or consequences follow when this principle is broken. Consistency is another principle of accounting. This principle requires entries to be made in a consistent manner. When a business decides to use one accounting method when recording items, other items of the same nature should be recorded using the same accounting method. For example, if a business chooses to use the reducing balance method of depreciation for all motor vehicles, then that method of depreciation should be consistently used for all motor vehicles (Pennman, 2011).

Sincerity is another principle of accounting. Accounting records should be recorded in good faith the company’s real, financial status. The financial statements should reflect the actual transactions that took place during the financial period. Alterations or omissions can attract great consequences from the board governing accounts in a given region. The principle of permanence of methods gives way for consistency and comparison of the information given concerning the financial statements. If a certain method is chosen, it should not only be used with the other similar items, but it should also be used during the lifetime of that particular item. For example, a depreciation method should be used until the vehicle is disposed.

The non-compensation principle requires a business to depict the full details of any financial information. For this reason, compensation should not take place in the manner of revenue for an expense or a debt for an asset. The principle of prudence requires the financial information to portray the reality of the situation. Information should not make a business look worse or better than it already is.

The continuity principle assumes that the business will continue. This is mostly in the next financial period (12 months). This principle mostly affects the assets as they are recorded at their historical value rather than recording them in their historical value (Pennman, 2011). The principle of periodicity required entries to be allocated to their respective period. If an entry covers more than one period, then the entry should be split into the in accordance to the periods covered. This mostly applies to prepayments and arrears.

The full disclosure principle or materiality principle states that all values and information in relation to business’ financial position should be fully disclosed. The Utmost good faith principle requires businesses to disclose all the information that relates to the business to the insurer. This should take place before the insurance policies are given to the business.

The accounting in the ancient days has only advanced to its status, but it has not changed. The historical guidelines used then are still being used even today. The accounting systems will continue to modify with the economic times, but they will probably not change as they have not changed 500 years since Pacioli’s time.


Brown, R. (2006). A History of accounting and Accountants. Neew York, NY: Cosimo Books, Inc.

King, T. A. (2006). More than a numbers game: A brief history of accounting. Hoboken, N.J: John Wiley & Sons.

Penman, S. H. (2011). Accounting for value. New York: Columbia University Press.

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