History of Accounting: How It's Evolved Over the Years

There’s a good chance you’ve never covered this in your accounting classes.

But have you ever been bogged down, studying for an accounting exam, and wondered where this comes from? What is the larger picture of the accounting world you partake in daily?

Accounting has a long and fascinating history, dating back thousands of years. People were keeping track of their finances even before the invention of paper!  Over time, accounting practices continued to develop alongside new technologies.

We used to rely on cumbersome accounting practices, but now accounting software handles the heavy lifting.

Are you curious to discover how the profession has evolved and what the future holds? If yes, continue reading!

Ancient beginnings

We begin over 7,000 years ago in ancient Mesopotamia. This cradle of civilization was where the seeds of modern society were planted, as the concept of a city and a written language were developed.

As businesspeople, the agrarians of this society needed to keep track of their crop and herd growth and output. They used a system of accounting to determine whether there was a crop shortage or surplus at the end of each harvest period. This was the earliest known record of accounting.

Fast forward to the Roman Empire – roughly in the range of 14- B.C.-63 A.D. Emperor Augustus is a rich and powerful leader, and the Roman government collects detailed financial information about the leadership of Augustus. 

This information is published in The Deeds of the Divine Augustus and features transactions such as grants of land and money to veterans, the building of temples and other religious structures, and entertainment and gladiatorial spending.

This type of concentrated, detailed record of transactions suggests an early notion of accounting in the modern sense. The Roman army also kept a detailed record of traded cash and commodities. 

A breakthrough in Italy

Now we come to 1494, the seminal year of accounting’s history. Medieval Europe was in the early stages of a monetary economy, and bank loans became an important part of the economy’s sustainability. 

Luca Pacioli, an Italian monk, published Summa de Arithmetica, Geometria, Proportioni et Proportionalita, a book that introduced the double-entry system for bookkeeping and laid the groundwork for the future of accounting. 

At the center of Pacioli’s thesis was listing an entity’s resources in a separate column from the claims upon those resources by other entities. Today, we know this practice as the balance sheet, which separates debits from credits.

What the double-entry bookkeeping system introduced was a way to view a company’s financial health holistically, knowing precisely what was coming into the company and what was flowing out. 

The rise of modern accounting

Pacioli’s bookkeeping practice was transformed into a widespread, modern accounting practice during the Industrial Revolution of the 18th Century. With a period of mass production and large companies taking on never-before-seen levels of input and output, accounting experts were necessary to keep track of all of the moving financial pieces. 

Although London was the center of the Industrial Revolution, modern accounting came to the U.S. shortly thereafter with the rise of the railroad industry. The railroads could transport people and goods long distances in shorter times, resulting in an explosion of business efficiency compared to pre-railroad norms.

Accounting became a necessary practice for all businesses in the industry, as cost estimates and financial statements needed to be maintained frequently to ensure the business's success. 

Keeping accounting in check

From monitoring the input and output of goods and services to ensuring that a company was in good financial health to calm investors' worries, accountants became essential for companies to operate. 

With the boom of the accounting profession came regulation. In 1896, the certified public accountant license was enacted, creating a requirement for state examinations and experience in the accounting field, similar to the Certified Public Accountant (CPA) requirements.

In 1934, the U.S. Securities and Exchange Commission was created to certify reports by all publicly traded companies. In 1973, the Financial Accounting Standards Board was created to establish the Generally Accepted Accounting Principles (GAAP), setting accounting standards in the U.S.

There have also been infamous accounting gaffes and the increased financial complexity of modern corporations. In 2002, the high-profile accounting firm Arthur Andersen faced criminal charges for failing to properly audit Enron, an energy company guilty of fraud. This scandal resulted in the Sarbanes-Oxley Act, which instituted many rules and regulations in accounting. 

The future of accounting

The accounting profession is on the cusp of a significant transformation driven by technological advancements and evolving business landscapes.

Here are some key trends to consider for the future of accounting:

• Cloud-based accounting: 53% of businesses noticed a reduction in costs as one of the benefits of using cloud-based accounting. Cloud technology will become even more ubiquitous, allowing real-time access to financial data and collaboration across teams and locations. This will lead to faster decision-making and improved financial transparency.
• Demand for cybersecurity expertise: As reliance on technology grows, so will the need for robust cybersecurity measures. Accountants must be aware of cyber threats and implement data security protocols to protect sensitive financial information.
• Specialized skills: As businesses become more complex, the demand for specialized accountants will increase. Areas like forensic accounting, data analytics, and international tax will see continued growth.
• Rise of automation and artificial intelligence (AI): Repetitive tasks like data entry, reconciliation, and basic bookkeeping will become increasingly automated. AI tools will handle complex calculations, analyze trends, and identify anomalies, freeing up accountants for more strategic work.
  

The future is bright for those who can embrace change and develop the necessary skills. The profession will move from number-crunching towards a more strategic and advisory role, requiring a blend of technical expertise, business acumen, and strong communication abilities.

Where are we now?

From clay tablets to cloud computing, the history of accounting showcases humanity's relentless quest to track and understand financial health

In the 21st Century, accounting has taken off with big firms and advanced accounting software, as accountants no longer need to do double-entry bookkeeping by hand. The profession has undergone a significant transformation due to the rise of technology. 

Accounting will continue to be a necessary institution at companies large and small, and new technology in the coming years will only improve the efficiency and quality of accounting work.

Learn more about the progressive approach of accrual accounting and its pivotal role in shaping the future of accounting.

This article was originally published in 2019. It has been updated with new information.