Short History of Accounting – Why Is Accounting Important

Accounting was created as a means of measuring and reporting upon economic activity. Renaissance-era monk Fra Luca Pacioli is normally credited with the invention of double-entry bookkeeping, designed for use of traders operating in fourteenth and fifteenth century Italian city-states. From there, the use of double entry bookkeeping largely followed evolving trading patterns.

Thus, double entry bookkeeping has been traced to Germany and France, and then to Great Britain, where it became widely proliferated via the commercial activities in the seventeenth and eighteenth century of the British Empire. The industrialization of North America and the Commonwealth countries, partially in response to British investments in the insurance and railroad industries, led to the further spread of double entry bookkeeping.

Contemporaneously, Dutch accounting followed the discoveries and settlements made in Indonesia and South Africa. Other patterns of influence can be traced from their European origins throughout the world, as from Spain to Latin American nations. Later, with its economic ascendancy, the United States became the prime developer of accounting theory and exported its favored financial reporting model around the globe.

Different practices and regulations tended to evolve to meet local needs and economic characteristics. Some of the factors affecting these variations include the degree of centralization in the economy, ranging from state control to unfettered free enterprise; the nature of economic activity, from simple agrarian societies to the most sophisticated and complex business enterprises; the stage of economic development, from emerging economies to fully matured postindustrial ones; the pattern and pace of economic growth, ranging from stagnation of the former Communist economies to the explosive growth of certain Asian economies in the 1990s; and the history of price stability or inflationary experience of the nation’s economy. In addition, the nature of the nation’s legal system has profoundly impacted its approach to accounting and financial reporting.

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