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Origin and Evolution of Double Entry Bookkeeping

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Origin and Evolution of Double Entry Bookkeeping ORIGIN AND EVOLUTION OF DOUBLE ENTRY BOOKKEEPING Origin and Evolution of Double Entry Bookkeeping A STUDY OF ITALIAN PRACTICE FROM THE FOURTEENTH CENTURY 8p Edward Peragallo, Ph.D. WITH A FOREWORD BY ROBERT H. MONTGOMERY NEW YORK AMERICAN INSTITUTE PUBLISHING COMPANY 1938 Copyright 1938 by American Institute Publishing Company,Inc. Printed in the United States of America 4-14-39 Bat ©ciA 125429 | TO MY MOTHER FOREWORD » HE principal value of the Study which Mr. Peragallo has made is that it establishes beyond dispute two things: first, that by its very nature accounting adaptsitself to business procedure, not business to accounting proce- dure; and, second, that for centuries after the first signs of double entry appeared, accountants and teachers and writers of accounting were concerned, not with theory, Y but exclusively with business transaétions and their description in the accounts. Accounting theory first appeared in the nineteenth century, and there followed an epidemic of so-called systems of bookkeeping — most of them fantastic and utterly useless for practical purposes. To the prattitioner who looks upon his work as the syStematic application of knowledge andskill in effecting a desired result,it is clear thatto attribute to his methods the inviolability of natural laws would hinder rather than help him in his search for truth and stunt the growth of an art already hard pressedto adaptitself to the increasing demandsof business. There is reason to fear that some in author- ity have such a misunderstanding of the nature of accounting; this is the only conclusion which can be drawn from their tendency to expeét business to conform to an accounting pattern rather than the reverse. At its present Stage of development, accounting, although still far from perfect, serves remarkably well the purpose for which it has always been intended. Accounting is the language of finance — a universal language. It is concerned not with the eternalverities, but with the data immediately before it. These data are not precisely measurable with the rule, the scales, or any instrumentyet devised by man. They can be measured only to the extent that human nature can be measured, for the value of every item in financial accounts is contingent upon a varying and illusive human fattor. Accounting Statements and reports are neces- sarily expressions of opinion, and no better than the ability and judgmentof the accountants who prepare them. Accounting methods which have endured are those which have met the test of the pragmatists — how well do they serve the given purpose? Accounting has but one purpose, to set forth the results of business operations accurately and truthfully. It draws upon the resources of many sciences, but remains an art, varying in effectiveness with the knowledge and skill of the practitioner — this is the lesson of history. Robert H. Montgomery Preface “yHE vastness of the subject has made it necessary for meto limit my study of the origin and subsequent developmentof double- entry bookkeeping to events occurring in Italy, where the system originated some time during the thirteenth or fourteenth centuries. The art of bookkeeping was confined to Italy until yay DMO che sixteenth century, and then, following in the wake oftrade, it spread throughout Europe. Theparts of this book, therefore, dealing with the period when bookkeeping was exclusively an Italian art, view the field as a whole, while those parts which deal with subsequentyears are a partial treatment. It should be borne in mind, however,that the Italian system of double entry to a large extent determined practice in the rest of Europe; it was not until the eight- eenth centurythatItaly experienced any serious rivalry in thefield, and ultimately it was double entry, as developedin Italy, chat endured. The book has been arranged so that examples in a foreign language, set in italic type, are followed immediately by a translation in roman type. Notes to which references appear in the text are placed at the end of each chapter. I am deeply indebted to Professor Roy B. Kester and Professor Archibald H. Stockder for their generous advice, readings of the manuscript, and valuable criticisms; also to Professor Henry Rand Hartfield, Professor Thomas W. Byrnes, and Professor Lynn Thorndike for their reading and helpful criticisms of the manuscript; and to Walter Hausdofer, the librarian of the Schoolof Business at Columbia University, for invaluableaid in locating and selecting source material. To Charles M. Smith, associate editor of the American Institute Publishing Company, I am deeply obligated for his painstaking efforts in organizing the book and improving the style. To Colonel Robert H. Montgomery | am especially grateful for his interest in my work andfor the extensive use I made of the colledion of ancient accounting manuscripts which he donated to the Business School Library ac Columbia University. Edward Peragallo Swe 4 CONTENTS Se CIRM Part I THE ORIGIN OF DOUBLE ENTRY Introduction Genoa Florence 18 Venice 32 Florentine Industrial Accounting Part IT THE LITERATURE OF ACCOUNTING The First Cycle (1458-1558) Benedetto Cotruglio Raugeo 54 Fra Luca Paciolo 55 Domenico Manzoni 60 Gerolamo Cardano 66 Alvise Casanova 66 Giovanni Antonio Tagliente Anonymous Writers 72 Bartolomeo Fontana 72 Conclusion 73 The Second Cycle (1559-1795) Don Angelo Pietra 79 Grisogono Simon 81 Giovanni Antonio Moschetti 81 Matteo Mainardi 82 Ludovico Flori 82 Giovanni Domenico Peri Bastiano Venturi go Giacomo Venturoli go Antonio Zambelli go Onofrio Sbernia Pugliesi gl ORIGIN AND EVOLUTION OF DOUBLE ENTRY BOOKKEEPING Ludovico Corticelli gl Giacomo Della Gatta gL Balugani Pellegrino gt Tomaso Domenico Breglia gl Pietra Paolo Scali gl Guiseppi Forni 92 Conclusion 92 The Third Cycle (1706 To Date) THE EMERGENCE OF ACCOUNTING THBORY The Ancient Writers 98 Dégrange and the Cinquecontisti School 99 Francesco Villa and the Lombard School 1dl Hippolyte Vannier LOL Francesco Marchi | 102 Giuseppe Cerboni 103 Fabio Besta 105 THEORIES OF DOURLE ENTRY Rudimentary Theories 107 Theoties Based on Indudive Logic LOT Theories Based on the Interrelation of Accounts 108 Personalistic Theories 108 The Value Theory 109 METHODS OF DOUBLE ENTRY The Methods of Dégrange ill The Methods of Villa and Marchi 112 Logismography 112 Besta and Modern Practice 120 Part III THE FUNCTIONAL DEVELOPMENT OF DOUBLE ENTRY The Ledger 127 The Journal i321 Financial Statements 136 Bistiocraray 143 Invex 151 PART I THE ORIGIN OF DOUBLE ENTRY INTRODUCTION GENOA FLORENCE VENICE FLORENTINE INDUSTRIAL ACCOUNTING Part I THE ORIGIN OF DOUBLE ENTRY INTRODUCTION SEZ ECAUSEof the paucity of recorded faéts, there are many theories but very little certainty as to the origin of double- entry bookkeeping. Students of the subject, in an endeavor to give due credit for the invention of the syStem, offer a wide range of possibilities. Some are inclined to give full credit toone man — Paciolo, whoperhaps more frequently yA than any other has been named as the author of double (SSB ARS entry, but the weight of evidence now seems to be against this theory. Others have attempted to trace the origin of double entry to ancient Rome and Greece. Recent Students, however, believe that the syStem originated in Italy during the thirteenth and fourteenth centuries, and are concentrating their a efforts upon determining the exaét locality of its origin. It should be borne in mind that systems of bookkeeping come into being because of the necessity of recording transaétions arising out of commerce, industry, and government. Bookkeeping is, therefore, dependent on these transactions for its existence, and any changes it undergoes are probably best explained in the light of the changes that occur in business methods. Because of this, double-entry bookkeeping may ultimately be found to have had relatively independent origin in many localities and to have been first applied to various types of business activities at almost the same time. It is the purpose of this work to Study some of the changes in the procedureof Italian record keeping that led progressivelyto the origin of the double-entry system and determined the course of its subsequent evolution. Medieval bookkeeping developed from humble beginnings. At first business transactions, along with other social or political events, were entered in what might be described as a diary, but with the rise of commerce this crude method of record keeping had to give way to a moreefficient system. The first double-entry book to appear wasthe ledger. It had the accounts divided bilaterally or vertically, and was supported by numerous memorandum books. The ledger probably devel- that, oped fromthe debtor and creditor relationships of merchants. It is possible of with the revival of Medieval commerce and with the increasing importance 1 ORIGIN AND EVOLUTION OF DOUBLE ENTRY BOOKKEEPING fairs, the necessities of business exchange forced merchants to keep records comparable to receivable and payable ledgers. Gradually, with the increasing needs of a growing trade, the ledger was made to include assets, liabilities, expenses, and income. The journal appeared considerably later than the ledger. Its purpose was to record in one place the transaétions as entered in various memorandum books. The journal entries were arranged in chronologicalorder, and formally classified into debits and credits with full explanations. From the start the journal was the posting medium for the ledger. Double entry was the result of a long culmination of difficulties resulting from the increasing complexities of trade. It came about gradually, almost imperceptibly, Its origin, therefore, cannot be traced to any one person or group of persons, but belongs rather to the era of the commercial Renaissance and must have heen a phenomenon commonto the Italian cities which experienced the burt of eco- nomic aétivity of this era. Ww resBoeAR Chapter I GENOA HE Genoese system of bookkeeping probably was a development of the ancient Roman, which shall therefore be described briefly.
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