All major civilizations have had versions of some form of storehouse and, consequently, single-entry accounting that measured asset holdings or cash income and expenditures. Mesopotamian accounts provide the earliest form of writing to measure bread storehouse inventory. However, the advent of double-entry *bookkeeping, a method that endures to this day, in medieval Tuscany transformed accounting into the central tool for managing financial information.
The double-entry system balances the recording of transactions of debits and of credits and the calculation of their sum, equaling profit or loss. Debits are kept in the left-hand column and credits in the right. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits, following the underlying precept that Liabilities + Equity = Assets. That is: accounts showing a net credit (positive) are classified in the asset section of the balance sheet, while accounts that total a net debit (negative) are shown in the liability section.
Double-entry accounting has, remarkably, remained stable since its inception, though concepts such as pure business profit and depreciation became standard only in the eighteenth and nineteenth centuries. The methods involved in double-entry accounting evolved from a business practice into a method for the large-scale management and archiving of financial data for government administration, or public finance. Indeed, double-entry accounting would become a vital foundation to both modern science and modern industry. At the same time, effective accounting was predicated on a certain level of transparency and flourished where cultures of auditing were more prevalent.
In The Machiavellian Moment: Florentine Political Thought and the Atlantic Republic Tradition (1975), J.G.A. Pocock proposed that a tradition of republican government spanned from *Renaissance Florence to the early United States. Pocock argued that Machiavelli’s idea that one must run government with the idea of maintaining civil peace and constitutional stability and continuity (vivere civile) was the basis of a long tradition of relatively free commercial societies. They enjoyed a rule of law that, in turn, allowed the maintenance of commercial credit through stability and trust from Florence and Venice to Holland, Great Britain, and the United States.
While this political paradigm has been disputed, it provides a remarkable road map for understanding the history of double-entry accounting. As a historically minded, systematic mode of financial management, it was born in the traditions of Florentine and Venetian Renaissance republicanism and flourished only where public checks and balances existed both in government and in business. Legal constitutions provided a mechanism for citizens to hold governments accountable and relied on the right to call for audits of financial records of states and companies, which is where the very term and concept of “accountability” derives. They also relied on the “artifice” of commercial finance.
Though historians cannot pinpoint who, exactly, invented double-entry accounting, it first emerged in Tuscany, where it was used by medieval bankers and leading international merchants who had access to Roman numerals, which allowed the calculation of condensed large sums with fractions. Advanced commercial cultures with multipartner, long-distance trading firms were key in creating the need for a mathematical measure for profit and equity in real time. As goods left the storehouse, double-entry accounting could measure that as a loss, while awaiting confirmation of income from sale. Only the balancing of debits and credits could guarantee that the action of both sending goods out and receiving income from them could be tallied.
The first systematic double-entry ledgers come from the Rinieri Fini brothers’ firm (1296), which traded in fairs across Europe, and the Farolfi merchant house (1299–1300), which traded between Florence and Provence. Rather than a simple ledger, the Farolfi archive exposes something extraordinarily modern: a system of books designed to compute business transactions and holdings in real time. Cross-referencing of debits and credits shows that they were indeed offsetting each other. Moreover, the Farolfi ledger records prepaid rent as a deferred expense, thus conceptualizing it in the manner of double-entry accounting.
Even Italian city-states, such as Genoa, employed double-entry accounting for public finance. The famed 1340 Genoese state pepper account gives a sense of how important complex accounting and balance sheets were to city management: the book is filled with rules, such as double signatures to close each account, and material guarantees of authenticity (such as special paper and strings) so that the republic’s public financial records and their bilateral matching totals could be audited, verified, and trusted. The res publica was represented by the verifiable and relatively public accounts books of its finances. If the balance and profit of an account book showed business and managerial acumen, it was also a moral reckoning. By the sixteenth century, *Jesuits would develop formalized “spiritual account books” to balance sins and good acts.
As double-entry accounting became central to the republican systems in medieval and Renaissance Italy, it also became prone to fraud. The Medici bank’s collapse in 1479 was due in part to Lorenzo the Magnificent’s poor accounting and public financial management. Practical, financial mathematics had its detractors. In particular, nobles did not always respect the mercantile ethos of accounting. The Neoplatonist Pico della Mirandola’s Oration on the Dignity of Man (1486) was a great manifesto of high Renaissance, princely values of knowledge. For Pico, numbers had to remain pure, beyond the earthly interests of business. One should not confuse “divine arithmetic,” he warned, “with the arithmetic of merchants.”
This problem plagued the Dominican friar and mathematician Luca Pacioli (1445–1517). Often depicted as the inventor of double-entry accounting, Pacioli actually innovated by describing in print techniques previously transmitted in manuscripts by abacus masters. His manual of the relevant techniques formed part of his Summa de Arithmetica, Geometria, Proportioni, et Proportionalita (Treatise on arithmetic, geometry, proportion, and proportionality), which appeared in 1494, the same year the invasions of Italy began, which disrupted regimes and brought French and Spanish monarchical power to the peninsula. Double-entry accounting had existed for around two hundred years. And yet only at that point, as the rule of the Renaissance Italian merchants waned, were its rules printed.
Pacioli’s book had no great success, and his chapter on accounting, “De computis,” was not very original and still equated household and business expenses in one account. Still, it would become the basis for a tradition of works on accounting. Its message echoed the values of Italian mercantile republicanism and mirrored the common manuscript accounting manuals. Merchants who mastered the techniques of bookkeeping could count, calculate, and manage “abundance” and “war,” “famine” and “pestilence,” which appeared as headings in the books. Republics, Pacioli stated, needed well-educated, disciplined, and moral merchants, who could manage financial information and manage private and public finance. He insisted that a good merchant kept clear books that could be easily audited by city officials. The identity of all handwriting used in them, for example, must be verified by notes or personal presentation to officials. However, he also explained how to approach accounting when dealing with tax or excise officials. The good order of financial books was the very essence of the wealth and stability of republics. While recognizing that accounting could pose certain problems—it was always possible to keep two sets of books—Pacioli hoped that early training, based on strict religious ideas, would produce a form of accounting that was both ordered and moral.
Pacioli’s printed guide offered the merchant the basic and essential tool of capitalism: the capacity to calculate and record his assets and liabilities at all times. Indeed, Pacioli’s manual was a lesson not only in accounting, but also in data management and archiving. The first step in good accounting was to make an inventory. This was the capital holding from which debits and credits were made. Books had to be regularly updated, measuring spending, income, and other liabilities as related to capital holding.
To make the system work, four books were necessary: the inventory of assets; the memorandum (Memoriale); the journal (Giornale); and the ledger (Quaderno). The memorandum was the first step in good accounting, a notebook in which a merchant wrote down or pasted receipts from the day’s transactions, “hour by hour,” detailing “everything he sells or buys.” Its pages had to be numbered and marked for clarity and to avoid any suspicion of falsification. The memorandum was necessary not just for real-time recording of information, but also for recording all the different monetary transactions that could take place in a number of different currencies. They would have to be converted into a single currency value. At the end of each day, the notes in the memorandum had to be systematically transferred into the journal as debits and credits.
The journal is a chronological record that gives all pertinent information for each transaction, noting the dates, agents, merchandise, and currency. All would be noted under per (for) to be debited, or avere (to have) to be credited. These chronological debits and credits would then be transferred to the ledger. Each time a transaction was transferred to the ledger, a letter (A, B, or C) was written to mark where the transaction could be found in the corresponding book. Then a red line was drawn through the transaction to show that credit had been transferred, and a second red line when it was balanced with a corresponding debit. Ledgers were to be systematically organized under headings such as “Ginger,” or specific business ventures.
Pacioli’s Summa went through only two editions, one of which he probably paid for. The spread of double-entry accounting followed a mercantile and then a republican trajectory as Dutch accounting masters translated Pacioli and other manuscript and printed Italian works on accounting. The Flemish merchant Yan Ympyn de Christoffels (1485–1540) first partially translated Pacioli in the Niewe Instructie ende beweijs der looffelijcker consten des Rekenboeks (New manual and proof for the valuable arts of accounting) (Antwerp, 1543). It and other Dutch manuals became the primary conduit of the double-entry method into Dutch, German, French, and English.
Flemish and Dutch municipal accounting schools proliferated, often alongside the prestigious and more formal universities, though erudite scholars and educators like Isaac Beeckman, principal of the influential Dordrecht Latin School, also had detailed knowledge of accounting practices. Influential mathematicians like Valantijn Mennher (1521–71), Claes Pietersz (Nicolaus Petri), and Simon Stevin maintained the republican tradition of combining the teaching of formal mathematics with merchant bookkeeping, which was seen to be the “finishing touch” on a good education and an essential management practice for commerce, politics, and everyday life.
Trust developed from civic financial *literacy, and precise management was one reason the Dutch were able to create the first publicly traded company, the Dutch East India Company (Vereenigde Oostindische Compagnie or VOC), and the Amsterdam stock exchange, both in 1602. Dutch investors were comfortable asking for a “reeckening,” or “shauw,” literally to see the books, and could read them when they did. Thus political and even corporate accountability was part of a material process of accounting. Flemish and Dutch painters from Quentin Matsys (1466–1530) to Marinus van Reymerswaele (1490–1546) produced major paintings depicting the practice of double-entry accounting, with all the relevant books and papers. In some cases, such as van Reymerswaele’s Two Tax Gatherers (1540), Dutch painters both celebrated double-entry accounting’s complex paperwork and warned against abusing it with financial hubris. Such technically fine paintings reveal a striking level of cultural expertise and care. As Pieter de la Court (1618–85) would rightly note, the Dutch Republic excelled in private and public financial accounting, while absolute monarchies in Spain and France failed again and again not only to implement ambitious accounting within their states—in spite of the massive efforts of Louis XIV’s accountant-turned-minister Jean-Baptiste Colbert—but also to make it a widespread public practice. Still, though they surpassed other entities of their time, in practice both the VOC and the Dutch Republic would, nonetheless, struggle with maintaining accurate double-entry accounting.
Louis XIV’s famous minister Jean-Baptiste Colbert (in office 1661–83) used the systems and forms of accounting archives to create the massive French archival and library complexes. However, it was impossible to maintain high accounting standards and practices for public financial management in an absolute monarchy that had no concept of public audits or transparency. In spite of Colbert’s efforts to apply and circulate accounting literacy, the French government and many leading commercial entities struggled, as did such entities under other absolute monarchies. At the same time, Colbert used accounting methods of archiving and documentary organization for his famous library projects, injecting a mercantile, *encyclopedic ethos into the organization and categorization of books.
Following the Pocockian trajectory of political and commercial artifice, it was via the British commercial emulation of Dutch accounting that the method continued flourishing. Indeed, the powerful movement of Baconian science and practical mercantile methods helped propagate accounting in British merchant and governmental culture. Skilled in double-entry accounting, Francis Bacon pioneered the idea that looking into nature and its management via science and commerce was part of the Godly act of researching God’s presence through observation. Keeping balanced accounts was part of this process. Thomas Hobbes, who served as Bacon’s amanuensis and worked in his youth collecting receipt books, saw the keeping of account books as a tool not just for management, but also for thinking about politics. In his Leviathan (1651), Hobbes used the metaphor of accounting not only in questions of self-control, but also in his very definition of reason. He ascribed the birth of logical reasoning to accounting and its processes of formal reasoning. He wrote in Leviathan, “REASON in this sense, is nothing but Reckoning (that is Adding and Subtracting) of the Consequences of Generall names agreed upon, for the marking and signifying of our thoughts” (5, 18, 31). The connection of accounting culture and politics started in earnest in England with the old Commissions of Accounts from 1644 and the 1660s led by William Prynne. There followed a significant demand for good accounting and transparent accountability within the English state. While ethical management was a challenge, governments from Walpole to Pitt used high-quality double-entry techniques for government administration, and on a limited scale, balance sheets came to represent political management. English political life was full of accounts both within the government, in parliamentary debate, and within the nascent financial press, which comprised, in great part, the publication of accounts.
The British world was permeated with accounting literacy and consciousness. British Puritans and Dissenters saw the writing of diaries and autobiographies as a way first to measure good works and sin, and ultimately, to record and celebrate economic success. The Presbyterian Daniel Defoe included descriptions of bookkeeping in Robinson Crusoe (1719), a fictional autobiography in which Defoe—who had written expert accounting manuals and was a prolific financial critic—had Crusoe account for himself, as the Jesuits had, “like Debtor and Creditor,” trying to balance the positive and negative moral prospects of his life once stranded on a deserted island. The impact of accounting was palpable throughout most European polities and in the administration of their colonies. Slave traders and plantation managers also relied on advanced bookkeeping.
In 1740, eleven accounting academies were active in Britain. By the end of the eighteenth century, there were more than two hundred. John Rule’s Islington Academy claimed to form the “gentleman, scholar, and the man of business.” Some heads of academies were self-made men, while at least nine were well-known scientists or members of the Royal Society. A backbone of the Industrial Revolution, these academies mixed scientific, experimental training with practical merchant arts.
The development of complex cost accounting in the mid-eighteenth century in Britain led to the idea of breaking economic or industrial processes into measurable units and pricing them. Although rudimentary forms of cost accounting had existed since the Middle Ages, the inventor of its modern, labor-oriented form was the pottery industrialist Josiah Wedgwood. He scoured every element of economic data in his accounts in order to create efficiency in industrial production. By evaluating time, space, materials, and labor, cost accounting changed Western society. Workers would not simply follow Benjamin Franklin’s adage that time is money; they would carry clocks and hurry. Indeed Adam Smith, professor and accountant of the University of Glasgow, used cost accounting to develop his theory of the division of labor in his 1776 Wealth of Nations.
Following Defoe, in 1781 the utilitarian philosopher Jeremy Bentham tried to account for the “greatest happiness principle” with a “hedonic, felicific calculus,” which was a double-entry method of valuing pleasure. Bentham called for an “account” of pleasure and pain. Thus the science of bookkeeping became a way of thinking about happiness and individual worth, and not simply sinful and virtuous acts. Even more, balanced books began to symbolize not only personal virtue but also political virtue. Accounting data played a major role in the apotheosis of commercial culture as balanced accounts and proven surpluses became the signs of modern good government. The Protestant director of finances in France, Jacques Necker, in his Compte rendu of 1781, held up a physical balance sheet of accounting data to represent his political “virtue.” The early American republic would follow suit with a primitive balance sheet that year, and the Grand Duchy of Tuscany published perhaps the finest public balance sheet of the *early modern era, the Rendiconto of 1790.
Thomas Malthus used the analogy of a numerical balance in his Essay on the Principle of Population (1798). In a pessimistic parallel to Bentham, Malthus also believed in two sides balancing each other out. In a biological reckoning, human subsistence requirements and the fatalities of vice would oppose human population in a natural system of checks and balances by which “the superior power of population is repressed, and the actual population kept equal to the means of subsistence, by misery and vice.” Malthus was not alone in seeing the very essence of life and death through the analogy of balanced books. In 1859, Charles Darwin—a reader of Malthus—wrote On the Origin of Species. The word species was also a medieval term for money. For Darwin, there was a link between the world of accounting and his categories and lists of species that showed the course of evolution and nature’s fine but violent system. Darwin, it should be noted, was Josiah Wedgwood’s grandson. When in 1873 Darwin was asked about his “Special Talents” Darwin answered, “None, except for business as evinced by keeping accounts, replying to correspondence, and investing money very well. Very methodical in my habits.” But as novelists from Dickens to Joseph Conrad showed, the coldness of accounting data could lead to inhumanity, atrocity, and slavery. Financial order, as Taylorism illustrates, did not always equate with human felicity. Then as now, accounting was a powerful tool that, when mishandled, could cause catastrophe.
Yet what is most remarkable about the double-entry method is that it remains the finest measure and organization for financial analysis. Today, it has been replaced with a more complex modern system of financial accounting, but one that still rests on the same principle that revenue minus expenses equals net income, and that assets minus liabilities equal profit or net worth. What has changed over the past decades is that, as in so many spheres, the material books of accounting have mostly disappeared, replaced by *digital data. Today computer programs and forms permeate the process by which people collect, manipulate, and use financial information, perpetuating with new tools the search for balanced books that, on paper, changed the way Europe and great swathes of the world perceived themselves in the early modern period.
Jacob Soll
See also books; bureaucracy; governance; indexing; inventories; libraries and catalogs; lists; memos; notebooks; quantification; registers; scribes