ABSTRACT
Double-entry bookkeeping originated in Italy during the fifteenth century. Luca Pacioli, a Franciscan monk and renowned mathematician, published the first complete description of double-entry bookkeeping in 1494. Pacioli’s treatise was translated into English, Dutch, Russian, and German. Merchants throughout the world soon adopted the “Venetian” or double-entry method of recording transactions. Double-entry bookkeeping remains the foundation of accounting and financial reporting today. Few accounting principles were needed in the mercantile economy of
Pacioli’s time. Common sense was sufficient to record purchases and sales of inventory. And consistency between enterprises was not vital because there were few situations in which investors or creditors needed to compare the accounting records of two or more companies. But in a modern economy, transactions are more complex and the need
for sound accounting principles is far greater. The industrial revolution necessitated figuring out how to depreciate long-lived assets such as railroad lines and steel mills. Changing prices led to debates about whether assets should be reported at historical cost or current value. Complex financial instruments, such as preferred stock and convertible bonds, blurred the line between liabilities and stockholders’ equity. When U.S. corporations began publishing financial statements in the early
years of the twentieth century, there were vast disparities in the methods used to value assets and allocate costs. William Z. Ripley documented many of these variances in Main Street and Wall Street. Accounting educator Henry Rand Hatfield complained that accountants did not even have universally accepted definitions for common terms such as net income.
