Events Affecting the Development of Accounting in England

A brief story!

Draft, more content to be added - contributions welcome.

This narrative is intended to be a brief and hopefully interesting story for visitors who are neither historians nor accountants (who would no doubt prefer a more detailed and precise prose).

Early History

The history of accounting in the UK goes back to around 5,300 BC to the Sumer civilisation in Southern Mesopotamia. There were older towns in the Middle East than those found in the Sumer civilisation, Jericho for example, but the Sumer towns were the first where populations lived in one place all the year round. They developed systems for managed agriculture, the cultivation of grain and the storage of food so they didn't have to migrate to follow crop seasons and herds. This led to greater population density and the division of labour.  

They developed textiles, pottery and jewelery, which they traded across the Middle East for timber and other scarce commodities. They established the concept of value and the development of the exchange of animals and goods. This managed labour and trading activity necessitated the payment of wages, probably in kind or tokens, bills of exchange and debt receipts.  

The requirements to record transactions lead to the development of cuneiform (symbol) writing around 3,000 BC, almost 400 years before writing was used for other recording purposes such as astronomy. Recording was probably done on clay tablets using small shaped sticks, a bit like today's hand held devices without the data storage capability!

Up to the Italian Renaissance

Accounting probably didn't change substantially from the early method until around 1300 AD. Symbols, and later words were marked on the available material of the era with simple tick marks entered as a count of the asset being recorded. Developments in writing, papermaking and marking tools altered the ease with which this could be done but the next significant development in accounting was the development of the ledger, probably by the Italian merchants of the Renaissance period.

Development of Papermaking

Paper, as we know it, was developed in China around 105 AD. The technology spread west along the trade routes that China had developed. They kept the methods a secret but these were lost to the Arabs in a battle in 751 AD. Papermaking spread West across the Arab world to Egypt and eventually Morocco, and then to Spain in the Moorish occupation. Europeans had developed Vellum parchment using animal skins but it was very expensive.

In 1276 making paper by the filtration process was started in Italy using ideas picked up after the Christian invasion of Spain. This used recycled rag fibres and by the second half of the 14th century paper had mostly replaced Vellum as a recording media. In the UK paper imported from France had started to be used for registers and accounts purposes around 1300 AD.  

Softwood fibres eventually replaced the now scarce recycled rag and machine paper replaced single sheet hand made pages in the 18th century.  

The Italian Renaissance Period: 1300 – 1400's

Gutenberg's printing press invention allowed the developed of book publishing. One early writer was Pacioli who published The Sumna in 1494. This contained a chapter on accounting and was the first text on the subject. Pacioli has become known as the father of accounting but his writings were a summary of how the Venice merchants were using journals and ledgers to manage the success of their businesses.

The precise source of the invention of double entry book keeping isn't known but it's probably attributable to the Renaissance merchants of this period. The double entry method was known as the Genoa system and it enabled the recording of capital and the calculation of profit, necessary for the development of non-business owners investing in a business to help it grow. The publication of Pacioli's book lead to the spread of this system across Europe.  

Trade Evolution: 1600's

In the 1600's Britain's trade with the rest of the world was developing at a rapid pace, with sugar, cotton and slaves bringing wealth to the country. The recording, valuation and sales of ships cargoes all provided work for the scribes of the era. Ships were expensive to build and journeys needed financing before the goods reached their markets and generated cash.

Early funding involved selling shares of the cargoes to merchants giving them rights to a share of the eventual profits of the voyage. Later Joint stock companies were set up to allow others to invest and share profits and by the end of the century around 140 such companies's existed. Early trading in shares and commodities centred on cafe's in Change Alley with a broker issuing prices.  

The Start of Regulation: 1697 - 1730

To stop insider dealing and share rigging incidents an Act was passed in 1697 to licence brokers who had to take an oath to act lawfully. In 1720 the government introduced legislation tightening the rules on the operation of joint stock companies after the collapse of the South Sea Company. This was a company that talked up its success and increased its share price tenfold. Overselling and gaining of knowledge of the true state of company drove the shares down quickly.

Many stockholders borrowed to buy their shares and the subsequent fall in share prices meant they couldn't repay their loans leading to a liquidity crisis. Banks and Goldsmiths went out of business and many individuals were affected. Short selling helped the speed of the collapse. There were other similar bubbles in Europe exacerbating the liquidity crisis. Sound familiar?

Unlike this decades mishap, the company at the centre of the crisis was owned by the Government!

 

 

Footnote

In other areas of the world, language, writing and papermaking have developed in similar time periods with the events above but it seems that those described are the significant ones forming the roots of accounting in the UK.

Sources

Summarised from many articles found on the history of accounting, writing, papermaking, the London Stock Exchange, the slave trade, income tax and other associated topics found mainly on the web sites of Wikepedia, Finance Professor, History World, HQ Paper Maker, the ICAEW website” and the preface of Gary Giroux's book, A Short History of Accounting and Business.

*The ICAEW website has a detailed chronology of its history, starting from 1750.

Additions and Corrections

If any of the above is incorrect or unclear, or if you feel there are key events I've overlooked, please send an email and let me know and I'll rectify the situation (see the contact page for the addy). Contributors will be credited.