The renaissance and accounting

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Pacioli invented the system or described the system, it brought him fame and he came to be known as the “Father of Accounting”. Picture credit: Wikipedia Pacioli invented the system or described the system, it brought him fame and he came to be known as the “Father of Accounting”. Picture credit: Wikipedia

If you had to list three words that described the Renaissance, it is almost certain that you would never say “accounts”. In fact, it would not even make the top ten list which is more likely to be comprised of words such as Europe, rebirth, art, music, culture, architecture, Da Vinci, Michelangelo, 14th century, and Italy.To understand how and where accounting may have fitted into the Renaissance, we need to take a look at the historical events taking place in Europe in the 14th century.

Italian cities such as Venice had become great trading centres, not only for their own goods such as fine glass, but for wares from the East. The combination in the 14th century of the decline of the Mongol Empire, the Black Death which supposedly originated in Central Asia, and the rise of the Ottoman Empire severely hampered the possibility of overland trade between Europe and the Far East. Around the same time, shipbuilding improved with galleons powered by sail, rather than by men using oars, becoming popular, and whilst navigation still remained an imprecise science, sailors were able to travel farther than they had done previously.

The Renaissance was the age of discovery and exploration, and sailors set off to find new routes which would take them to the New World, Africa, India and the Far East, in order to satisfy the ever-increasing demands for imported wares and new markets to which to export local products. Sea-worthy ships thus became the key to trade and commerce during the Renaissance. The Venetian Arsenal became famous as a major shipyard in the 14th century, not only for the building of the famous Venetian galleys, but for being responsible for the constant maintenance and outfitting required by these galleys. By 1450, over 3,000 Venetian merchant ships were in operation, both as supply ships for Venetian merchants and as warships for the Venetian navy.This naval power enabled Venice to dominate trade and commerce in the Mediterranean.

In order not to slow down the pace of business transactions, a reliable system was required to make it possible to record the investments made by wealthy merchants in the various voyages of discovery that were taking place, and also to record the profits and losses made through these business ventures. In 1494, Fra Luca Bartolomeo de Pacioli, a Franciscan friar and mathematician, published a book on mathematics known as Summa de Arithmetica, Geometria, ProportionietProportionalita (Everything About Arithmetic, Geometry and Proportion). As a special favour to his friend and patron, Duke Federigo of Urbino, “in order that the subjects of the most gracious Duke of Urbino may have complete instructions in the conduct of business”, Pacioli “determined to go outside the scope of this work and add this most necessary treatise” to his book. He included a short section in the Summa on financial recording which set out a system for recording and summarising the results of commercial activity. For several years, this section, named “Particularis de Computis et Scripturis,” was the only accounting guide available to merchants. It was translated into Dutch, German, French, English, and Russian and was used as a textbook for teachers and as a manual for merchants.
Today, we refer to Pacioli’s system as double entry bookkeeping. His system included most of the bookkeeping treatments as we know them today. For example, he described the use of journals and ledgers, and defined assets (including receivables and inventories), liabilities, capital, income and expenses, categorising accounts accordingly. Pacioli also demonstrated year-end closing entries and introduced the use of a trial balance as a check to see if debit entries tallied with credit entries. His chapter also covered topics such as accounting ethics and cost accounting. Some sources argue that Pacioli did not invent the system and only described a method already in use by Venetian merchants during the Italian Renaissance. Whether Pacioli invented the system or described the system, it brought him fame and he came to be known as the “Father of Accounting”.His impact on accounting was considered to be so great that five centuries later, accountants from around the world gathered in the Italian village of San Sepulcro to celebrate the anniversary of the Summa’s publication.
The writer is the Principal of the Colombo School of Arts (Colombo 5)

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