A journey through the
history of Accounting

The objective of this text is to address one of the oldest and most fundamental disciplines for the global economy. Accounting has deep roots dating back more than 4,000 years B.C., with the Phoenicians, known for their commercial and maritime contributions and for inventing the first alphabet. They also practiced primitive forms of accounting, such as tracking exchange transactions. Moving forward to 3,000 B.C., the Egyptians introduced the concept of taxation and production control, while Babylon developed the first public accounting system.

The value of accounting is also evidenced in historical texts, such as the Book of Job in the Bible, which details Job's vast wealth, including herds and servants, illustrating the importance of accurate records and inventories. In the medieval context, the creation of the Order of the Knights Templar in 1118 A.D. marked the beginning of a rudimentary banking system and the invention of the first checks.

The modern era brought significant revolutions, starting with Luca Pacioli and his double-entry accounting system in 1494. His work, Summa de arithmetica, geometria, proportioni et proportionalita, laid the foundation for modern accounting. In the 17th century, Isaac Newton formulated his Third Law, which can be similarly applied to accounting: "For every action (force) in nature, there is an equal and opposite reaction," reflecting the principle that every positive value must be balanced by a corresponding negative value.

Today, accounting is recognized as a social science and not just an exact mathematics. It involves fundamental concepts such as journal entries, current accounts, balance sheets, and income statements. Accounting principles are the foundation for accounting practice and ensure the consistency and integrity of financial information. Among the main principles, the following stand out:

• Economic Entity Principle: This principle dictates that a company's financial activities must be separate from the personal finances of the owners or other entities. This separation is crucial for the clarity and accuracy of accounting information.
• Continuity Principle: We assume that the company will continue its operations into the foreseeable future. This affects how assets and liabilities are recorded and valued, reflecting a long-term perspective on the entity's stability.
• Accrual Principle: It establishes that transactions must be recorded when they occur, not when payment is actually made. This principle ensures that financial information is reflected in a timely and relevant manner.
• Historical Cost Principle: Assets must be recorded at the original transaction value. This ensures that financial records are based on concrete and verifiable values, avoiding subjectivity.
• Matching Principle: This principle requires that revenues and expenses be recognized in the period in which they occur, regardless of when payment is received or made. This provides a more accurate view of the company's financial performance.
• Prudence Principle: It recommends that assets be recorded at the lowest possible value and liabilities at the highest expected value. This principle prevents overvaluation of assets and undervaluation of liabilities, promoting a conservative approach.

The main components of financial statements—assets, liabilities, and equity—play crucial roles in the management and evaluation of any entity. Additionally, contra accounts help adjust balances according to financial reality.

Therefore, accounting is more than just a technical practice; it is the backbone of transparency and economic efficiency. In Brazil, as in the rest of the world, accounting not only provides a clear view of the financial health of companies and governments but also contributes to investor confidence, economic stability, and social development. Through accurate records and solid principles, accounting plays a vital role in building a sustainable and prosperous future for all.

Diego Ramos Correa, Accountant from Cuiabá and Specialist in Taxation in Brazil and the USA, Notary Public in Florida, and IRS CAA.

Source: FolhaMax
https://www.folhamax.com/opiniao/uma-jornada-pela-historia-da-contabilidade/453901

Check out the Portuguese version of this article published on FolhaMax for a deeper dive into the history and importance of accounting!

CLICK HERE