The Father of Accounting: Luca Pacioli
The discipline and science of accounting is essential for the world economy to function well. Without an accurate way to keep track of investments, expenditures, depreciation, and more, there would be no way to understand the true financial picture of a company and no way to be confident in its prospects. This would kill commerce, capital investment, and other transactions that keep the economy running.
The history of accounting is more fascinating than many people probably imagine, and several figures have made key contributions to the science. One of the most important people in the history of accounting is Luca Pacioli, a Franciscan friar who lived during the fifteenth and sixteenth centuries, and who is today known as the “Father of Accounting.” This resource will provide a history of accounting and an overview of Pacioli’s contributions to the discipline.
History of Accounting
Most people are not likely to think of accounting when the topic of the “world’s oldest profession” is raised, but many experts believe that accounting fits that description to a tee. From the start, it was necessary for individuals to have a way to keep track of their business dealings even if they were largely self-sufficient, merely growing their own food and taking care of their other needs. As civilization progressed, ancient bookkeeping methods were developed. In the so-called “Fertile Crescent,” ancient bookkeepers would use clay tokens of different shapes and sizes to keep track of wealth. Each token could represent a different commodity — sheep, cattle, grain, and so forth. New technologies and recording methods developed over time, and as money was introduced to facilitate economic exchange, the token system was abandoned in the favor of written accounts.
During the medieval period, Italian merchants began to involve themselves in trade with other cities, first across the Mediterranean Sea and then in other parts of the world. The increasing complexity of these trade relationships required better record keeping, and the system of double-entry bookkeeping was invented. Luca Pacioli, an Italian Franciscan monk wrote Summa de Arithmetica, Geometrica, Proportioni et Proportionalita in 1494, and it was the first full description of this method of accounting.
During the Enlightenment and Industrial Revolution, Britain’s rise as the world’s chief economic power meant that accounting methods would have to advance as well. Men such as Josiah Wedgwood began implementing systems of cost accounting in their companies, and professional accountants began offering their services in London. Such methods were carried over to the United States, and large firms such as General Motors adopted these accounting methods as well. Today, standardized accounting practices are in use across the globe, helping companies around the world to stay afloat, attract investment, and keep the engine of the world economy running.
The Life of Luca Pacioli
Luca Pacioli was born in 1445 in Tuscany, Italy, where he received an education in the ways of medieval merchants and commerce. Over time, his interest in mathematics led him to become an expert tutor in the subject, and he wrote a textbook on mathematics to help instruct his students. During the years 1472–1475, Pacioli became a Franciscan friar, but he did not end his tutoring career.
In 1494, Pacioli published his most famous work —Summa de Arithmetica, Geometria, Proportioni et Proportionalita. In addition to providing instruction in standard mathematics, this work would also describe double-entry bookkeeping completely for the very first time, which has earned for him the title “father of accounting.” It was also the first textbook on algebra that was written in the vernacular language of northern Italy. Eventually, Pacioli would travel to Milan, where he became an associate of Leonardo da Vinci. Da Vinci actually learned a lot about mathematics from Pacioli, and the knowledge he gained would help Da Vinci create some of the excellent anatomical drawings for which he is known today.
Much of Pacioli’s work in mathematics was not original or unique, but his writings had a large influence in Italy, allowing for information that was formerly the possession merely of the elite to be disseminated among the general populace. Pacioli died in 1517, the same year that Martin Luther’s 95 Theses in Germany would help spark the Protestant Reformation.
Friar Luca’s Contributions to Accounting
Pacioli did not actually invent double-entry bookkeeping, nor did ever claim to have done so. He gave credit to one Bendetto Cotrugli for coming up with the system, as he relied on an unpublished by Cotrugli for the portion of his work on accounting in his own Summa. Nevertheless, Pacioli’s summation of the method was incredibly important for the history of accounting, as it was one of the first descriptions of double-entry bookkeeping to be distributed on a large-scale.
Double-entry bookkeeping allows for a company or individual to keep track of credits and debits and thereby keep accounts in balance. Every financial transaction is recorded in two columns, debits in the left and credits in the right, ensuring that the ways in which each transaction affects every aspect of the company’s finances is properly recorded. For example, a company that takes payment for a specific service will record a debit in the cash account and a credit in the revenue account, allowing them to keep track of the real impact of the payment on the company’s bottom line.
Double-entry bookkeeping itself may not sound all that exciting, but without it, most experts would confess that the industrial revolution and growth of free-market capitalism could never have happened. Luca’s description of double-entry bookkeeping ensured that the process would become widely adopted across the Western world and would encourage the rise of Europe and the United States as global powers.
Without the work of an otherwise obscure Franciscan friar in the fifteenth and sixteenth centuries, the economy as we know it today could not exist. Pacioli’s description of double-entry bookkeeping led to the rise of modern accounting, accurate record keeping, and the overall growth of industry and trade. Understanding his role in accounting history is important for understanding Western history and the way in which the economy functions today.
- Bookkeeping Dictionary — Knowing the accounting terms in this dictionary is helpful to understanding the history of accounting.
- Engines of Ingenuity — The importance of double-entry bookkeeping in the history of civilization is explained on this page.
- Cliffs Notes: Double Entry Bookkeeping — A simple explanation of double-entry bookkeeping, the accounting method that Luca Pacioli pioneered, is found here.
- Dictionary of Scientific Biography — The Dictionary of Scientific Biography has this entry on the life and influence of Luca Pacioli.
- History of Double Entry Bookkeeping — A history of double entry bookkeeping and Luca Pacioli’s contributions to it can be found here.
- Luca Pacioli (1445–1517) — A fuller biography of Luca Pacioli is found on this UK-based webpage.
- Luca Pacioli: The Father of Accounting — Texas A&M University makes this short biography of Luca Pacioli available to web surfers.