If you are like many curious people, which probably you are, you will be interested in knowing the history of the bookkeeping field and who is behind its invention. It always fascinates me how primitive this field started and how it gained complexity as time passes.
A brief history of bookkeeping
Bookkeeping as we know it today is an ancient field of study, although it gained sophistication and complexity in recent centuries. Its history goes back to the oldest civilization that we know of their writing practices. Bookkeeping records were discovered from temples of great Mesopotamian civilization, when found a wedge-shaped mark on clay tablets which was the writing system of Sumerian and Babylonian civilizations in Asia minor or the land between the rivers, the Tigris, and the Euphrates. We found written documents of stocks and goods traded and received. The bookkeeping field became one of the ancient areas of study, and it survived for more than seven millennia.
So, the bookkeeping method coevolved with the first writing record in western civilization. But its beginning was elementary and kind of primitive. For the subject to satisfy our sophisticated societal needs, it must take another step forward.
An Italian merchant and mathematician Luca Pacioli, who is the father of bookkeeping and accounting, who also was a collaborator of the Renaissance polymath Leonardo Da Vinci, one of the contributors to the field, was the first modern inventor of the bookkeeping system. He contributed the concept of double entry bookkeeping. The double Entry metaphor visualizes a balance between affected accounts, that is every transactional entry effect two accounts which are opposite of each other, one is, and the other is credit. On the right-hand side of every accounting is credit while the left-hand side of every is debt.
For example, if you sell a product that costs $50, you must implement the double entry system to record the transaction. You will register $50 on the right-hand side of the inventory account hence credit, and $50 on the left-hand side of the cash account hence debt.
The fundamental equation of bookkeeping and accounting
To make sure that errors wouldn’t happen, we need to have a balance. So, Piccioli developed the fundamental equation of bookkeeping and accounting:
Assets = Equity + liability
it means after finishing all the transactions, you need to add all the assets, and it must be equal to the owner’s capital and liabilities.