LUCA PACIOLI – FATHER OF ACCOUNTING

Once upon a time, Luca Pacioli wrote a math book. It was just a little survey and should have been treated like ordinary books of the time and read and then disappeared into historical archives and forgotten. A few brief chapters on practical mathematics made this one special.

Luca Pacioli was a true Renaissance man, with knowledge of literature, art, mathematics, business and the sciences, at a time when few could even read. Born about 1445 at Borgo San Sepulcro in Tuscany, Frater Luca Bartolomes Pacioli acquired an amazing knowledge of diverse technical subjects – religion, business, military science, mathematics, medicine, art, music, law and language. He accepted the popular belief in the inter-relatedness of these widely varying disciplines and in the special importance of those, such as mathematics and accounting, which exhibit harmony and balance.

Pacioli was about 50 years old in 1494, when he returned to Venice for the publication of his fifth book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportion). It was written as a digest and guide to existing mathematical knowledge, and bookkeeping was only one of five topics covered.

The chapter on practical mathematics addressed mathematics in business. He said that the successful merchant needs three things: sufficient cash or credit, an accounting system that can tell him how he’s doing, and good bookkeeper to operate it. His accounting system consisted of journals and ledgers. It rested on the invention of double-entry bookkeeping. Debits were on the left side because that’s what “debit” meant, “the left”. The numbers on the right were named “credits”.

Pacioli’s System: Memorandum, Journal and Ledger.

"De Computis" begins with some basic instruction for commerce. The memorandum, or memorial, was Pacioli’s equivalent of a daybook, for the recording, in chronological order, of business transactions as they occurred.

The journal was the merchant's private account book. Entries consisted of a narrative debit, credit and explanation in one continuous paragraph. The journal had only one column, which was not totaled. There were no compound entries.

Pacioli's ledger was, of his three books, the most like its modern equivalent.

The bookkeeper posts "cash in hand" as a debit on page one of the ledger, just as it was entered first in the journal. As ledgerpostings are made, two diagonal lines are drawn through each journal entry, one from left to right when the debit is posted and the other from right to left when the credit is posted.

The trial balance(summa summarium) is the end of Pacioli's accounting cycle. Debit amounts from the old ledger are listed on the left side of the balance sheet and credits on the right. If the two totals are equal, the old ledger is considered balanced. If not, says Pacioli, "that would indicate a mistake in your Ledger, which mistake you will have to look for diligently with the industry and intelligence God gave you."

The best proof that Pacioli's work was considered potentially significant, even at the time of publication, was the very fact that it was printed on November 10, 1494